Why Sony and Microsoft Teaming Up on Their Next Console Makes a Lot of Sense

Microsoft has trouble making hardware. Sony has trouble running online services. What if the next Xbox and the next PlayStation are one and the same?

A few months ago, while reporting about the then unannounced Wii U console for Nintendo, we stumbled on an interesting ancillary rumor: Microsoft and Sony were in active discussions regarding their next consoles.

For two giants in the home video game console market to be talk from time to time isn't wholly surprising. Sony and Microsoft are clearly competitors in the console market, but they're also unlikely allies in a gaming landscape undergoing upheaval brought on by the likes of Zynga and Apple. Triple-A console games like Halo and Uncharted are still going strong, but the expansive growth in the industry at larger has been in the casual and mobile space—an area in which Microsot and Sony only dabble, especially if you count Sony's PlayStation Vita as more of a "portable home console". (Don't get me wrong. The Vita looks fantastic. But it doesn't really compete with, say, the iPhone.)

Launching a new home console is an expensive and risky endeavor. Microsoft took a multi-billion dollar loss when the Xbox 360 had its infamous "red ring" crashes; Sony lost a few billion getting the PlayStation 3 off the ground. The real money is in games—and increasingly, in online services, like downloadable games and other media offerings.

It has come to light that someone—probably Microsoft—has registered the domain Microsoft-Sony.com. On its own, that means little—domain names are cheap to buy and easy to spoof—but it does prompt a moment of reflection: Microsoft and Sony working on their next console together makes a tremendous amount of sense.

Sony still has the hardware knack. A few aesthetic clunkers aside, Sony still makes lovely, sturdy hardware. The PlayStation 3 still looks perfectly fine. And my launch version has held up well enough over the lengthening years.

Plus, Sony has access to tremendous production facilities of their own, unlike Microsoft who largely contracts out to third-party builders for not just assembly, but components. (Crack open your phone someday. There's a good chance it has some Sony hardware in there somewhere.)

Microsoft makes the best development tools in the industry. "Best" is subjective, but most of the developers I know greatly prefer programming using Microsoft's excellent tools over those of their competitors. That's certainly been part of the reason so many cross-platform games begin their life on Xbox and are ported to the PlayStation later. (Although certainly as multi-platform development has matured, it's increasingly a port-as-you-go situation.)

A Sony-built hardware platform that ships with Microsoft development tools on Day 1 would give game developers a tremendous leg up in unlocking the power of the hardware.

Xbox Live is the best online gaming platform in existence. While PC-based Steam is a close second overall, there's no better platform for getting games, media, and networking with friends than Xbox Live. And a unified Xbox Live and PlayStation Network would be instantly a huge community, which would be attractive to publishers and advertisers.

Plus, well, the hack. Sony got a black eye over the hack against the PlayStation Network over the last few months. While the problem has largely abated, online has never been one of Sony's strengths. (Evinced by their numerous aborted music download services and hesitance in putting the PS2 online, for instance.) Sony doesn't have the technical acumen to run end-to-end networking platforms, while Microsoft is perhaps the best in the business at doing so.

Sony gets to retreat into hardware and content, its greatest strengths. Remember, Sony was the Apple of the ‘80s and ‘90s: a hardware company that happened to sell and produce a lot of media designed to be played on the hardware it sold.

Every time Sony has strayed from their core competencies, they've been half-hearted at best—catastrophic at worst. But they remain tremendously profitable in the areas where they just build good hardware—their HDTVs, for instance—and leave the fancy network and software business to someone else.

It might get Microsoft a toehold into Sony Ericsson. Sony Ericsson has been on shaky ground since before the iPhone, but even its modern Android phones—including the gaming-oriented Xperia Play—aren't anything special.

Microsoft's Windows Phone 7 is pretty great. It just needs apps—like games. A combined Sony and Microsoft attack on the mobile gaming space would be pretty powerful. (Although wholly unnecessary in making a Microsoft+Sony home console a success; it would just be nice.)

We'll probably know sooner than later if Microsoft and Sony intend to team up on a new console. And there are plenty of reasons why they might not want to go in together—loss of their own exclusive platform being the most compelling one—but there sure are a lot of upsides to a team-up, aren't there?

And if you think about it, that Microsoft is making hardware and Sony is making software to compete against each other is actually the exception of their relationship, not the rule: Sony laptops have been running Microsoft Windows for years. You could even look at that as another reason why Microsoft would be willing to cede the Xbox hardware business: Sony's latest hardware experiments, like their tablets, run Google's Android. It might be worth a few billion here and there to Microsoft to bring Sony more fully back into the fold. (See also: Nokia.)

Do I think this is going to happen? Probably not. I'd give it a 20% chance using my Statistical Confabulator with a +/- 10% for the heat added to our economy by Nascent Fanboy Psycho-Kinectic Pedantry. But it sure doesn't sound totally crazy either, does it?