Pressure Mounts for Xbox VR Strategy as PSVR Revenue Nears $2 Billion

VR may still be young, with an install base still small compared to the world of traditional gaming consoles, but it can’t be ignored that mounting sales of the Playstation VR headset—effectively a very expensive accessory for the PS4—is adding up to considerable revenue. In an era where PS4 has a significant install base lead already, and with PSVR further sharpening the system’s competitive edge, pressure is mounting for Microsoft to figure out its Xbox VR strategy.

Update (April 4th, 2019): Article updated with Sony’s latest official sales figures for PS4 (91.6 million, January 7th) and PlayStation VR (4.2 million, March 25th), and latest movements (or lack thereof) on VR from Xbox.

Moving the Needle

Sony announced that PS4 sales (including PS4 and PS4 Pro) have reached 91.6 million units as of January. Microsoft meanwhile hasn’t publicly revealed their Xbox One sales figures for some time, though recent estimates put it somewhere around 40 million units. Competitively, that’s a massive gap. And it isn’t helping Microsoft that, for gamers on the fence between the two consoles, PlayStation has a big fat check mark in the VR column while Xbox doesn’t.

It isn’t just the weight of VR support that could be furthering PlayStation’s edge, there’s revenue to be considered too. PSVR’s install base might not be huge relative to PS4, but it’s an expensive device—often even more expensive than the console that powers it—bringing the company considerable additional revenue.

Last week Sony officially reported that the PSVR install base has reached 4.2 million units. The headset has been sold in various configurations since launch, with Sony lowering prices over time from the original $500 Launch Bundle to today’s bundles priced around $300. The company has also run aggressive sales each holiday shopping season since the headset launched.

Roughing out a $400 average selling price for the first 2.1 million units and a $300 average for following 2.1 million, we can estimate that Sony has generated nearly $1.5 billion in revenue from PSVR hardware.

Software revenue on top of that stands to add considerably more. As of August 2018, Sony said it sold 21.9 million PSVR games, which at the time was an average of 7.3 games per headset. We can use that figure to extrapolate a more recent count of games sold (based on the latest 4.2 million headset milestone); we end up with an estimate of 30.6 million PSVR games sold. If we figure a conservative $15 for each title, that’s another $460 million in revenue generated by PSVR software (some of which goes to Sony and some to developers).

Bringing all together, we can estimate that PSVR hardware and software has generated $1.93 billion in revenue. Not all of that revenue goes to Sony (some goes to developers, distributors, etc) but it’s still a significant market that the company has proven to exist.

$1.93 billion is a lot… though not a huge amount in comparison to revenue from the PS4 console itself (which is in the tens of billions), but it’s definitely a needle-moving figure—and a new revenue stream that Xbox isn’t tapping—that furthers Sony’s console lead. Pressure is mounting Microsoft to figure out how its VR plans pan out on Xbox.

A False Start for VR on Xbox One X

Back when it was first introduced at E3 2016, Microsoft made a clear point to talk about how their latest console Xbox One X (at the time called ‘Project Scorpio’) would “lead the industry into a future in which true 4K gaming and high-fidelity VR are the standard, not an exception.” It was even announced that Fallout 4 VR (later released in 2017 for PC VR headsets) would be coming to the system. Hardly more than a month later, Xbox head Phil Spencer was giving mixed messages about VR support on the Xbox One X.

In 2017 it became clear that the console wouldn’t have any type of VR support at launch, and in 2018, after the consoles launch, Microsoft further affirmed it has “[no] plans specific to Xbox consoles in virtual reality or mixed reality.”

The announcement and then retraction of VR as a prominent feature on the Xbox One X is particularly odd, especially as Microsoft executed an impressive rollout of their ‘Windows Mixed Reality’ VR platform on the PC side; late 2017 saw the launch of Windows VR headsets from a slew of PC hardware vendors, and a big update to Windows 10 which baked VR directly into the operating system.

With the Xbox One X purportedly running Windows 10 underneath the hood, and Microsoft continuing to push their ‘Universal Windows Platform’ (which encourages developers to build apps which are cross-compatible with any Windows 10 device), the writing is on the wall for Xbox One X, or perhaps its successor, to get roped into Microsoft’s Mixed Reality platform at some point. The big question is: when?

In a candid interview in mid-2017, Xbox Head Phil Spencer suggested that Microsoft was staying away from VR on Xbox because they didn’t feel that the family room is a good place for tethered headsets. He figured at the time that the industry is “a few years away [from a wireless VR solution].” On that front he seems to have been right; while HTC sells an official Vive Wireless adapter, it’s expensive and requires users to mount additional hardware. To date, no other major headset maker has introduced a wireless headset or wireless accessory—though reliance on a tether hasn’t stopped Sony and others from selling headsets.

If Microsoft is planning on waiting “a few years” for wireless tech before rolling out a VR offering on Xbox, they risk handing away a couple billion more dollars in extra revenue to a competitor which already has a sizable lead in its console install base.

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