Should Xbox and PlayStation Dive into Handheld Gaming? An Insightful Perspective

As the ninth generation of consoles progresses, speculation has reignited regarding the nature of upcoming console hardware. One thing the gaming industry does exceptionally well is capitalizing on trends, especially if there’s a chance to generate profit. This time, the focus is on gaming mobility. Reports have emerged suggesting that both Microsoft and Sony are developing handheld consoles as the next big move. The reasoning is straightforward: Nintendo’s Switch stands as one of their best-selling consoles ever, Valve has achieved success with the Steam Deck, and Sony’s mobile streaming device, the PlayStation Portal, is flying off the shelves. So why not create a dedicated PS5 handheld or an exclusive Xbox handheld? To those entrenched in the business world, it seems like a logical step.

In a conversation with Polygon, Phil Spencer mentioned: “I’m pleased that Valve, Lenovo, and Asus ventured out and innovated in a new form factor.” He further added: “I can say that when I’m using those devices, it often feels more like a console than a PC – nine times out of ten… I want to log in with a controller. I have a list of things we should pursue.” Not wanting to be outdone, Bloomberg reported that Sony is also developing a new handheld, based on a source.

Should console handhelds become the endpoint to the tenth generation of consoles (or even a potential contender for the tenth generation), it presents both opportunities and challenges in nearly equal measure.

The Opportunities:

a) Consumer Behavior. Back in 2017 when the Switch was unveiled, Nintendo reported a significant number of gamers preferred playing it as a handheld device. It might be reasonable to assume that over time, those who favored playing in docked mode likely stagnated in terms of numbers, or even declined. This suggests that the market for a handheld console is indeed viable. This prospect aligns perfectly with Microsoft Gaming’s head, Phil Spencer, who is focused on the ideal of ‘gaming everywhere, on every device.’ Spencer’s ultimate vision is to be hardware-neutral, transforming the Xbox brand into a service. A handheld console capable of playing Xbox games would create another channel for the Xbox ecosystem to thrive. For Sony, a dedicated handheld console could serve as an extension of the PlayStation Portal.

The primary caution in this market assessment is that the Nintendo Switch was specifically designed for Nintendo gamers and to play Nintendo titles. While gamers are often viewed as one monolithic group, significant differences exist in what they seek from a Nintendo device versus a PlayStation or Xbox device.

b) Cloud technology offers a pre-made solution. Microsoft launched Xbox Cloud Gaming for its Game Pass subscription service and has since incorporated cloud capabilities for 50 of its ‘owned’ games, with further additions expected. Sony, which initially pioneered the cloud gaming space by acquiring Gaikai, is racing to catch up to Microsoft with its recently announced cloud streaming for the PlayStation Portal device. The PS Portal will allow access to streaming via the cloud without being tethered to the PS5. This indicates we are already moving towards a dedicated console handheld for the PS5 ecosystem. Utilizing the cloud addresses the challenge of needing to develop specific applications for a new format like a mini disc, SD card, or cartridge. This will free the handheld from the software limitations that previously hindered older handheld systems.

c) Synergy with mobile gaming. Nothing would make Microsoft happier than finding ways to leverage its investment in Activision Blizzard’s console business through its recently acquired mobile division, King. If both console and mobile games could be monetized together (think Warzone and Call of Duty Mobile), a handheld console would provide an excellent solution. Another advantage could be that it serves as a bridge, where Microsoft can transition its mobile users to the more traditional console platform. This strategy might be crucial as another report has shown that mobile gaming has overtaken the Switch as the introduction for new (often younger) players. The potential to generate revenue by merging mobile and console gaming experiences could be substantial, particularly with younger and more casual gamers who are accustomed to monetization through microtransactions. So far, there seem to be two distinct markets for console and mobile gaming, but this shouldn’t be interpreted as an unbridgeable divide. I believe the difference stems from gamers looking for varied gaming experiences across their console and their phones/tablets, though this distinction has blurred as mobile app games grow more sophisticated.

The strong sales of the PS Portal are a testament to the fact that players are eager to experience their ‘owned’ games outside of the main console

d) Games as a service and subscription-based gaming. Sony has been heavily investing in games-as-a-service (GaaS) while Microsoft is all in on the Game Pass initiative. Both services stand to benefit significantly from a handheld console. GaaS titles inherently involve social interactions, making it extremely appealing to take your console wherever your friends are. There have been numerous occasions when my young son would take his Switch to a friend’s house to play Minecraft, Rocket League, or Fortnite. While Sony recently scaled back the number of GaaS projects it intends to launch, the Gamesindustry.biz headline ‘Report: 95% of studios are working on or plan to release a live service game’ highlights an increased focus on funding for GaaS. Besides GaaS, the subscription…
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Providers and products can acquire a residence on portable gaming devices. For example, Phil Spencer envisions Game Pass becoming the Netflix of video games—a service that’s largely available, similar to on-demand video content. This concept would be an excellent match for a device that operates outside the constraints of the living room. The critical challenge will be latency and accessing a reliable Wi-Fi connection, an issue that is fortunately improving each year.

e) Can access an extensive game library. When this very subject was posed to gaming analyst Michael Pachter from Wedbush Securities during the SIFTD Games videocast “Is the Xbox handheld a good idea?”, Pachter poured cold water on the notion of a successful dedicated handheld console, citing the lackluster history of such devices, particularly from Sony. Referring to the poor performance of the PSP and PS Vita as examples of how even advanced technology failed to capture a market, the chances of history repeating itself seem high, as Sony has yet to fully support its handhelds with software while concentrating on its more profitable console platforms.

It is my belief that this scenario may not apply to a handheld console that can already tap into a gamer’s extensive library. The primary limitation here is that the existing library would need to be digital (more on that later). We have observed that the availability of a game library has spurred rapid success (although primarily with early adopters) for the Steam Deck. The considerable sales of the PS Portal further illustrate that gamers are eager to play their ‘owned’ titles on platforms different from their main console, provided that the handheld performs well. If you factor in access to additional games available through the PS Plus subscription or Game Pass, it creates another reason why a handheld console is an appealing option.

A divided hardware market between handhelds and mainstream consoles could compel the industry to make tough decisions.

The Challenges:

i) Graphic trade-offs and pricing. Beyond various technical challenges such as controller drift, screen damage, and weight, GamesIndustry.biz’s sister site, Eurogamer, published an article last year titled Can Steam Deck handle a range of PC’s most demanding games? The consensus was a resounding yes, but with significant limitations. Frequently, a trade-off in graphics or frame rates is necessary to run the latest PC games effectively on the Steam Deck. One could argue that such compromises are essential given that you’re capable of holding a powerful gaming device in your hand. For the dedicated Steam Deck user who may have purchased the device to complement their existing gaming PC, this is likely acceptable. However, if a dedicated handheld console arrives with a price exceeding $500—meaning a higher price point than their more stationary counterparts—then mainstream consumers might expect a device that at least matches the performance of other products. Should these machines necessitate trade-offs compared to their living-room counterparts (which seems unavoidable), value for money will be at the forefront of handheld buyers’ considerations. If too many compromises emerge, buyer’s remorse could quickly ensue, particularly if the new handheld is competing directly with older, more affordable consoles capable of delivering a better gaming experience. For instance, there was significant backlash when Mortal Kombat 1 was released on the Switch with an unsatisfactory experience. However, in this case, the Switch is still a more budget-friendly option compared to the Xbox Series and PlayStation platforms.

ii) A fragmented hardware market between handhelds and mainstream consoles could compel the industry to make tough decisions. One criticism aimed at the Xbox Series S is that it does not match the power of its more robust counterpart, the Xbox Series X, leading to compromises. As a result of these two devices, we now have a fragmented Xbox Series ecosystem, and Microsoft is…