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Xbox's biggest crisis right now isn't games. It's hardware. (Opinion - Jez Corden)
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I don't think it's hardware. It's a differentiator. Tell me why I (or whoever) should pick an Xbox over a PlayStation?
Microsoft tried to answer that question with Game Pass, seemingly going all in on that concept, paying or outright buying publishers to bring their games to Game Pass. Some people may love Game Pass, but most people I know either never subscribed to it or only tested it when it was like 1,-€ for a month or whatever.
What else differentiates it from the PS5 in a positive way? Sure, the Series X is a bit more powerful than the PS5, but it's close enough that it basically results in slightly different behavior for games with dynamic resolution scaling, with the PS5 sometimes even pulling ahead oddly enough (probably a more mature SDK, not sure).
The controller is...well, a decent controller. It doesn't do anything special like adaptive triggers, yet it costs almost the same as a DualSense, and if you count in the optional (!) battery pack, it's quite a bit more expensive even.
Playing online costs just as much as on PS5 (why do you have to pay extra to play online in 2023, anyways?).
Of the few mentionable exclusive games, most are honestly just mediocre (also in terms of critical acclaim).
What's left? Backwards compatibility for 360 games? Sure that's nice, but surely not a system seller for most people, especially when they don't already have a ton of 360 games.
I just don't see many cases where someone would prefer the Xbox Series X to a PlayStation 5, without even taking into account what platform their friends are on.
If you want to win market share, deliver a better product. With better services. With better conditions. For lower prices.
That is how it works. Crying to the public about how unfair it is because Sony has such a large installed base already because of how Microsoft fucked up the Xbox One generation (at or even before launch) is NOT how it works.
They know it's a losing battle to try to build the same product as an entrenched competitor after they burned themselves with the Xbox One, which is why they much prefer you're a subscriber to Game Pass, with an Xbox or not.
They've got like 25-30 million subscribers, so it's quite popular. Probably half or a third as popular as Microsoft would like, but it's popular. I myself have plenty of friends who want to play more games than they can afford, and now they can afford them because of Game Pass. Especially the flash in the pan zeitgeist stuff like Exoprimal or Rainbow Six: Extraction that they can say they've played but will never touch again.
Quick resume. To be honest, what sets the PS5 apart from the Xbox hardware in a positive way? The SSD speeds that ended up not even mattering much for Ratchet & Clank, from what I hear of the PC port.
By contrast, I know tons of people who hate the PS5 controller, not the least of which for its short battery life and inability to swap batteries like you can for Xbox. As a fighting game player, I know competitive players who hate the d-pad, and Sony did everyone dirty by requiring the use of a PS5 controller only even though the entire scene has had controllers for a decade that would work just fine, and even work on the PS5 when running a "PS4 game" on a PS5. Xbox's controllers are backward and forward compatible. If Sony had some kind of reason for requiring the functionality of the new controller, sure, have at it, but they put this requirement in place for games that make no use of the new controller's features at all, which is a dick move.
I think they did exactly that, but as far as which console sells more units, it's still PlayStation, because they have a couple of games that, at least for a couple of years, you can only play on PlayStation. But I think Microsoft saw that they were never going to be able to compete with that directly, at least before their acquisition spree, so the Xbox is just a low-cost machine that gets you into Game Pass, long-term.
Is the Xbox controller being backwards/forwards compatible actually a feature? I thought that the only difference between them was the presence of a share button. Not to discount your point about it being bs that ps5 games require a new controller.
I guess the answer to your question about what hardware advantage the ps5 has it has to primarily be the controller. The new vibration and adaptive triggers are super engaging. I also personally prefer the way it feels to a ps4 one. Unfortunately I don't have an Xbox so I can't compare. Obviously that's a personal preference thing though, it's completely valid for you to dislike them.
That said, let's be honest, I got it for the exclusive games.