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Microsoft’s Xbox division took a significant hit in Q1 2015 after holiday price cuts drove unit shipments upwards, but decreased the amount of profit Redmond earned on each system. The company reports that Xbox division revenues fell by $306 million or 24% compared with the first quarter of 2014. Microsoft chalks up 20% of the decline to price cuts, with a 4% drop thanks to currency adjustments and a strong US dollar.

Ars Technica has analyzed the likely split between the Xbox One and Xbox 360, since Microsoft no longer breaks out sales between the two devices, and calculated that the Xbox One likely moved between 1.12 and 1.34 million units over the past three months, roughly in line with the 1.2 million units it moved last year. While flat sales in a seasonally off-peak quarter aren’t bad by any means, they still put the Xbox division well behind Sony, which sold 1.7 million consoles in just January and February.



In other words, if Sony sold the same number of consoles in all three months of the year and Microsoft sold its 1.2 million as estimated, the PS4 still sold twice as many systems as the Xbox One.

The Xbox hasn’t failed — but is this success?

Let’s get something out of the way up front: I am not a console fanboy. In my adult life I’ve owned a Wii, a GameCube, and a Sony PS2. I’m a PC gamer first and foremost, which means I don’t have a personal stake in this fight.

It’s become common for stories like this to quickly turn into mud-slinging festivals between Xbox fanboys convinced Sony is a year or two from bankruptcy and Sony fans who apparently believe the Xbox One packs the game performance of a Commodore 64. The factual truth is, Microsoft isn’t in an objectively bad position here — the PS3 was in far worse shape against the Xbox 360 at this point in its life cycle than the Xbox One is against the PS4. For one thing, Microsoft isn’t losing hundreds of dollars per unit.



This graph of the PS3’s life cycle through 2011 shows just how much of a blood bath it was for Sony. Microsoft is far ahead of the curve on this front.

Microsoft’s biggest problem with the Xbox One, in my opinion, has nothing to do with the fact that it’s somewhat less powerful than the PS4. Developers have demonstrated that they can work within the limits of the platform, and while the PS4 often has an edge in graphics or smoothness, it’s not enormous. The bigger problem for Microsoft is that it*clearly had an entire vision of the Xbox One that was written around Kinect and the concept of the Kinected (pun intend) home.
Sources have told us that Microsoft was internally stunned at the reaction to its Kinect unveiling in 2013, having never anticipated the blowback it got from the press. The problem was simple: Microsoft didn’t unveil a cohesive gaming strategy to show how titles would use Kinect to deliver cutting-edge gameplay that no other company could match. As a result, readers looked for other reasons why MS would deploy an always-on camera and found them in spades. Edward Snowden’s disclosures, which demonstrated that Microsoft was already obligated to share data with the NSA, effectively killed Kinect.
Microsoft, to its credit, walked away from its own plans for the Xbox One and pivoted the system to match Sony’s “It plays games” philosophy. They’ve fought back with price cuts and added system features. But without a really killer title — the Halo collection that might have filled that role has proven to be a buggy, half-finished wreck — they’re languishing in Sony’s shadow.

The next big chance for Microsoft to change its standing will be later this year, when Halo 5 ships. A great Halo could reinvigorate Microsoft’s entire gaming division, just as Halo (and to some extent, Halo 3) drove sales of the original Xbox and Xbox 360. Until then, or unless Microsoft articulates a new philosophy for why consumers should be buying Xboxes and not PS4’s, the console seems stuck in second place.

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