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Microsoft's Announcement May Have Just Killed Xbox

image: Microsoft

Microsoft made a bold move last week at E3. It unveiled its next console, the Xbox “Scorpio,” more than a year before its release, with precious few details save that it would be the most powerful console on the market when it releases in holiday 2017. It also unveiled the Xbox One S, a redesign of the original Xbox One shipping in time for holiday 2016, but all of a sudden looking plenty shrimpy in the face of Scorpio. It seemed that Microsoft wanted to get the jump on Sony, which had already announced its plans to not unveil the upcoming PS4 “Neo” at the big show. It was a risk, and not everyone thinks it was the right move. Analyst DFC intelligence has been among the most critical with an investor update that suggests Microsoft may have entirely destroyed its gaming business with the announcement:

“The most immediate problem is Microsoft effectively killed the Xbox One Slim right out of the gate,” it said. “If there were many Xbox 360, Wii U and even PlayStation 4 consumers interested in an Xbox One this holiday season they have now been told to wait until Scorpio arrives in 2017. Microsoft can only hope that the buzz around Project Scorpio goes away soon but with the cat out of the bag that is unlikely.”

The analyst minces few words in its criticism of Microsoft’s decision, especially when seen in tandem with the increased integration with Windows 10:

“There are all kinds of other problems with Microsoft’s mixed messaging. The pricing on the original Xbox One is great, and the Slim is wonderful, but all the important new games will be on PC, so why invest in a console? Just upgrade your PC. And if you do want a console why buy now when Scorpio will be here later. All of this is a net dampener on new hardware sales now and really opens the door wide open for Sony and even Nintendo for the NX.”

The analyst says that it may now be a matter of “when and how” regarding Microsoft’s exit from gaming hardware, and that the greatest challenge facing Project Scorpio is whether or not Microsoft’s gaming division will even make it to holiday 2017. While few would argue against the fact that Sony clearly beat Microsoft at this year’s E3, you’d be hard pressed to find a more critical stance than the one the analyst is putting forward here. We remember that there has been plenty of chatter about Microsoft spinning Xbox off before, even if Satya Nadella seemed to rebuke the idea.

I’m not sure if I’m as apocalyptic as DFC — Microsoft could well still be in the gaming business when Scorpio launches — but I can’t say that I think the announcement was the right move. The Xbox One is already struggling, and now it faces a long, difficult road on the way to Scorpio’s release, during which time Sony can capture a larger and larger market share, with the NX muddying the water to boot. The thing is, gaming is not Microsoft’s biggest business, and Xbox isn’t even Microsoft’s biggest gaming platform. Even the failure of this Scorpio/Neo concept of a high-end console could end up just pushing gamers back to PC.

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