Sony And Microsoft’s Memorandum of Understanding May Have Broken Down

Kenichiro Yoshida (Sony CEO) and Satya Nadella (Microsoft CEO) shake hands and pose for photo capture

Back in 2019, Sony and Microsoft signed a memorandum of understanding to explore enhancing customer experiences in their direct-to-consumer entertainment platforms specifically gaming. Fast forward three years later and we now have one of the most interesting shifts in gaming that very few would have predicted would play out the way it is playing out right now.

Partly due to the pandemic, and a shortage of components for both consoles, as well both Sony, and Microsoft going on buying sprees purchasing gaming studios, one can only wonder if behind the scenes some agreements failed to materialize, due to Microsoft and Sony not caving on their end. While there is not any proof that things broke down, we could look at some public information coming at play.

Public Info #1: Microsoft Partners with Meta to bring Windows Apps, and Games to their Quest VR Headset
One could only hypothetically guess that Microsoft approached Sony had looked into doing this with upcoming PlayStation VR2 headset. Perhaps discussions broke down because:

A) Sony only wanted their VR headset to be focused ONLY on gaming and Microsoft didnt. This makes sense since the name is “PlayStation VR2”. A VR headset that is designed for VR games.

B) Sony wanted a cut out of all revenue coming from apps purchased from Windows apps such as Office as well as the removal of the words “Xbox” or “Game Pass” from any games that were released onto the PlayStation VR2 headset. From a business standpoint this makes absolute sense and Sony is within their absolute right to do so.

Public Info #2: Microsoft’s Purchase of Activision Blizzard
It’s possible that Microsoft really wanted Game Pass to be made available on Sony’s platform since they are the leader in the game industry by a significant margin and Microsoft wanted to reach the audience behind Sony’s gate of paying customers. What if perhaps Sony agreed to allow Microsoft’s Xbox Game Pass on their platform, only if the following stipulations were met:

  1. Sony gets a 30 percent cut of all revenue from Game Pass that come from PlayStation as well as a portion of all micro based transactions if they are purchased through the PlayStation console
  2. Microsoft agrees to make up the difference in loss of revenue on PlayStation Plus due to gamers playing 3rd party games that are available via Game Pass that must be fully purchased on PlayStation Network, or are not yet available on PlayStation Plus
  3. Microsoft gets out of the hardware market and becomes a game streaming company only. (Just kidding)

What if Microsoft didn’t want to agree to these stipulations? With the acquisition of Activision Blizzard, it’s obvious that they could have agreed to those but instead chose not to. If this was indeed a valid discussion, and stipulation, then you, as a reader should infer that Microsoft isn’t really the innocent company that they are making themselves out to be by saying Sony is gatekeeping because clearly, they aren’t. It would have also been cheaper for Microsoft to go this route while also allowing Microsoft to profit from Game Pass thus making both companies the winners here.

Public Info #3: No mention of Azure powering Sony’s PlayStation Plus service.
Cloud companies such as Microsoft, Amazon, Google, and Oracle usually issue press releases when a multibillion company signs on and agrees to use their cloud platform as it gives that company good press. There has not been any PR issued that Sony is now officially using Microsoft’s Azure cloud service by either company. I believe Sony was offering to use Microsoft’s Cloud service exclusively only if they agreed to some or more of the stipulations stated above. Perhaps Microsoft refused all of them and wouldnt meet in the middle, thus Sony walked, and decided it would be best to use AWS or Google Cloud or Oracle Cloud or a combination of all three. In this case, Sony was smart to make sure they did not get played.

It’s possible that the hypothetical disagreements mentioned above may have caused memorandum of understanding to break down entirely due to a failure to come to agreements mentioned above. If you recall, Sony and Honda entered into a memorandum of understanding to produce self-driving vehicles. As time passed, both companies then released another updated saying they have both signed on to begin development of the self-driving vehicles. A new company jointly funded by them materialized which is now “Sony Honda Mobility Inc”.

That type of outcome never came out of the memorandum of understanding between Sony and Microsoft.

Do let me know your thoughts on this take and please also remember that this is hypothetical, and opinion based.

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