Small number of total games was the biggest Microsoft weakness for several reasons.
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Fewer chances to strike gold. The more games you make, the more likely you are to stumble across something that exceeds expectations. People don’t tend to think about the mediocre games Sony put out, they remember the excellent ones.
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More games means more chances to satisfy a broader range of customer tastes. If you only enjoy some types of games, it’s easily possible to only get 1 or 2 games a whole gen that satisfy you, even if the company puts out many great games in genres and styles you don’t like.
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More games in the pipeline means continual excitement without dry spells. If the next big game is always on the horizon, people are more happy about how things are going.
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More games means you can give each game more time to cook. Delaying Halo Infinite was a very heavy decision for them to make, but in the future where there are many more releases per year, delaying one major game is not such a big deal. Letting games iterate and polish for as long as they need to is a major factor in achieving truly great games, and this was challenging for Microsoft over the last 6-7 years because they had fewer total games coming out so any delay could leave critical gaps in their calendars.
As a general comment, there were only about 2-3 Sony games that weren’t matched in quality by one or more Xbox games - but there were just more Sony games especially later in the gen. First year it wasn’t such a difference.