Sony Schools Microsoft at E3 and Shifts to Focus on Amazon Threat

By Rob Enderle June 13, 2014

While both Sony and Microsoft announced a series of solid gaming titles at E3 this week, the announcements that surprised the market were the ones covering their PlayStation TV and Cloud Gaming Services efforts.   This made it look like Sony was taking focus off of Microsoft and shifting it to the real threat - which is fast becoming Amazon.   Let me explain.

The Death of Console Gaming

The current gaming console market has been on near life support for some time.   This is largely because gamers are increasingly using their tablets and smartphones for games which can be played almost anyplace.   Microsoft’s ploy to bundle in Kinect backfired but had it been successful, it might have pushed back on this trend because Kinect helped ensure the traditional console space.   

We had a number of ever more capable on-line services launch like OnLive and Stream and they increasingly began to work off their own inexpensive hardware while still promising an experience that was at console level.   In addition, NVIDIA launched their Grid gaming back end and both a gaming tablet and their Shield hand held gaming system - both of which were designed to be a mobile connected gaming client device.  This was all recently followed by Amazon’s Fire TV, which also has gaming coming and likely will eventually be connected to cloud gaming services for a higher resolution console-like experience.  Most of these devices were priced to sell at a small fraction of what an Xbox or PlayStation sells for.  

Sony Embraces the Cloud

Now you would think that since Steve Perlman who created OnLive came from Microsoft (Microsoft lives off a software/services model and not hardware, and Microsoft has massive cloud services like Azure and Office 365) they’d have jumped on this cloud gaming trend and caught Sony, a hardware company, napping.   Put differently, Microsoft is considered a cloud company and Sony a hardware company so Microsoft should have had a massive first mover advantage. 

But that wasn’t the case this week.  Sony brought out their own cloud device called the PlayStation TV and promised to eventually wrap it with cloud gaming services and this was despite the fact they were already beating Microsoft in the console space this year.  I think this showcases that they saw Amazon as the emerging threat (likely because even though Sony was first with eBooks Amazon pushed them all the way out of the market last year and they didn’t want a repeat).  

The huge advantage to doing this is that older games can be played in the cloud and on anything that will play the thin client which will likely include Sony phones and tablets much like Amazon is rolling out for their own gaming services.   But you could still use the console for those that want the best experience and the least latency giving Sony a range of experiences that Amazon likely won’t even want to match.  

As a result, this strategy has strong offensive, defensive, and development advantages.   It moves aggressively against Microsoft by effectively flanking the Xbox one, it creates a strong barrier against Amazon’s coming attack, and it will allow Sony to continue to move the console aggressively forward while leaving support for legacy games to the cloud services.  

Wrapping Up:  A New Sony?

Over the last decade, Sony has been largely a company that couldn’t get out of its own way and was its own worst enemy.  Samsung didn’t take the TV market Sony bumbled and gave it to them, Microsoft didn’t as much beat Sony as step over Sony’s insane attempt to bring out a $1,000 console and force Blu-Ray onto the world.   They bought both music and movie content companies and then made it so hard to get on Sony devices everyone else benefitted basically giving Apple the MP3 player market.  

But this time, they stepped out ahead of the coming problem and kicked serious butt.   If they keep this up, they’ll start looking a lot more like the old Sony and that Sony was a company to be reckoned with.  Nice work this week.   

Edited by Stefania Viscusi

President and Principal Analyst, Enderle Group

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