28 June 2020

Microsoft's gamble with the (rumoured) Series S... (An argument against)




The rumours of the Xbox Series S just keep on keeping on... but there's still a lot of uncertainty surrounding the console. No, I'm not talking about the hardware makeup of this design, I'm speaking about the market proposition and the potential cost to Microsoft for releasing such a console.

I think that the hypothetical proposition of a potential Series S is clear: a cheaper console provides a gateway into Microsoft's ecosystem for people who can't afford the more expensive Xbox console. However, I don't think it's as simple as that.

The equation isn't simply about console - especially not with Microsoft's push towards streaming and subscription services. With these moves, gamers can enjoy the new-ish (and sometimes new) releases for a monthly fee on the PC and/or Xbox One S/X consoles... or even on their phones and tablets, in the case of the streaming service.

There's nothing cheaper than the device you already own. 

In which case, Microsoft's simultaneous push (or "suggestion" in the case of third party developers and publishers) for cross-gen compatibility for all games within the release window all the way back to the Xbox One is only doubling down on this premise. However, such moves make a nonsense of the potential existence of the Series S. Who needs a cheaper console when you have access to the same or similar cut-down experiences that you do on the high end console elsewhere, without spending the not-insubstatial amount that you would have to for that device?



At face value, these are expensive propositions but taken in the context of a $14.99/month Game Pass Ultimate subscription (including a $9.99 Xbox Live Gold subscription), you end up paying only $240 for a One X and $5/month for access to 100+ games. That's legitimately insane...

That brings us to the pilot programme of Microsoft All Access. This brings an even cheaper entry point into the Xbox ecosystem than any discrete Series S device could ever hope to cover. Just look at the numbers in the image caption above! If the performance of the Series S is around the performance of the One X and if they're both being played on a sub-4K screen then there's really zero difference in the actual experience for the consumer. Both consoles will have the same UI and same access to games* and even the same controller**... so if you're not getting the benefit of the increased graphical output of the Series X, why would you upgrade?

*Publisher acquiesence to Microsoft's "no console left behind" policy notwithstanding ...
**The controllers are forwards and backwards compatible between the generations. 

Seriously, at the end of that two year period, you can sell off the One X hardware and buy into the Series X - potentially when they're a little cheaper or on a black Friday sale! OR you can even do the 18 month upgrade (depending on the deal) and just pay a little more per month to get the Series X at the end of it all. But that argument is for the X, not the S: You wouldn't upgrade to an S from the One X using the All Access programme...

So then, if a hypothetical Series S isn't an upgrade path to the next generation from the current generation or a buy-in the Microsoft ecosystem because of all the options Microsoft themselves are putting out there for the consumer, what is the point of the console in terms of an enticement? You could make the argument that the All Access programme is not available everywhere and that's fair.. but all's Microsoft has to do is drop the price of the One X to $300 and it immediately fills that void.


Seriously, this is pretty insane value... and this is not a sponsored post!

Then, when I get to thinking about a Series S console, I just can't help but think that it's a bad idea in terms of bragging rights as well. What good is having the most powerful and expensive console on the market when the competition will have a cheaper console* that is more powerful than your entry-level offering? No matter how powerful the One X was, it could never erase the mistakes made marketing and positioning the One and it could never negate the performance disadvantage that it had against the PS4. The existence of a $400,000 Ford GT doesn't make the $15,000 Fiesta any better - they still run on the same roads and use the same fuel but the audience is completely different. The people buying the Fiesta are comparing their cars with the Nissan Versa and other equivalents.
*I don't believe SONY would release the PS5 at an equal price point to the Series X...
At the end of the day, if Microsoft released the XSS, SONY's marketing copy just writes itself: "last gen performance", "more expensive over the long term" (because you'll need to upgrade to the 'real console' eventually), "how long will support last?", etc. I'm pretty sure the marketing team working for SONY can think of even better ones than those.

The problem here isn't like the PS4 / PS4 Pro & XBO / XBOX - those were performance enhancements that didn't reduce or remove performance compared to the base consoles - they were a benefit for those who could pay more. Leading with a high-performance console and then stepping back and saying, "but here's a weaker system which means that this whole generation will be targetting the lowest common denominator" (i.e. the SS) isn't adding gaming value. It cheapens the experience and the pride of ownership - and that may not be the driving factor for many purchases but you cannot ignore the psychology that goes into such a prestige purchase. Instead of saying, "I bought into the next gen!", you would always be asked which console you purchased.

Buyer cachet IS a real thing. It means something to humans, we value prestige and our ego plays a part in our purchases whether we want to admit it or not.

If Microsoft released a Series S, it undermines the performance advantage that the Series X provides. It undermines the mindshare and prestige because it wasn't released or announced first. Leading with the higher end option and then following, quite a long time later, with the budget option means that instead of saying, "Hey, you loved that - and now it gets even better!" Microsoft are left holding their own microphone telling people that they're going to pull back on the reigns and limit what is possible on the next gen by going lower end.

A console is not a CPU. A console is not a GPU - we know and are used to tiered performance and releases for those items. Not so for consoles - we're used to them getting better and this is, I think, why Microsoft haven't been 100% certain about whether they were releasing or when they were announcing the Series S. It's not a clear, concise message. It muddies the waters and creates confusion. 

If I were Microsoft, I wouldn't do it. At least not at the release of the next generation of consoles.

Okay, this is ridiculous - switching the subscription from 1 month to 12 months means you're only paying $4.99 per month... I think Microsoft are really serious about getting people to buy into their ecosystem!

There is one argument, that I can think of, for releasing a Series S console and for releasing it as soon as possible: The Xbox One X is an albatross.

Seriously, it's a low volume product on an old process node* which has a larger die size (and is thus more physically expensive than the SX). The box isn't that small and there are all the other "legacy" components which need to be supported and produced and which, after a number of years, begin to become more expensive to procure. This limits how cheaply they can produce the console and thus how low a retail price they can afford to place it at. After all, three years on, the One X is still retailing at around $400 and with a potential $50-100 difference between the PS5 and the One X at the PS5's launch, it makes the One X completely untenable as a console.
*The 16nm process node that the One X SoC is produced on is garnering more competition from MRAM, HPC applications, automotive sensing technologies and  5G IoT device designs... meaning that price per wafer might be increasing behind the scenes. (report here)
Microsoft have to be losing money (or close to it) on each One X sold and they will probably never make back the engineering costs sunk into the project in order to make it happen. If, as I suggested last time, the Series S can utilise binned Series X SoCs as well as its own, smaller, SoC then I think there is more of an economy of scale there. If, as I also suggested last time, the console has very little storage, then there's a lot of upselling to be had there to make it even more profitable.

Then there are the intangibles - it's a headache (and cost) for developers to continue to support GCN and the Jaguar architectures when the newer Navi and Zen architectures are so much more capable. You can argue that those architectures would (or might) be supported on the PC but the PC is a completely different beast and that code doesn't just port over to the highly constrained designs of the consoles - it takes work.


Conclusion...


I think Microsoft is really in a tough situation but it's one they've gotten themselves into. The mistakes that were made in the design and focus of the Xbox One caused them to have to correct their hardware focus, resulting in the One X; they have caused them to focus on the ecosystem in an "Apple"-like manner but with mobile gaming-like pricing; and they've caused them to go even further with the design of the Series X, which has led to the high price of the Series X.

Microsoft looks strong but their positions are all weak: significantly lower hardware marketshare; poor brand value outside of NA/UK, and undervalued pricing structures. Yes, All Access and Game Pass are amazing deals for the consumer but I'm not sure that business model is sustainable without some serious upselling.

Series S could help them capture sales but in releasing such a console, they reliquish the performance advantage. It would be a huge gamble - one that could really pay off, or one that could sink the hardware division. It's not a huge leap to go from Game Pass/streaming on PC, Xbox and mobile devices to having Game Pass/streaming on PC, PS6 and mobile devices and become completely device agnostic. Microsoft are already getting revenue from SONY's use of their cloud systems, why sink a lot of money into a platform that does not directly provide the return on that investment? 

The goal is to get players into their ecosystem and that ecosystem is not the Xbox hardware, it's the subscription services.

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