Sony and Microsoft Unite in the Face of New Competitors

Sony and Microsoft Unite in the Face of New Competitors

On May 16, Sony and Microsoft surprised everyone by announcing a strategic partnership for cloud solutions, semiconductors, and artificial intelligence. The two companies, which make the Playstation and Xbox video game consoles, are fierce competitors in the gaming space, but their partnership shows how quickly the prospect of game streaming services is shaking up the industry.

Traditionally, players have purchased physical copies of games to be played on their consoles or computers, and in more recent years they’ve been able to download games from various digital retailers, including those of the console manufacturers. However, technology is finally reaching the point where streaming video games instead of downloading them is becoming feasible in areas with fast enough internet speeds, and that’s bringing a bunch of potential new competitors.

In March, Google was the first to announce its entry into game streaming with its Stadia service that will make use of the company’s network of data centers to allow players to easily start playing their favorite games from almost any device as long as they have a good internet connection. Apple followed Google to announce an Apple Arcade bundle of games for iOS, but it could go even further into streaming given the company’s pivot to services now that hardware sales are flagging.

Of course, the elephant in the room is Amazon. With its Amazon Web Services, Amazon has plenty of capacity to enter the games market. It already owns game-streaming website Twitch, where viewers can watch and interact with players, and rumor has it that it’s a matter of when, not if, the ecommerce juggernaut steps into gaming as it did previously with film and television through its Amazon Prime Video service.

The entry of many large, well-capitalized competitors naturally has the long-standing console competitors, Sony and Microsoft, thinking about the future. Nintendo isn’t to be forgotten, but the Japanese company’s range of popular intellectual properties allows it to operate differently than its competitors.

At E3 2018, Microsoft made a big deal about the future of game streaming and in October it detailed Project xCloud, its streaming service that’s currently in testing phases. Sony also has a streaming service, Playstation Now, and plenty of fantastic first-party titles to support it, but it lacks the cloud capacity of its competition, both new and old. But its new partnership will address that limitation.

The centerpiece of the partnership between Sony and Microsoft is cloud services. Playstation Now and Sony’s video-streaming service Playstation Vue will move onto Microsoft’s network of Azure data centers so it can effectively compete in the streaming space without having to build out its own data centers — a costly undertaking it’s chosen to avoid.

But there’s more to it than that. The press release also talks about “building better development platforms for the content creator community,” which means that Sony and Microsoft could look to create a common platform to make it easier for developers to make games for their consoles and services. Sony recently embraced cross-platform play on Playstation, allowing players on different consoles to play together.

The companies could also work on “new intelligent image sensor solutions” and artificial-intelligence products. The sensors, in particular, are where Sony brings value to this agreement. The company is the third-largest camera manufacturer in the world, a leader in the popular mirrorless segment, and its smartphone sensors are some of the best on the market, powering the iPhone. Microsoft likely sees benefit in this, along with the money it will make from hosting Sony’s services.

The important takeaway though, more than discussions of technologies, is what this partnership means for the industry and where it’s going. To have the two fiercest competitors in the console wars side by side as the industry shifts and massive new competitors prepare to jump in try to supplant them is incredibly significant.

Will we see Playstation and Xbox on the same service in the future? I wouldn’t expect to see that. But it will likely be a lot easier for developers to make games for their platforms and for gamers to play with each other regardless of which service they choose.

The biggest points of differentiation then will be price and first-party titles. On the latter metric, Playstation has an advantage, but given Xbox’s recent expansion of its first-party studios, that may not last long and the future competition between the rivals may instead become which can turn out the best gaming experiences — a major win for players.

Sony and Microsoft Unite in the Face of New Competitors

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