The Microsoft Xbox One

Marketing Plan
Gregory Steinbrenner
10/20/2014

Table of Contents

Executive Summary...........................................................................................................3
Situational Analysis...........................................................................................................3
Introduction.......................................................................................................................3
Market Analysis................................................................................................................3
Customer Analysis............................................................................................................4
Competitor Analysis.........................................................................................................5
Microsoft Xbox One Analysis..........................................................................................6
Marketing Objectives........................................................................................................7
Marketing Strategies.........................................................................................................7
Action Plans........................................................................................................................9
Innovation.........................................................................................................................9
Promotion.........................................................................................................................9
Distribution.......................................................................................................................9
Products..........................................................................................................................10
Market Research..............................................................................................................10
Financial Analysis............................................................................................................11
Contingency Plans............................................................................................................11
References.........................................................................................................................12
Appendix...........................................................................................................................12

Executive Summary

Microsoft is trying to establish the Xbox One as the video game console leader in the
Video Game Industry. The Xbox One is a third generation video game console for Microsoft.
The video game industry continues to have steady growth. However, challenges face
manufacturers of video game consoles as demand for smart phone and tablet apps continue to
increase. In addition, the cost of video game consoles limits their availability to certain
segments. Although, an opportunity exists as new segments evolve in the video game industry,
such as with women and older adults, Microsoft must find ways to achieve a competitive
advantage with their Xbox One system over Sonys PlayStation 4 and Nintendos Wii U. The
Xbox One has been branded as an all-in-one entertainment system. It will change the way
people experience home entertainment. Microsoft must continue to develop innovations with the
Xbox One to differentiate itself from its competitors, develop promotions that will position itself
as a brand leader, design exclusive new video game titles, and work with distribution partners to
control costs.
Situational Analysis
Introduction
2014 saw the release of the eighth generation of video games consoles. This includes the
Microsoft Xbox One, the Sony PlayStation 4, and the Nintendo Wii U. Although, these
companies are competing against each other for market leadership, they also face competition
from smartphones, tablets, and smart TVs. Some analysts have predicted that the eighth
generation will be the last generation of home consoles due to the proliferation of these other
devices.
The Xbox One had a respectable first year of sales with 3 million units sold by December
,
31 2014 and 5 million units sold by April 18, 2014. However, the PlayStation 4 has led the
Video Game market in units sold. Microsoft has tried to redefine the new Xbox console as more
than just a video game console, but rather an all-in-one entertainment system. However,
Microsoft has failed to brand the Xbox One in this manner. This marketing plan will evaluate
opportunities to strengthen that brand in order to improve the position of the Xbox One and
increase growth in sales. Microsoft must also be prepared to deal with threats from its primary
competitors (Nintendo and Sony) along with secondary competitors such smartphones and
tablets.
Market Analysis
In September, 2014, nearly 60% of adults reported that that theyve played video games
within the past month on at least one platform, indicating that video games have become a
prominent source of entertainment for the majority of consumers. (Harland, 2014) However, the
market has also undergone shifts in the past several years with the explosion in popularity of
mobile games and the rise of digital distribution, especially within the PC gaming segment of the
market. The Key External Drivers to growth in the industry have been per capita disposable
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income; time spent on leisure and sports, consumer confidence index; percentage of services
conducted online; and trade-weighted index. (Kahn, 2014)
In five years leading up to 2014, industry revenue increased at an average annual rate of
0.7%. In 2014, the revenue is expected to total $40.9 billion, well below the peak of $42.9
billion prior to the Great Recession. Due to the lengthy wait between new video game console
releases, the industry has long been dependent on add-ons and accessories to retain consumer
interest. The release of Kinect, a motion sensor for the Xbox 360, partially offset significant
declines in industry revenue. (Xbox, 2014) The growing library of games for each of the major
consoles has steered many consumers toward low-cost, preowned video games. However,
analysts expect growing consumer incomes, the late-2012 release of the Wii U and the 2013
release of Xbox One and PlayStation 4 to lead to a 4.3% revenue growth in 2014.
Consumers spent $1.1 billion on new physical games and consoles at U.S. retailers
during the five-week period from Aug. 31 to Oct. 4, 2014, according to industry-tracking firm
The NPD Group. That is up 2 percent from $1.08 billion over a similar period in 2013. The yearlong growth of new-console sales is making up for lackluster video game sales.
Future growth expectations for the Video Games industry have been significantly
moderated, as the picture of the market for gaming on mobile platforms becomes clearer. Since
mobile games are sold at much lower prices compared to traditional console and PC games, their
rise may foretell a slowdown of the video game market in the United States. While the recent
launch of the next generation video game consoles is expected to rekindle interest in the more
expensive console gaming market, the rise of low-cost, low-margin mobile gaming market may
weigh on the overall gaming market. Consequently, this is expected to pull revenue downward
as consumers pay less per hour for gaming entertainment. Revenue is expected to reach $47.4
billion in 2019 as a result of the expanding population and an increased percentage of Americans
who play video games, as the game-playing generation ages. This represents an average annual
growth of 3.0% during the next five years (Exhibit 2).
Customer Analysis
Although the tendency to play video games declines with age, a large share of consumers
from all age groups, report playing, including close to one third of men and women aged 55 and
older. (Harland, 2014) This indicates that the gaming industry now caters to a diverse audience,
and while demographics differ for the various gaming platforms, the concept of who gamers are
is rapidly changing to include consumers from various genders, ages, and ethnic backgrounds
(Exhibit 1).
Approximately one third of adults who play video games said they dont like games that
rely too much on in-app purchase, and 27% agree that video games are too expensive. In
addition to the cost of gaming, finding games that consumers know they will like is a challenge,
which speaks to the importance of free trials and demos. Although the free-to-play model can

potentially address the issue of cost, it can also lead to consumers spending more money in the
long run.
The gaming industry is undergoing seemingly competing trends. Although the majority
of adults now play video games, many companies struggle to maintain profitability with their
titles. This is particularly a challenge on mobile platforms where numerous free game apps make
it difficult to stand out in the crowd and the free-to-play model challenges traditional
monetization strategies.
As digital distribution becomes more popular for the computer and console game
markets, it is likely that alternate monetization models will become more prominent on these
platforms as well. In the computer gaming space, this is already occurring through the success of
widely popular games that do not charge an upfront fee. Given that a large share of gamers
dislike in-app purchases, companies may need to address the negative perception that many
consumers having regarding this model.
Competitor analysis
Sony PlayStation 4
The PlayStation 4 (PS4) is a video game console from Sony Computer Entertainment. It was
announced as the successor to the PlayStation 3 on February 20, 2013. (PS4, 2014) It was
released in the United States on November 15, 2014 as part of the eighth generation of video
games consoles. The PS4 focuses more on social gameplay, incorporation a share button on
the new controller and enabling a view of in-game play streamed live from friends. The console
enables interactivity with other services and devices through the following methods: PlayStation
Now, a cloud-based gaming service that offers streaming video game content; PlayStation App,
designed to enhance gameplay by using smartphones and tablets as a second screen; and
PlayStation Vitas design for playing a majority of PS4 games through wireless Remote Play.
(PS4, 2014)
The PS4s base retail price in the U.S. is $399.99. In August 2013, Sony announced the
placement of over a million preorders for the console. On the North American launch date, one
million PS4s were sold. There were 250,000 consoles sold within a 48-hour period in the UK.
During fiscal year 2014, Sony achieved top global console sales for the PS4. As of August 12,
2014, 10 million PS4 units have been sold worldwide. During fiscal year 2014, Sony topped
global video game console sales with the PS4 (Exhibit 3). (Tassi, 2014)
Nintendo Wii U
The Wii U is a video game console from Nintendo and is the successor to the Wii. The system
was released in North America on November 18th as part of the eight generation of video game
home consoles. (Nintendo, 2014) The Wii U is the first Nintendo console to support high5

definition graphics. The Wii Us primary controller is the Wii U GamePad, which features an
embedded touchscreen. Each software title may be designed to utilize this touch screen as being
supplemental to the main TV, or as the only screen for Off-TV play. Each game may support any
combination of the GamePad, the Wii Remote, the Wii Nunchuk, the Wii Balance Board, or
Nintendos more classically shaped Wii U Pro Controller.
The system is backward compatible with Wii software. This mode utilizes Wii-based controllers,
and it optionally offers the GamePad as its primary Wii display and motion sensor bar. Nintendo
features these online platforms for Wii U and 3DS: the Nintendo eShop for official software and
content; and Mii verse, a social network with is dedicated to free use by Nintendo system owners
and is variously integrate with games.
The Wii Us base retail price in the U.S. is $299.99. As of June 30, 2014, Nintendo had sold 6.68
million console units worldwide. During its first week of release in the United States, Nintendo
sold its entire allotment of
Microsoft Xbox One Analysis
On May 21, 2013, Microsoft announced that it would be releasing the Xbox One, the
third console in the Xbox family, to replace the Xbox 360 (Exhibit 3). (Xbox, 2014) Xbox One
was developed under the Entertainment and Device division at Microsoft. The Xbox One
competes in the Video Games Industry against Sonys PlayStation 4 and Nintendos Wii U as
part of the eighth generation of video game consoles to be released. Xbox One was released in
North America on November 22, 2013. In addition, it was released in 26 other markets including
Japan, the Middle East, and for the first time, China.
The Xbox One has been classified as an all-in-one entertainment system. (Xbox, 2014)
Xbox One places an increased emphasis on entertainment integration. For example, it has the
ability to overlay live television programming from an existing set-top box. In addition, it offers
split-screen multitasking of applications and improved second screen support. These unique
features make it a competitor to other digital media players such as Apple TV and the Google TV
platforms. (Agnello, 2012)
The Xbox One initially had a base retail price in the U.S. of $499.99. However, on June
9, 2014, Microsoft decided to offer a cheaper version which did not include the Kinect. Its base
retail price in the U.S. is $399.99. Microsoft stated that the decision to remove to Kinect was to
give people a choice to purchase an Xbox One at a cheaper price and then purchase a Kinect
when they can afford to. On January 6, 2014, Microsoft announced that approximately 3 million
Xbox One consoles had been sold worldwide in 2013. The most recent sales data indicated that
5 million units have been sold as of April 18, 2014. (Tassi, 2014)
Strengths
Media Inter-connectivity.
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Voice control.
Kinect has been upgraded for Xbox One.
Smart Glass.
Recording and Streaming.
Applications such as Hulu, Amazon.com Instant Video, and Skype.

Weaknesses
Price of the Xbox One plus Kinect is more than the PS4 and Wii U.
Even without the Kinect, price for Xbox One is high for middle class house as compared
to tablets or other mobile devices.
PS4 has better video game functionality: faster processing speed and graphics.
Analysts have indicated that the PS4 controller is better.
Video game software is expensive compared to apps.
Opportunities
Growth in the video game industry as the number and types of gamers continue to
increase
Video game consoles with enhanced content and features for players including but not
limited to multiplayer modes, downloadable content and inter-game chat functions.
Integration of video game consoles with other home entertainment such as TV, movies,
and social media.
Development of novel technology to expand the video game playing experience.
Development of exclusive new video game titles to increase sales of consoles associated
with those titles.
Threats
Time spent on leisure time is expected to decrease slowing in 2014.
Increase utilization of smartphones and tablets.
Low or no cost of purchasing video game apps on smart phones or tablets.
Most consumers tend to only purchase one type of video game console.
Consumers only upgrade video game consoles about once every six years. (CNET, 2013)

1.
2.
3.
4.

Marketing Objectives
Sell 10 million Xbox One consoles by the end of calendar year 2014.
Increase the utilization of Xbox One features such as Xbox Live and SmartGlass.
Develop new applications such as DVR functionality for the Xbox One.
Increase sales of Xbox One exclusive titles.

Marketing Strategies
1. Strengthen the brand awareness of Xbox One as an All-In-One Entertainment System.
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Most consumers view the Xbox One purely as a video game console. However,
Microsoft has indicated that the Xbox One is more than that. In addition to video games,
Microsoft wants the Xbox One to be viewed as an All-In-One Entertainment System that will
allow consumers to integrate it with TV programming, online social communication, and
cloud computing. Microsoft needs to develop promotions in order to make potential and
existing customers aware of these ancillary features. For example, Xbox Live, Microsofts
online multiplayer gaming and digital media delivery service created and operated by
Microsoft provide cloud storage to save music, movies, and game content. SmartGlass
provides extended functionality on the Xbox One by allowing devices running Windows
Phone, Windows 8, iOS and Android to be used as a second screen.
2. Develop promotions around customer segments.
There are opportunities for development in video game design and marketing to
Microsoft Xbox products to females as a potential growth market in the industry. While
existing game titles cater to the young male demographic, the female market should be a
focal point for Microsoft. A report recently published by the Entertainment Software
Association showed that women over 18 years old now represent a larger portion of game
playing population than boys under 18 (cite). Historical efforts to attract female gamers have
been not been strong. In addition, gamers over the age of 45 represent another segment that
should be targeted for expansion by Microsoft. This segment is expected to contribute an
increasing percentage of revenue to the industry because these individuals have grown up
playing video games. The final segment to would be the young males. These customers
make up the lifeblood of the industry revenue. It is an industry that still predominately caters
to the younger male market.
3. Identify markets with opportunities for revenue growth and develop promotional campaigns.
The United States and Japan have dominated the industry since its inception. Following
a 14-year video game console ban, China has allowed re-entry of video game manufacturers
into the Chinese market. The Chinese government banned video game consoles in 2000,
citing concerns of their effect on youth. This led to a black market for imported video game
devices. Microsoft will market the Xbox One in China via the Shanghai Free-Trade Zone.
Video games in Turkey registered significant growth in 2013 improving upon the already
rapid growth trend observed since the end of recession. In 2013 video games recorded 32%
value growth as digital gaming emerges as the fastest growth category with 44% value
growth. Contributing to its fast growth was the outstanding performance of online games and
mobile games which was favored by the increasing penetration of the internet among the
Turkish gaming population.
4. Develop new online gaming services.

Online gaming services provide potential profits. For the development costs of one large
game, an initial investment in the requisite server capacity and minimal staff, online games
can charge a subscription fee to million. They can generate ever-growing revenue ad face
minimal increases in costs. This is becoming one of the most profitable areas in the industry.
In addition to increasing revenues through the games, this provides the potential to increase
revenues through Xbox Live Gold memberships.
Action Plan
Microsofts marketing mix will be comprised of the following approaches:
Innovation
Microsoft must continue develop technology advanced hardware and software to
strengthen the position of the Xbox One. The Kinect represented a strong part of this initiative
with the Xbox 360. Microsoft will ensure strong project management teams are assembled to
ensure quality products are completed quickly in order to achieve a competitive advantage by
being first to the market. In addition, they will work to quickly expand the library of software
because it is one of the main driving forces for revenue. This includes the development of Xbox
exclusive video game titles such as Halo which will increase the demand for Xbox One consoles
Microsoft will also work with suppliers upstream and customers downstream to establish a
strong supply chain in order to maximize economies of scale and enhance product development.
Finally, Microsoft will look to develop online partnerships with online search engines to
understand behaviors of people of gamers.
Promotion
Given the high level of competition, promotion is absolutely crucial in retailing consoles,
as consumers have little means to test the different consoles against each other. Advertising will
be an important part of this marketing plan. Advertising will be purchased through TV, print, and
online. We will also develop bundles which offer consoles with games included. In addition,
special game specific consoles will be created in conjunction with the release of exclusive Xbox
titles such as Halo. In addition, we will work with retailers to develop special holiday
promotions such as gift cards for purchasing an Xbox One console. Another opportunity for
revenues is through video game advertising. Microsoft will develop advertising and product
placement through Xbox Live and exclusive titles. Microsoft will also offer surveys through
Xbox Live to evaluate customer satisfaction with Xbox products. These data will also allow for
development of new products to meet the needs of Xbox customers.
Distribution
Microsoft will set up distribution networks with new markets such as China and Turkey.
In addition, Microsoft must work with existing supply chain partners to control costs. Hardware
will continue be distributed through retail distribution centers. Specialty stores such as
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GameStop and department stores such as Walmart will provide the downstream connection to
consumers. Microsoft must develop strong customer relationship management with retailers to
determine in order to control distribution and inventory costs. In addition, these stores can
provide distribution of exclusive Microsoft Xbox video game titles. Sales data from these
retailers will help determine where promotional efforts should be implemented to maximize sales
and increase market share. In addition, Microsoft will work with developers to develop video
games and other products that can be distributed online through Xbox Live. Finally, Microsoft
must ensure that manufacturing partners will minimize manufacturing costs of hardware and
software to maximize margins.
Products
New products are essential to maintaining market share. A new product with superior
appeal to the market can rapidly impinge on sales. In order to create competitive advantage in
the gaming industry, Microsoft will market Xbox products which will allow it to differentiate
itself from its competitors. After coming in second to the PS4 in number of units sold in 2013,
Microsoft will need to need to continue hardware and software innovations that create value for
the younger males, females, and older adult segments. This includes working with TV providers
to develop DVR technology with the Xbox One. Microsoft should also partner with social media
to develop applications on the Xbox One.
The new Xbox one system effectively doubled the bandwidth and added eight times the
memory of the original Xbox. In addition, its CPU had ten times the processing power of the
Xbox. These additions of enhanced graphics and playing power should attract new customers.
Microsoft can increase revenues by adding subscribers to their Xbox Live service. Subscribers
have the unique experience of interacting with other gamers, streaming media, and even buying
add-ons to games. This differentiation strategy could prove extremely successful.

Market Research
During the 2014 E3 video game exhibition , five trends were presented as the future of gaming
(Sheer & Statt, 2014):
1. Procedural content generation (PCG) is a method which allows the computer to generate
the in-game environment based on a set of parameters, rather than having a team of artists
and animators spend months developing vast virtual worlds for the user to explore. The
benefit of doing so is both cost and time saving, as well as potentially providing each user
with a unique experience.
2. Asymmetry is a style of multiplayer game which differs from the traditional cooperative
(all participants working together) and competitive (the participants fight against one
10

another) modes. An example of Asymmetry being used in-game is sci-fi shooter Evolve
which allows four players to become hunters and another player to become the alien who
is being hunted.
3. Seamlessness removes the need for game menus and online player lobbies to switch
between modes and playing styles. An example is the upcoming game Destiny which
allows users to explore the virtual landscape alone, but at certain locations within the
virtual world, the user will be matched with online players, seamlessly integrating
individual and multiplayer worlds.
4. A growing trend in gaming has been that gamers are publishing and streaming their ingame performances online for others to see; helped by the Xbox One and PS4 which
incorporate features which make sharing in-game footage easier than ever before. Gamers
are also being given greater freedom to create their own virtual worlds and share with
others, and the barriers between gamers and designers will continue to fall away.
5. Persistence is the last key trend in gaming, whereby gaming will become multi-platform,
allowing gamers to start playing a game on their console, continue their game on their
smartphone and then finish playing on their tablet for example. As more games use
cloud-based online infrastructures, the ability to switch between devices should continue
to become easier and more simplified.
Financial Analysis
Microsoft Corporation had about $77.9 billion of revenue in fiscal year 2013. (Microsoft,
2014) Microsoft operates in five segments: the Windows division, which develops and markets
operating systems: server and tools, focused on software and cloud-based services; online
services, with offerings such as Bing and MSN; the Microsoft business division, which develops
and markets the Microsoft Office system, and the entertainment and device division (EDD),
which develops video games and consoles (Xbox One) as well as Skype and Windows phone.
Microsofts overall EDD generated $10.2 billion in 2013, but this success was
driven by Windows phone and Skype, while Xbox revenue decreased significantly. Video game
revenue was already in decline in fiscal 2012. Revenue declined over 2009 and 2010 due to
falling disposable income and increased competition. (Exhibit 5) However, the increasing use of
Xbox Live to download content increased the divisions profitability, due to the low costs of
distributing software over the internet. In fiscal year 2011, industry revenue jumped as a result
of the successful Kinect peripheral device for the Xbox 360, released in November 2010, Kinect
game software and the release of a major proprietary title under the Halo franchise. (Exhibit 4)
Over the five years to 2014, revenue is expected to increase 10.2% to $4.7 billion, with the
release of Xbox One.
In fiscal year 2015, Microsoft faces fierce competition from traditional competitors
Nintendo and Sony, but also from Apple and Google in the area of content products and services
to the customer. (Exhibit 6) Most of the manufacturing activities for the Xbox One and related
games are contracted to third parties such as IBM.
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Contingency Plans
The Video Game industry faces issues such as copyright protection, regulation of
inappropriate content in video games, and trade and internet regulation. Microsoft must be
prepared to defend itself against violations of patent and copyright laws. Microsoft will have a
legal team prepared to litigate any violations that are found. Regarding inappropriate content in
video games, Microsoft may receive bad publicity from games that offer content that may be
construed as inappropriate. Microsoft should be prepared to deal with negative publicity against
these attacks from the news media and/or competitors. Microsoft will work with a public
relations firm to have contingency plans prepared to deal with this. In addition, many
organizations such as the Electronic Software Association have opposed efforts to regulate the
content of video games. Finally, the internet continues to evolve as do regulations associated
with it. Microsoft must adapt this marketing plan as regulations are enacted that could affect the
online video game market.
Appendix
Exhibit 1.

Exhibit 2. Revenue Outlook for the Video Game Industry

Year
2015
2016
2017

Reven
ue $
million
42,103.
70
43,408.
90
44,667.
80

Growth %
3
3.1
2.9
12

2018
2019
2020

46,365.
20
47,385.
20
48,791.
00

3.8
2.2
3

Exhibit 3. The Xbox One

Exhibit 4.

Source: VGChartz.com

Exhibit 5.

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*Source: Microsoft Annual Report

Exhibit 6.

*Source: Forbes

References

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