PS4 Reclaims Top Spot on Sales Charts for November

It’s holiday season again. Houses are decorated with glowing lights, temperatures are dropping rapidly and shoppers are storming the department stores looking for their next huge deal. The epitome of the holiday shopping season is Black Friday. On this day, retail stores slash prices on their products and open their doors in the wee hours of the morning, and close them well into the night. It is a great time for both retailers and consumer product companies in general.

One of the most popular items on most shoppers’ lists are video game consoles. And every year, the video game industry continues to grow, with last year seeing a huge spike in sales numbers, reaching a staggering $23 billion (a 5% jump from 2014).

Three of the largest video game companies that rely heavily on the holiday shopping season, particularly Black Friday, are Sony, Microsoft and Nintendo. Each company both manufactures hardware (Playstation 4, Xbox One, and Wii U, respectively), and develops software for their gaming consoles, and every year, these big three duke it out over whose console sells the best. After both Microsoft and Sony released their newest platforms in 2013, Sony instantly took advantage of the sales charts, selling over 4 million units, compared to Microsoft’s 3 million. And from then the gap only grew bigger. Last November, lifetime PS4 sales numbers had reached 27 million units, whereas the Xbox One had only reached 15 million. This is largely due to the initial lack of exclusives and anti-gamer mindset that Microsoft had at the console’s release, making many gamers choose the Playstation 4 as their console of choice.

Recently, however, Microsoft has been gaining some traction for the past few months, with Xbox One sales surpassing the PS4’s since July. This is because of the Xbox One S, which launched in August, offering a slightly more powerful console, with a much smaller footprint. This, mixed in with Microsoft’s increasingly pro-gamer strategy, drew in consumers who had yet to purchase a console.

However, this past month seemed to favor Sony, yet again, putting them back in the driver’s seat of the sales numbers. Boasting an astounding 50 plus million units sold, the Playstation 4 is firmly back on top, beating out the Xbox One for the month of November. Sony stated that this past Black Friday was the, “best ever Black Friday week in the history of Playstation.”

Analysts suggest that the Xbox One’s total life sales are likely about 30 million units, which is quite small compared to the PS4’s massive achievement.

While those sales numbers are impressive, do not forget that the Playstation 4’s 50 million units are nothing compared to the 157 million units sold by the PS4’s predecessor: the Playstation 2. Following the PS2 is the Nintendo DS (Nintendo’s touch-based handheld console) with a total of 154 million units sold.

Can Sony continue its massive success with the PS4 throughout the console’s lifetime? With sales numbers like these, it is very possible. However, the console does face some heavy competition in the form of Nintendo’s newest console, The Switch, releasing in March of next year, and Microsoft’s “Project Scorpio” (a far more powerful Xbox One) slated for a release sometime next holiday. Until then, Sony is sitting high for the holidays.

Unicorn Acquisitions

230461728_454833a9e7_oApple made a big splash in the news when people started talking about the possibility of the computer giant acquiring Beats Electronics for $3.2 billion. The reason for the big stink is that it would have been the largest acquisition ever for Apple in their 38 years. The other, closest acquisition is the $429 million the company paid out for NeXT in 1996. The larger picture indicates that the real reason the Apple acquisition was such a big deal is that it comes in a string of, almost $1 billion “unicorn” acquisitions by major companies over the last year, more specifically in tech. The most notable of these acquisitions include WhatsApp and Oculus being acquired by Facebook, Waze and Nest Labs being bought up by Google, Microsoft absorbing Nokia, and Yahoo buying Tumblr. The real reason this surge of transactions is so significant is that prior to this year the last eight billion-dollar acquisitions of tech companies occurred over the span of ten years. The media flocked to these unicorn acquisitions covering the amount of money being exchanged, how the financing was going to work, the strategic ideal behind the deals, and the chance for success, the real story is how companies and investors need to adapt to enter and exit the market with this radical shift in who is buying and owning companies.

Enterprise acquisitions traditionally have made up most of the transactions over the past ten years. These, more traditional companies, include EMC, Oracle, IBM, and Cisco and they regularly make these multi-billion dollar transactions. For a more specific example consider that Cisco has made seven of these unicorn acquisitions for $25.2 billion and Oracle has gone through 10 unicorn acquisitions for $42.9 billion. Although these enterprise transactions occur frequently, the density of transaction in the tech/start-up industries in the past year have been unprecedented and it will be interesting to keep an eye out to see where things go from here.

Microsoft: The Tech Market’s Comeback Story

shutterstock_140495338-msftMicrosoft, up until the past few years, was always considered the pinnacle of technological innovation in the realm of consumer products. The name itself would strike fear in the hearts of technology executives of all backgrounds; a wolf amongst sheep. However, Microsoft’s name has become a punchline amongst today’s technorati, a joke about the diminishing marginal returns on putting all your eggs in one basket as far as innovation goes, a formerly dominant company becoming a plodding kludge. Recent history of Microsoft has been rife with missed release deadlines, delayed products, and cancelled features, to the point of disheartening consumer and enterprise users the world over.

The rest of the tech market has moved vastly quicker than Microsoft has. Between 2006-2008 Apple introduced the iPhone, Amazon introduced AWS, Google brought about Andriod, and Facebook debuted its News Feed. Those innovations alone encompass a great deal of innovation in their wake, making those four companies the “quadrumvirate of tech” making some comment that Microsoft simply no longer belongs on the list of top tech companies.

However, Microsoft has always had the critical ingredients for success. Consumers want always-portable, always-available, always-usable data across all our devices and applications, allowing us to constantly be in touch, productive, or entertained depending on our mood. From Office to XBox, Microsoft has all of the individual tools and products it needs to fulfill all of our wildest tech fantasies. Yet, by the same token, Microsoft has seemed plagued with constant inefficiency and political strife which inhibited the company from permanently establishing itself as the key brand in the tech market; a position that has been usurped completely by a dominant split between Google and Apple.

However, as Bob Dylan once said, the times they are a changin’. Sampling from some recent news out of Microsoft’s camp in the past few weeks, it seems Microsoft is making a push to become relevant again. Recently Microsoft announced that it launched Office across all devices, including on iPad and Android to some decent acclaim. Additionally, Microsoft is building a very disruptive startup lab headed by a well known executive from DARPA to take on the likes of GoogleX. Bing is now responsible for nearly 19% of all search queries in the United States, slowly pushing against Google’s dominant search engine market share. It’s even making Skype group calls free as of just days ago.

Most importantly however, Microsoft seems ready to embrace the cloud. Microsoft’s new CEO, Satya Nadella, published a letter a month ago outlining a renewed focus on positioning Microsoft at the center of this new cloud based world by creating a “cloud for everyone, on every device.” Almost over night it seemed that Microsoft was finally ready to make the next big push by harnessing its full energy, it’s $20 billion in revenue and $5.66 billion in Q1 net earnings that it had announced only days ago. A Microsoft with a strategy, a vision, is a deadly force in the race for tech supremacy, a race that’s comparable to the US/USSR cold war arms race at this point. All four of the quadrumvirate are highly vulnerable at the moment due to the market convergence created by similar products that depend on devices and the cloud. Continuous engagement is at the heart of these companies’ strategies, and consumers are salivating over a new entrant into the market. 

When Do the Storms Arrive in the Saturated Cloud Hosting Space?

The cloud hosting space is saturated with Fortune 100 companies looking to up their investment in what is already an overly-invested industry.  With the likes of Amazon (Web Services), Microsoft (Azure), HP and IBM (Softlayer) already providing cloud services, it means two things now that Google (Compute Engine) has jumped into the deep end of the pool: lower prices and a willingness to move downstream for customers.

Given the capital-intensive aspect of this business, what is the ROI of this business?  I would have stipulated that it is close to breakeven.  ProfitBricks, a German based provider of cloud hosting, produced the graph below highlighting the profit margin in cloud hosting. They report that the price erosion since 2006 has happened more slowly than technology efficiencies (as measured by Moore’s Law), resulting in profit margins staying the same or increasing depending on where you are in the hosting lifecycle.

Amazon Web Services (AWS) is the market leader in cloud hosting.  They approached the cloud hosting space with significant resources, a service that matched off with the consumer’s requirements, and extremely competitive pricing.  Netflix is their biggest customer (experiencing double-digit growth) and they rely on AWS because they can scale as Netflix grows; Amazon is constantly innovating; and the price is very competitive. And if it isn’t competitive today, it will be in two weeks time.  Ultimately, it was the pricing pressure vis-a-vis their competitors which allowed AWS to capture a significant portion of the cloud hosting market in a very short period of time.

After reviewing some of the technicals above, why would you fund a startup focused on cloud hosting?  Digital Ocean has the answer to that question.  They believe the small business and developer customers are underserved because a majority of the cloud hosting resources are focused on the enterprise customers.  They might be right, to a certain extent — today.  In the future,  the crowded cloud hosting enterprise market will ultimately force the big market makers to smaller markets so that they can generate revenues and maintain top-line earnings for their  shareholders.  It will be interesting to watch if the Digital Ocean bet has legs to stand on or will be washed away in the cloud hosting storm.