Xbox surges as Microsoft's gamble pays off

The past three months have been pretty much the best ever for Microsoft's Xbox One. Not in terms of absolute sales - nothing tops the holiday season sales, after all - but in terms of finally getting a solid run at the top of some major markets, ahead of Sony's thus-far dominant PS4. The enormous amount of hard work that the Xbox team has put into recovering from the console's disastrous announcement and muted launch is finally starting to pay off, and a console war that's so far seen Sony win almost every round by default is finally starting to heat up.

"One key takeaway from this success is that the extremely risky gamble that Microsoft took at E3 this year has paid off"

In the absence of hard sales figures across the board, it can be hard to piece together exactly what's happened. What we do know is that Microsoft has racked up a third month in a row with the best-selling console in the USA, and that it also topped the UK hardware chart in September. The implication is that PS4 remains in the lead everywhere else, and that would make sense; the USA and the UK were by far the strongest markets for Xbox 360, after all. They're practically home territory for Xbox, and the fact that Xbox has trailed so badly on occasion in those territories this generation is a testament to PS4's market dominance.

So yes, the victory is a little limited. It's a first step, albeit a strong first step; if the Xbox can maintain much of this inertia in the UK and USA over the coming months as we approach the holidays, it should have a very, very solid Christmas, and start to look like a realistic competitor to PS4 rather than an also-ran. That's good for everyone; it's great for Microsoft, obviously, but it's also good for consumers, for developers, and in a sense, even for Sony, because nothing drives console sales and awareness quite like a juicy console war narrative.

One key takeaway from this success is that the extremely risky gamble that Microsoft took at E3 this year has paid off. Announcing the as-yet-vapourware Scorpio, which isn't due out for a year and will dramatically leapfrog the performance of the base Xbox One, alongside the redesigned Xbox One S was enough to raise plenty of eyebrows, mine included. Who would want to buy the redesigned console with the promise of obsolescence in 12 months hanging over its head? Well, lots of people, apparently. It can't hurt that Xbox One S is gorgeous; a stunning redesign of what was originally a terribly ugly slab of a console, and a piece of hardware that only looks better when you put it alongside Sony's rather drab redesign of the PS4.

"Microsoft really is great at making up for lacklustre original designs with superb updates, while Sony's consoles get more and more Fisher-Price with each post-launch iteration"

It's important to put this in context; the real competition for the Xbox One S isn't really the slim PS4, but the altogether more interesting PS4 Pro, which hasn't launched yet. The imminent launch of the Pro has undoubtedly depressed sales of the PS4, which will quite probably rebound ahead of Xbox once it appears on the market. However, Microsoft has largely proved its point all the same. The announcement of Scorpio wasn't the tacit surrender of the Xbox One market we all considered it to be; it's being supported effectively with a solid slate of exclusive software and a genuinely great redesign (perhaps the best console redesign since the Xbox 360 S; Microsoft really is great at making up for lacklustre original designs with superb updates, while Sony's consoles get more and more Fisher-Price with each post-launch iteration). Consumers have responded positively and it seems like Scorpio is managing the delicate balancing act of being ammunition against PS4 Pro ("why buy that now when you can have something better next year") without the same argument being deployed against Xbox One S.

Another factor that's likely having an impact here is simply that PS4 is approaching market saturation among core gamers. There's still tons of room to expand into more casual markets and less traditional demographics, of course, and Sony will be hoping that its inertia will propel it into exactly those markets - thanks not least to the number of original PS4s that will be displaced by PS4 Pros and placed into the second hand market. However, among the core console demographic, 50 million or so is likely pretty close to the saturation point; which means that it's the point where Sony needs to branch out into other demographic groups, but Microsoft, in the catch-up position, can still harvest the large numbers of PS4 owners who fancy an Xbox One as a second console thanks to its growing line-up of exclusive games. This is exactly the strategy Sony pursued when it was playing catch-up in the last generation - and although granted, it was catching up from a considerably less disadvantaged position, it actually managed to use that strategy as a springboard to eventually leapfrog Microsoft's number one position by the end of the generation.

I'm not convinced Microsoft will do that, or even that the company internally expects to be able to do that. There are a lot of potential flies in the ointment; PS4's lead over Xbox One is larger than Xbox 360's lead over PS3 ever was, for instance, which makes the challenge tougher. The announcement of Nintendo Switch is also likely to divert some of the attention of people considering an Xbox One S as a second console. There's also a problem of simple demographics; the UK and USA, where Microsoft is at its strongest, remain solid, important markets (far more so than Sony's crumbling stronghold in Japan), but their relative importance is fading as developing markets become more and more enthusiastic consumers of games. So far, at least, Sony has been doing a better job of engaging with and selling into a wider range of developing markets, which may help to explain how it pipped Microsoft at the post last time out - and which will be an even bigger factor this time around.

"The fact that Scorpio's announcement didn't sink Xbox One S is a vital data point regarding how consumers will react to mid-cycle upgrades"

Nonetheless, Microsoft finds itself in a stronger position now than it's occupied at any point in this generation thus far, with a solid foundation from which to build and narrow the gap with its rival. Aside from being a net positive for the industry as a whole, that also has implications for how the future of the console market looks. The fact that Scorpio's announcement didn't sink Xbox One S is a vital data point regarding how consumers will react to mid-cycle upgrades, and perhaps even to ongoing upgrade programmes; it opens the door to allow console makers to innovate around their hardware refresh cycles in ways which might previously have been considered dangerous or self-destructive.

Moreover, a healthy console business at Microsoft is, naturally enough, more likely to be a long-lasting console business at Microsoft. Ever since the dismal reception to the original Xbox One reveal and the appointment of the business-focused Satya Nadella as Microsoft CEO, commentators have worried about the poor fit between Xbox and the rest of the company. Tentative negotiations around a sale or spin-off of the department came to nothing (and we still don't exactly know whether they were initiated by Microsoft or by Amazon), and Xbox has worked to integrate itself more tightly with Microsoft's other hardware and software platforms in order to secure its position - but the greatest security Xbox can create for itself as a business unit within an increasingly B2B-focused Microsoft is profitability and positive public image.

That it's achieving that is to be celebrated; the games industry is far, far better off with Microsoft committed and involved, than it could possibly be after the loss of such a major player and devoted supporter of the medium. Just as it was important to celebrate Sony's clawing back of market share following the PS3's tough launch, we should be equally delighted to see Microsoft fixing the Xbox One's problems and getting back into the game.