The upcoming console war between Microsoft's Xbox Series X and Sony's PlayStation 5 is shaping up to be the most expensive ever, and it's starting to look like Microsoft might have a huge starting advantage.
A report published Thursday night by Bloomberg indicates the PlayStation 5 might be the most expensive console Sony has ever released in its 25 years of gaming products, revealing that a shortage of materials needed for internal components could bump the PS5’s list price to a point far higher than the $399 release price of the PS4 in 2013.
The PS5 manufacturing cost is estimated at around $450 per unit, which might result in a price tag that’s closer to $500 — or maybe even higher. This presents an opportunity for Microsoft to undercut the price of its Xbox Series X to gain an early advantage in the next-generation console war.
Neither company has officially announced the price of these upcoming gaming systems, but both Microsoft and Sony have confirmed that each console will come jampacked with powerful and pricey technology. The PS5 and Series X will tout solid-state drives and support ray tracing.
Microsoft might be in a better position to offer these features for a lower cost, which could make all the difference.
Xbox needs to make a comeback
The current generation of consoles is coming to an end and Microsoft is lagging behind the PS4 and the Nintendo Switch. Microsoft stopped releasing Xbox sales numbers in 2018, but all major estimates have placed the Xbox in third place. The release of the Series X could be Microsoft's chance to seize power in the next generation.
Microsoft can afford to undercut the PS5
Microsoft is one of the most profitable companies in the world, valued at more than $1 trillion as of January. A majority of that cold hard cash comes from business ventures that have nothing to do with Xbox.
During its October 2019 earnings call, the company announced it made $11.1 billion from productivity products like Microsoft Office Suite and another $10.8 billion from cloud services. That’s only a portion of the revenue Microsoft generated between July and September 2019. That alone is worth nearly a quarter of Sony’s total valuation.
By comparison, Sony is worth about $88 billion, but it's much more reliant on PlayStation sales than Microsoft as a company is on Xbox. According to its February 4 earnings report, Sony's gaming products have been its greatest source of revenue, earning more than triple anything else the company sold.
Sony needs to continuing profiting from console sales with the PS5 or it might risk endangering the company's most important source of revenue. Microsoft could afford to take a loss on the Xbox Series X sales just to get its hardware into more homes, and that might, in turn, convince users to subscribe to Xbox Game Pass and/or its xCloud gaming services to make up for it. That kind of situation could force Sony into reliving the same snafu that seriously tripped up the PS3 early in its life cycle.
History could repeat itself
Upon its release in 2006, the PS3 was priced at $599 in the United States, $100 more than the Xbox 360. Sony reported slow sales following the system's launch, and Jack Tretton, former console chief for the company, even acknowledged the company made some “missteps” when deciding on a price point.
Microsoft might try to force Sony’s hand into either pricing the PS5 lower and taking massive losses or pricing it higher, well above the Xbox Series X.
Either way, the future is looking dicey for Sony’s next-generation console.
Both the PS5 and Xbox Series X are expected to be released during the 2020 holidays.