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Xbox is preparing for a post-console future

The latest Game Pass subscription offering is the next step in Microsoft's hardwareless future

Microsoft, at its heart, is a software and services company.

It always has been. It makes operating systems, word processors and offers Cloud services. That is at the core of the company's identity.

By contrast, Sony is a hardware business. It builds Walkmans and TVs and smartphones.

Of course, they dabble in each other's worlds. But this core difference is key to understanding the slightly different approaches both companies have to their gaming divisions.

Sony is rightly proud of its 73.6 million PS4 install base. The more PlayStations the company sells, the happier it is.

Microsoft wants to sell a load of Xbox Ones, too. Of course it does. But it's not the No.1 metric that it uses to judge its success. Microsoft - as a software and services business at its heart - wants to have a large audience of people using its software and services. That can be on Xbox One X, or PC, or (whisper it) even a PlayStation console.

I often encounter gamers bemused by the fact Xbox One exclusives are launching on PC. They suggest that this will only damage the overall appeal of Xbox One. But Phil Spencer and his team don't really care. If you're playing Sea of Thieves on PC, or Minecraft on Nintendo Switch, you are (in effect) a Microsoft customer. Customers are good.

That's why yesterday's Game Pass news was so significant. When Xbox announced the service, which delivers 100 games to subscribers for a monthly fee, natural comparisons were made to Netflix. But it wasn't really the same thing. Netflix is full of new, original content that you can only get via the service. Game Pass offered a load of catalogue, backwards compatible and indie games. That limited the audience to either niche gamers, or those that were new to the platform and wanted to dip into past products.

"Microsoft's cloud infrastructure could eventually be used to offer an on-demand gaming service that's accessible across multiple screens"

The news that all first-party Xbox games will be coming to Game Pass, including upcoming games on the day of their release, is a significant move. That's a big incentive to invest. If you were always going to pick up Sea of Thieves or Crackdown 3, the service already pays for itself for the next six months.

The initial challenge for Game Pass is the lack of upcoming first-party content. There are a handful of releases in the first half of 2018 (add State of Decay 2 to the above two games), and Phil Spencer teased new games in the Gears of War, Halo and Forza franchises. But to encourage a large number of people to invest in Game Pass, Xbox needs to deliver more unique software more frequently.

Spencer told Bloomberg last year that's exactly what the company is trying to do. He said that Xbox needs to grow and that he would "look forward to doing that". And current rumours of a new Fable and Perfect Dark games points to Microsoft investing in growing its first-party slate.

These games will take time, and that's fine. The reality is that Game Pass isn't going to revolutionise anything right away. For now, it will enhance Microsoft's value proposition and help differentiate it in its on-going efforts to chip away at PlayStation's dominance. It is a way for Xbox to put extra focus on its first-party exclusives (both new and old), without having to actually release more games. And it could even help broaden the console's appeal amongst a more mainstream customer.

Yet long term, Xbox is putting the pieces in place for a future without hardware. Microsoft's cloud infrastructure could eventually be used to offer an on-demand gaming service that's accessible across multiple screens, much in the way Netflix is today. It has the tools at its disposal to radically change how it distributes its content to gamers.

This isn't Xbox giving up. Far from it. This is just the company doing in games what it does so successfully elsewhere - create a strong platform from which to deliver high quality software.

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Latest comments (3)

Jeff Kleist Writer, Marketing, Licensing 6 months ago
Netflix was just catalog titles for several years.

The WWE Network is very much a model for this. They were charging $50 a shot for monthly pay per view events, of which a minority of their viewers purchased. Of those who did buy, most bought one or two, very few more than 3-4. Of that $50, the WWE typically kept less than $20 after cable and PPV distribution fees.

So they surmised that if they could get a lot more of their customer base to sign up for even just the four major events per year, these people would stand a much better chance of sticking around for some of the minor ones, and they’d be making more money per customer overall. They’re holding steady at about 3 million subscribers, when their biggest event, Wrestlemania would generate a half million buys on average

Millennials have made clear they hold no value to owning non tangible property. They’ll buy a T-shirt, a statue,but they don’t care about having physical media. They don’t care about locking down permanent access. They just want all you can eat .

One million copies a few times a year at $35 vs ten million game pas subscribers (a very conceiveable number) at $10 per month plus whatever they drop on microtransactions is a very very good business. It’s the same reason why Netflix is spending $100 million on terrible will Smith movies

And let’s stop this “Post console”thing. It’s not happening. To achieve performance requires local hardware. There will always be local console stuff. Microsoft will continue to make more and more powerful Xboxes as gateways into their ecosystem, as well as keeping less powerful ones in production. Many paths to spending money.

This is a very affordable, very good way into the ecosystem. And it’s going to move a lot of consoles. For the cost of two games a year, you get your Netflix catalog, plus a half dozen or more brand new day one AAA games.

I guarantee Crackdown and Sea of Theives are going to return significantly more money under this plan. Forza maybe not so much, but that’s baiting the hook with the tasty fish.
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Alfonso Sexto Lead Tester, Ubisoft Germany6 months ago
@Jeff Kleist:
"And let’s stop this “Post console”thing. It’s not happening. To achieve performance requires local hardware. There will always be local console stuff. Microsoft will continue to make more and more powerful Xboxes as gateways into their ecosystem, as well as keeping less powerful ones in production. Many paths to spending money."

Beat me to it. Future will be digital for sure, but I don't see consoles disappearing until smart TV are not as powerful as them. Netflix just needs a small app for the video file decoding, this is not the same for properly streaming games.
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Paul Jace Merchandiser 6 months ago
"Netflix is full of new, original content that you can only get via the service."

I'm pretty sure I tackled this on GIBiz before but I will gladly cover it again. Netflix didn't start making original content until 2013---16 years after they were founded. Xbox Game Pass has been around for less than a year. I'll let you do the math but the point is that Microsoft has tons of time to continue to innovate thru their subscription service the same way they did a few days ago by announcing that future first party games would launch on Game Pass as well. And subscription numbers will continue to grow just like Netflix's did for the decade and a half before they launched House of Cards.

"And let’s stop this “Post console”thing. It’s not happening. To achieve performance requires local hardware. There will always be local console stuff. Microsoft will continue to make more and more powerful Xboxes as gateways into their ecosystem, as well as keeping less powerful ones in production. Many paths to spending money."

Seconded.....er, thirded. You are correct Jeff and Alfonso. Microsoft still needs a delivery system for their content and the Xbox is the perfect remedy since not everyone games on their PC's and tablets. And being able to download Game Pass games directly to your system before playing them is another of their major advantages over the competition.

Microsoft has found several ways to make money in the console race without being in first place. I doubt they are planning any post console future considering it brings several streams of revenue to their companies bottom line.

Edited 2 times. Last edit by Paul Jace on 26th January 2018 1:55am

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