It seems, after Tuesday’s announcement at E3, that Microsoft is still putting renewed effort into using the strength of the Xbox 360 to boost sales of the Xbox One. The current gen of home consoles has an install base of less than 40 million, while close to 200 million home consoles were sold by Sony and Microsoft when the PS3 VS Xbox One fight was in full flight.

Before E3 IHS Technology forecast a total install base of 20 million units of the Xbox One by the end of the year. The PS4 is set to have an install base of 34 million says the same report. That may change as Microsoft’s new strategy for the console becomes clear.

Investing small for a big return

The Microsoft system to make Xbox 360 games work on the Xbox One will be a type of software emulation. That means that there’s more to it than just flipping a switch or editing a line of code. An entire Xbox 360 system will have to built into the Xbox One platform. That’s not going to be easy, but it’s a lot less expensive than some of the other methods Microsoft is using to sell the Xbox One.

Before E3 began Microsoft revealed that a short term discount that cut the price of the Xbox One to 9 would become permanent. With gross margins on the console still razor thin, or possibly negative, that’s a move that will cost the firm with each new console sold.

Microsoft also announced a few big games at this year’s conference including Halo 5: Guardians, Fable Legends, Rare Replay, and Gears of War. All of those are going to be made by Microsoft in house, and that development is going to cost the firm a huge amount of money.

Ahead of the conference MKM Partners analyst Eric Handler said that “Halo can be a swing factor—and obviously that’s one of the biggest titles in the industry and for Microsoft their biggest exclusive. This is the point where they have to really make the push if they’re going to gain ground.”

Compared to those costs, the development of Xbox 360 emulation should be inexpensive for Microsoft, and it is the single most compelling reason to pick the console over the PS4. That may change in the months ahead, however. Integration with Windows 10 is making the Xbox One an ever more appealing console and Sony should be very worried.

Microsoft invests in Windows 10 with Xbox One

The firm also showed that it was investing in console exclusives. Fallout 4, a game that is set to be the blockbuster of the year, will include Fallout 3 for free on the Xbox One. It will also support mods that were made for the PC.

That deal with Bethesda Softworks likely cost Microsoft a lot of money, but it will give the Xbox One a new boost heading into the holiday season.

PC gaming has gotten a huge boost in the last five years, driven by two factors: low-priced games and modding. Microsoft isn’t able to slash the price of games on the Xbox One, but it is able, by virtue of its Windows 10 integration, to bring mods to the platform.

That’s the big story behind Microsoft’s Xbox One at E3. The firm is treating the console like a special Windows 10 machine. That should lower software costs for the console as those working on Windows 10 should be able to work on the console.

Source: learnbonds.com