Microsoft hints at its Xbox endgame

Phil Spencer gave glimpses of a future for Xbox with short product cycles and a smartphone-like business model

Ever since Satya Nadella took over as Microsoft's CEO, there's been a cloud of speculation lingering over the company's Xbox division. Nadella's focus is strongly and unapologetically on a key set of Microsoft's core strengths - enterprise software, cloud services and securing the market position of the Windows / Office product range - and Xbox, an entertainment hardware platform for consumers, seems at odds with a company increasingly focused on software and services for businesses. There have been rumours of talks with other industry giants aimed at selling or spinning off Xbox, though they ultimately came to naught, leaving Xbox as an unusual, out of place division within a pivoting Microsoft.

"As the core features (and software) of Xbox are made available on Windows 10, so too will the Xbox become more like a PC"

This isn't actually a new position for Xbox, which has been at something of a tangent to the rest of Microsoft since its inception. Originally conceived as a strong response to the perceived threat of Sony - the then-dominant PlayStation 2 seemed to herald a bid to wrest control of consumer home entertainment from Microsoft, whose previous living room initiatives (WebTV, anyone?) had failed miserably - the division was led by and attracted a talented if motley group of Microsoft outsiders and mavericks. Within a few years, the original raison d'Ítre of Xbox had evaporated; both Microsoft and Sony lost the battle for the consumer, with smartphones, tablets and other devices running Apple and Google operating systems becoming the core of most people's entertainment and communication ecosystems instead.

The Xbox 360, though, justified its place in the company on its own strengths, comfortably outselling Sony's PS3 for most of its lifespan. Xbox One, despite selling more strongly than the Xbox 360, is a different story, and a distant second to PS4 in installed base. It's easy to justify sustaining a strange, badly fitting business unit when it's generating acres of good press and dominating a market sector; with that advantage gone, the spotlight has inevitably turned back to the question of what Microsoft does with Xbox now.

At last week's Xbox Showcase event, we got a pretty good, albeit still incomplete, answer. Xbox is going to push ever deeper into the Windows 10 ecosystem. Following updates to the console that essentially turn its OS into a version of Windows 10, and permit various cross-platform features between Xbox One and Windows 10 PCs, Microsoft is now pushing the concept of a Universal Windows Application, which essentially means games that run on PC and on Xbox One (and on tablet devices like the Surface). Developers will create their games and sell them through the Windows Store, with the notion being that, in theory, you'll buy a game once and play it on whichever Windows 10 platform you prefer - a paradigm Microsoft has been driving towards with, for example, the free copies of Quantum Break on Windows 10 it's giving to people who pre-order the game digitally on Xbox One.

As the core features (and software) of Xbox are made available on Windows 10, so too will the Xbox become more like a PC; without giving details, Xbox boss Phil Spencer hinted at a (near) future where the console is upgraded on a much faster, more flexible cycle, more like a smartphone (with a 12-month refresh cycle and, generally, a 24-month lifespan in consumers' hands) than like an existing console (whose hardware spec remains fixed for six or seven years).

"If successful, it would probably mark the end of game consoles as we know them; the long predicted "death of the console" brought about through evolution into a new form of device"

This is a vision that makes enormous sense in the context of trying to fit Xbox within the jigsaw puzzle of Microsoft's wider business. It would essentially take the Xbox One - a console which, remember, has already pivoted dramatically from its original, highly controversial vision - and turn it into a formal extension of the Windows 10 ecosystem, treating it as an experiment in discovering a new technical and business model for console hardware within a much more connected world. If successful, it would probably mark the end of videogame consoles as we know them; the long predicted "death of the console" brought about through evolution into a new form of device. But in some ways, this move is less about overall market success and more about figuring out how to position Xbox (which Microsoft's upper management and shareholders do not care deeply about) as an important pillar of strength for Windows 10 (about which they care very, very much).

Don't underestimate just what an enormous change to the console model Spencer was proposing in his Showcase talk. Cross-play between Windows 10 and Xbox One is a big deal, of course - though it's likely to infuriate PC gamers who already vociferously dislike console specifications being used as the "base spec" for games on their platform - but it's the knock-on consequences of the notion of a more frequently upgraded console that are most important, and most suggestive of an end to the console model as we know it today.

The existing console model is relatively straightforward: an expensive, high-spec device is released to the market at or below cost price, with the platform holder gradually moving into profit over five to seven years through a combination of cost savings on hardware (the price of the machine falls far more slowly than the cost of parts and manufacturing) and licensing fees on software sold for the device. There are many reasons why consoles remain popular despite the huge performance advantage of PCs: ease of use, design, software line-up and future-proofing are important, but price is perhaps the biggest factor, with consumers who buy something like a PS4 getting a pretty amazing bargain in terms of cost to performance ratio, at least in the early years of the console's life.

The smartphone model, to which Spencer alluded approvingly, is very different. No manufacturer sells smartphones below cost. While smaller manufacturers struggle to make money in a competitive market, both Apple and Samsung have solid profit margins on their devices. New smartphones are, as a consequence, very expensive, with $700 to $800 not unusual for a high-end model. Consumers do replace these, in general, every two years, with most using plans from their network service providers to spread that cost out over a 24 month period, "buying" a new phone with a renewal of that plan at the end of the period. The cost of the phone isn't subsidised, despite the often misleading claims of phone networks. Consumers pay the full amount, one way or another, spread out over two years.

"In the space of time between console launches under the old model (let's say six years), the Xbox hardware would be refreshed three times"

How might an Xbox operating on that model look? One can imagine essentially 'leasing' an Xbox from Microsoft, paying a monthly fee for the system (which would incorporate your Xbox Live access) for 24 months, with the company giving you a new, improved Xbox at the end of your two-year contract, and either letting you do what you want with the old device or - more likely - collecting it from you at the end of the period, since it's in their interest to keep consumers on up- to-date Xboxes rather than letting a ton of older, less capable devices float around in the after-market.

The notion of console "life-cycles" would be gone. In the space of time between console launches under the old model (let's say six years), the Xbox hardware would be refreshed three times. The console would get to make some cost savings on hardware over its shortened two-year refresh cycle, but they wouldn't be very significant; the chances are that consumers would always be expected to pay the full launch-day price of the console, spread out over monthly payments. This would, of course, mean that over a six-year life-cycle, a regularly-refreshed Xbox customer would probably end up paying something like $2000 for their hardware, while a customer buying a PlayStation on the old model (assuming Sony stuck to the old model) would have paid around $400. With the actual monthly cost probably being around $30, though, and Xbox being accessible to customers who didn't have $400 on hand right then, would consumers notice or object to the huge difference?

A lot of people are going to have quite visceral reactions to what Spencer and Microsoft are proposing, no doubt, but I think there's a really interesting argument on both sides. A regularly updated console platform could still offer many of the advantages of a console - a somewhat fixed target spec for developers, great ease of use for consumers, relatively low cost to entry - while taking on board some advantages of a PC, like being able to deploy performance improvements and technological advancements more rapidly. As part of the Windows 10 ecosystem, and sharing many (though not all, Spencer has confirmed) games with its PC counterpart, there would also be the interesting opportunity to allow consumers to bounce between a gaming PC and an Xbox console depending on which suits their lifestyle and their budget better at any particular point, safe in the knowledge that they'd be taking their library of games with them on the move.

"Microsoft is to be commended for trying - once again, and perhaps more credibly and interestingly this time - to shake up the status quo of the console industry"

On the other hand, the existing console model is popular for good reasons, too. It's extremely cost-effective, and it gives consumers a cheap system that's pretty much guaranteed to deliver good quality games for over half a decade. Backwards compatibility, despite much being made of it in the media, has rarely proven to be much of a draw for consumers; rather, they seem more concerned with feeling confident in forwards compatibility, the knowledge that the system they own today will still be playing games released in a year, two years' or three years' time. A smartphone-like "leasing" model for a more regularly upgraded Xbox might assuage that concern, but there will still be overlap between models' lifespans, and games on the 2020 Xbox that won't play (or will play badly, which might actually be worse) on the 2018 Xbox many consumers still own.

There's also a question of how this model plays in markets outside the United States and other wealthy, developed countries, where the success of consoles generally hinges on them launching later in their lifespans, when cost savings in manufacturing make it economically viable to release lower-cost hardware in lower-income territories (and the second-hand aftermarket is a big deal there, too). In the traditional model, that lower-cost hardware can still play today's latest games; in Microsoft's new model, older hardware will play older games, which may severely limit its appeal outside high income regions.

Even while recognising the internal politics within Microsoft that have fuelled this swing in the vision for Xbox, the company is to be commended for trying - once again, and perhaps more credibly and interestingly this time - to shake up the status quo of the console industry. Of course, there's no innovator's dilemma facing Microsoft; in distant second place behind Sony, it has little to lose from trying something new, but that doesn't detract from the value of what it's proposing. It may not work; it may well be that console consumers, who are developing a solid track-record of proving pundits wrong about their preferences for console hardware over alternatives, stick with what they know and love. But faced with a market drubbing at the hands of Sony after releasing a console that is, objectively, not all that different from the PS4, Microsoft is doing the right thing by trying something entirely new. Whether it fails or succeeds, this battle of two very different models and visions for the world of consoles is something the industry truly needs.

Latest comments (13)

Carl Hudson Studying Computer Science, University of Adelaide2 years ago
I'll buy a new console every year if they divide the launch price by 7.

Also, I thought the reason that games get better, into the cycle, is because devs have better tools and coding to take the absolute best out of the very specific hardware in the console? This cannot continue if the underlying hardware is a yearly x factor.

I can't imagine Sony/MS would be locking too much into the next cycle yet until they see how VR/AR pans out.

With XB1 trailing somewhat, I can picture meetings at redmond, where they continually brainstorm to come up with as many remotely possible ideas as they can think of for the next gen. (or, if they're gonna get whacked again next gen, how can they shorten the suffering?)
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Oliver Jones Software Developer 2 years ago
As a iOS developer I can tell you mobile consumers don't really have an annual cycle. Yes new product is released each year but significant changes in hardware only happen every two years and then consumers are often 3 or more years out of step with the latest device.

As an iOS dev at the moment you target iOS 9 & 8. And if you want the final 5% of addressable market you target iOS 7 too. This means your software can run on devices going back to the iPhone 4. A device that is 5-6 years old.

If MS wants to move the Xbox to to a more services driven model then sure it could move to a model of refreshing the hardware more regularly and offering flexible payment models but you are still going to find consumers lagging behind. Only updating their device every 3 or 4 years. Only the more affluent and tech oriented consumers will tag along on a yearly or bi-annual cycle.

Any device that had this sort of refresh cycle would have to focus on backwards and forwards compatibility. Smartphone platforms do this well already.

Microsoft could pull off this strategy change well if it ensures it doesn't alienate its exisiting Xbox owners. It will be a tricky sell but certainly something it could do.

Edited 1 times. Last edit by Oliver Jones on 3rd March 2016 1:56am

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James Coote Independent Game Developer 2 years ago
Imagine an Xbox Three launches in 2018. Lots of Xbox Two's start hitting the after market, snapped up cheaply by Xbox One owners looking to upgrade 5 or 6 years after having bought their XboxOne's. At that point, there are still just 3 targets devs have to worry about, or two if they decide to totally drop X1 support.

In any other scenario, devs would still have to target the original Xbox 1 hardware as their minimum spec till maybe a year after next gen launches?

If Microsoft then say new Xbox every 2 years after that, and keep the versions easy to understand - Xbox 3, Xbox 4, Xbox 5 etc. It gets a lot easier to sell to gamers: If you want the shinyest graphics, upgrade every 2 years and get some trade in value for the old one. Can't afford that, then know your Xbox will be good for at least 4 years. Even the GameStop's of this world benefit from the arrangement!

I think selling this idea to Xbox fans will be the tough part though.
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Show all comments (13)
David Canela Game & Audio Designer 2 years ago
The comparison to smartphones seems a little risky to me. Most people carry their smartphones with them all day. For many, it's a status symbol like wristwatches used to be. Consoles lack those factors and as much as the console audience gets older, it's still much younger and probably has less disposable income Idk...
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Alan Blighe Research Associate 2 years ago
Not a programmer, but won't this affect the ability of developers to code to the full extent of each system's capabilities? We'll effectively have un-optimised launch-window software pretty much perpetually.
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Morville O'Driscoll Blogger & Critic 2 years ago
From what I can gather, the Universal Windows Platform layer is the "secret sauce", allowing a certain amount of on-the-fly optimisation of the game, disabling certain effects for older hardware, enabling them and changing resolution for newer hardware.

Yes, it sounds like rubbish to me, too.

Actually, I'm sure it's probably possible to do that - it happens to an extent already, in the sense of cut-scenes can be played at one resolution or frame-rate, and actual game is another. So, this just would just extend that to its logical point. But I honestly don't think it'll do much - this seems like MS's last gamble to make the Xbox One worthwhile, from its own viewpoint. You can already see them giving up a vast swathe of previously Xbox One exclusives as they shift focus to Windows 10 Store. Developers may be hypothetically interested, but considering it seems more effort than it's worth when you can just focus on PC (Steam) and PS, I don't see a lot of actual uptake.

Edited 3 times. Last edit by Morville O'Driscoll on 3rd March 2016 12:43pm

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Adam Campbell Game Production Manager, Azoomee2 years ago
This was my predicted vision just over 10 years ago but we'll see. Not too sure why Microsoft kept PC and console platforms so separate for so long, considering you would expect their main goal to be furthering the Windows platform.
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Let's see a working proof of concept, I imagine there might be a challenge of a moving goalpost for developers in future proofing a forthcoming title
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Sergio De Los Santos Senior Render Programmer, Frontier Development2 years ago
"Not a programmer, but won't this affect the ability of developers to code to the full extent of each system's capabilities? We'll effectively have un-optimised launch-window software pretty much perpetually."

Current consoles are PC like, so it's not the same as it use to be (Playstation always had very custom hardware that had a long curve to learn and master). As long they release new PC like hardware PC, things won't change that much.

I mean, there is always things to learn, specially on the GPU side, but is not like PS2 or PS3 that were very different. And GCN (the architecture behind both XB1 and PS4 GPUs) is a very open architecture and the documentation about it is public. Sure, some details are different in both APUs (the XB1 and PS4), but again, the difference is not that big.
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Jordan Lund Columnist 2 years ago
The cell phone market analogy doesn't fit because people don't buy cell phones primarily for games. They buy cell phones primarily as communication devices and oh, if they play games too that's a nice bonus. It's not the prime mover the way it is with console sales.

Microsoft could move the needle very easily by doing two things:

1) In the next hardware revision of the Xbox One, stealth add a USB-C port.

2) Say nothing about the USB-C port until the next generation is ready to launch and then triumphantly announce an external GPU upgrade for the systems people already own. Something like this:

Then, instead of releasing a completely new system every 5 or 6 or 7 years, you can release a new GPU every 2-3 years.

Using the same consoles people already own.
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Robin Clarke Producer, AppyNation Ltd2 years ago
Handhelds (and mobile) have shown that incremental updates are possible without fragmenting the platform.

Microsoft need to address the Xbox One's weak specs to even get back into the ring with the PS4. How quickly and how often they deliver hardware revisions, and whether Sony will respond in kind, waits to be seen.

Jordan Lund: a cool idea, but breaking the upgrade out into a separate component (requiring its own design, casing, packaging, testing, software, distribution, etc - every couple of years) would probably negate any cost saving. I really hope external GPUs take off for laptop PCs though.
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Kevin Strange Developer Relations Account Manager, AMD2 years ago
Full disclose, I work for the AMD Radeon Technologies Group (PC GCN GPU). I have no insight into what our Semicustom (custom GCN APU) team are discussing with Microsoft. (Or Sony)
So this is just me speculating on Jordan's theory with with public info at hand (not confirming or leaking anything)

Upgrading the GPU while utilising the APU on older models whilst releasing more frequent consoles with new GCN APU/GPU hardware..
Is a lot more feasible for programmers who are now working with DX12, which is now on XBONE and PC.
Especially with explicit multiadapter which a lot of smart graphics programmers I follow on social are currently discussing (and Oxide are using in Ashes, one of the 1st DX12 games)

X360 had a newer HDMI model release, perhaps they will release a more powerful XBONE model for 4K TV's as well as Hololense / VR headsets (see Oculus/Microsoft E3 announcement maybe it's more than just a controller) that still plays current XBONE games..
Maybe in the future even a USBC box/periferal for XBONE and PC especialy as chips get smaller, cheaper and more power efficient (14nm Polaris GCN and beyond)

Edited 2 times. Last edit by Kevin Strange on 4th March 2016 12:04am

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Roberto Dillon Associate Professor, James Cook University2 years ago
Sometimes I have the impression people at MS try so hard to think out of the box that they actually break the (x)box itself!
Jokes aside, there are several reasons why consoles had 5 or more years cycles. As pointed out also in the article, manufacturing costs go down and profit margins go up year after year and that's where the manufacturer recovers all R&D investments and make a good overall profit. At the same time, developers acquire in-depth knowledge of the system possibilities, allowing them to squeeze the HW more and more and actually improving the quality of their games even if the underlying tech isn't state of the art anymore. And let's not forget also that players get more mileage out of their investment too. Having fixed specs for a few years is a win-win for everyone.
This move seems to wipe out all these benefits at once... I guess I am missing something here.

Edited 2 times. Last edit by Roberto Dillon on 4th March 2016 4:07am

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