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Microsoft's new weapon in the console war

Adding new games to Xbox Game Pass at launch is a bold move that says more about Microsoft's determination to keep hard on Sony's heels than its long-term strategy

Microsoft's announcement that its first-party games for Xbox One will be available on its subscription service at launch is unquestionably a dramatic move. It's a huge step closer to the "Netflix model", in the sense that like Netflix, Microsoft will now be developing major titles not with an eye to retail sales, but rather with an eye to access numbers and subscription renewals - an enormous step for the company, the repercussions of which will be felt around the industry.

The implications of a world where players (or at least a sizeable fraction of players) are paying for games through a single subscription fee are dramatic; it changes the business relationship in fundamental and not necessarily predictable ways. One obvious question is what this would mean for DLC or other post-purchase transactions like loot boxes or in-game currency; there's a strong argument that players who access a game via a platform subscription are vastly less likely to be willing to pay for extras in that game, perhaps to the extent of rendering those business models untenable.

"There has always been an element within Microsoft that has viewed Xbox hardware as a stepping stone to something greater"

Other major questions arise from this move; one very important one addressed by my colleague Christopher Dring earlier this week is the question of what this means for Microsoft's mid- to long-term vision for its games business, and whether that's a vision that continues to focus on dedicated Xbox hardware, or sees the Netflix-for-games element becoming central to the offering.

There's no doubt that there has always been an element within Microsoft - a software and services company to its very roots - that has viewed Xbox hardware as a stepping stone to something greater. From its origins as a bulwark against Sony's threat to the living room through to the vision for Xbox One that has emerged since its rocky launch, there's always been a degree to which Xbox was designed as an extension of the Windows ecosystem; the endpoint of that design would see it evolve into a services platform that's spread across a wide range of devices (possibly though not necessarily including actual Microsoft-manufactured Xbox consoles).

That was a fine vision, I think, back when the first Xbox and even the Xbox 360 were conceived. There was a sense at that time that Windows was the only game in town with regards to home computing, and its success was attributed in no small part to the openness of the PC platform and the mostly-openness of Windows itself. For Xbox to follow the same path, establishing itself as the software and services platform that supported and tied together disparate game and entertainment software and devices, seemed like a logical second act for Microsoft.

The world, however, has changed; it is now filled up with walled gardens of one form or another, all of them encroaching upon the Windows ecosystem and the open PC platform to some degree. Apple's iOS devices, PlayStation, Switch, the diverging flavours of Android offered by Amazon, Google and others... Consumers are now engaged on a whole host more devices running on a more disparate set of platforms than they have been at any other point in the personal computer era.

"An enormous part of the appeal of Netflix is its universality... Being able to access your Xbox games on a host of different devices in the same way is clearly more challenging"

Things are held together by standards for the web - for streaming video and so on - but the operating systems and hardware people use to access those things are for the most part closed-off enclaves in software terms. Such notions move beyond the hypothetical when you get spats between companies like the growing animosity between Amazon and Google, which recently saw YouTube access being removed from Amazon's FireTV platform.

That raises a big question about the fundamental idea of a "Netflix for Games". An enormous part of the appeal of Netflix is its universality; the service can be used on almost any device you own, including devices offered by companies who actually compete with Netflix to some degree. The same goes for music services like Spotify, which are offered on iOS devices despite the existence of Apple Music. However, there's no real precedent for this with games; and where a company may find it hard to justify not allowing you to stream music or video to their device (which you can accomplish in a browser if all else fails), the notion of being able to access your Xbox games on a host of different devices in the same way is clearly more challenging and less likely to happen. Lacking that, the Xbox hardware itself remains absolutely central to the success of the platform and its services; Xbox consoles and gaming PCs are the primary (and perhaps only) potential outlets for these services.

That said, I don't think this is a flaw in Microsoft's plan, because I'm not convinced it's actually Microsoft's plan at all. It's easy to understate the importance of Xbox One sales to Microsoft, not least because the company itself has spent considerable time and effort on reassuring everyone that it's incredibly relaxed about the sales gap between Xbox One and PS4. The further ahead Sony has drawn on its romp to circa 73 million sales, the more relaxed Microsoft has insisted itself to be.

"Adding new games to a rival Xbox subscription service at launch really throws the gauntlet down to Sony"

This claim is made a little easier to swallow by the actions Microsoft has been taking over on the PC side of things, where it's been working hard to extend Xbox's software and services to encompass the Windows platform more fully; Xbox exclusives are now available on PC as well as the console, driving home the idea of "Xbox" being an umbrella brand that spans both, and the console sales being less important than some conveniently nebulous measure of success for the wider platform.

However, I think the love Microsoft is showing for the PC and its work to extend Xbox to cover that platform is something of a red herring - not least because, honestly, it's really just the company catching up to what it ought to have been doing all along. Microsoft's treatment of PC gaming since the launch of the original Xbox has always been pretty baffling, to the extent that I remain convinced it was an oversight rather than a plan. The company, which had actually been a pretty solid publisher of PC games as well as caretaker of the platform overall, completely ceded ownership of the platform when Xbox arrived, creating a vacuum that Valve eventually filled with Steam. That Microsoft has returned to taking an active interest isn't necessarily meaningful for its Xbox console strategy so much as just being the belated righting of a decade-old strategic error.

Hence, if you step back for a moment and wave Occam's Razor around dangerously, the reality is that Microsoft's dramatic subscription move this week actually makes the most sense as a pretty straight-up piece of console war strategy. One of Sony's most powerful and often underestimated weapons is PlayStation Plus; the reaction from many consumers when told that Sony gives you "free" games every month for a subscription is still pretty dramatic, and while the workings of the system (needing to log in to add the games to your library each month) are a little annoying, they're actually great psychology, because players gradually build a bigger and bigger library of free games, thus making the "cost" of ending their subscription feel higher and higher as they go along.

Adding new games to a rival Xbox subscription service at launch is an enormous leapfrogging of that value proposition, and really throws the gauntlet down to Sony. Consumers do think about these things when choosing a console, and "the one that gives you free games every month" is naturally going to lose out to "the one that lets you play all its new games for free" (yes, I know, just imagine the little asterisked caveats around the word "free" in those sentences, please).

As a move that may give Xbox One powerful momentum in 2018, perhaps enough to overcome the still-rather-anaemic nature of its release schedule. It is both eye-catching and crowd-pleasing, and it makes perfect sense simply as an effort to sell more consoles, wider strategy notwithstanding. The broader implications for the industry are going to take months if not years to work through, but the short-term implications are simple; this is going to sell a lot of Xbox One consoles.

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Latest comments (6)

Paul Jace Merchandiser 3 months ago
"there's a strong argument that players who access a game via a platform subscription are vastly less likely to be willing to pay for extras in that game, perhaps to the extent of rendering those business models untenable."

I'm willing to bet that most developers would take a much higher buy-in(let's say 7-10 million copies sold) of the original product than a smaller buy-in( like 1 to 3 million copies sold) with maybe potentially only 30-50% of those 1 to 3 million buyers purchasing post launch content. Either way this new model is going to be a significant boast for launch numbers of new AAA games on Xbox One and that will obviously mean a higher number of potential buyers for the already mentioned post launch content.

"Consumers do think about these things when choosing a console, and "the one that gives you free games every month" is naturally going to lose out to "the one that lets you play all its new games for free"

Technically both offer free games every month for their monthly subscribers across platforms(Xbox One and 360 for Microsoft and PS4, PS3 and Vita for Sony) so that value proposition has always been the same for both. What gives Microsoft the edge is that all free games released for the Xbox 360 can be kept even if you cancel your Xbox Live Gold subscription and because those games can also be played on Xbox One via backwards compatibility it tends to make Microsoft's free offerings seem much more favorable than Sony's "free" offerings.

At the end of the day this is not only a very good and incredibly innovative move for Microsoft but for the entire industry. It raises the bar for other companies to try and reach, but more importantly it benefits consumers of the Xbox platform. This could in term benefit consumers of rival platforms if Nintendo and Sony chose to follow suit. We can argue forever about which company will do it better but for consumers it's a win-win.

Edited 2 times. Last edit by Paul Jace on 28th January 2018 4:13am

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Jeff Kleist Writer, Marketing, Licensing 3 months ago
Paul, Sony certainly did the free game well in advance of Microsoft, partially pe cause PSPlus was sominferuor to Live that they needed an edge. Also many of the games tend to be better, MS does have a nasty habit of dumping sure to fail Indy junk from ID@Xbox into the program.

Considering the fact that people today are sticking with one game for long periods of time, and value fast superficial experiences over actual depth, and that people spent $300+ million on Team Fortress hats, I think thatís what theyre going for. While the latter to me is more of an indication that people should be undergoing examinations as to mental competence, we canít argue with the trends. F you want to hook the kids, your game is merely an accessory to their chat room, and the more ddictivrly mindless you can make it, at least on a base playable level, the better it gpfits this model.

So I will absolutely argue that Sea of Thieves will generate far more income under this model than it otherwise would by having an instant user base in the millions. People are going to customize their pirate, buy new tunes to annoy each other eith, decorations for their pirate ship. Iím sure thereís more. Forza is the only game I can think of that isnít going to benefit.
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Jeremiah Moss Software Developer 3 months ago
The world, however, has changed; it is now filled up with walled gardens of one form or another, all of them encroaching upon the Windows ecosystem and the open PC platform to some degree.
I'm disappointed that everything has moved to walled gardens. I'm a fan of openness. Having to either choose a platform or buy things two or three times if I want them on multiple platforms really sucks.
The company, which had actually been a pretty solid publisher of PC games as well as caretaker of the platform overall, completely ceded ownership of the platform when Xbox arrived, creating a vacuum that Valve eventually filled with Steam.
I'm a bit baffled by this statement. The PC is still the same platform as it was back then. Steam filled a void that existed not because of Microsoft, but rather existed because retail outlets were starting to scale back on PC games. Even other publishers were having a tough time getting PC games into stores.

Sure, Microsoft made games and even published them, but I think painting them as a "caretaker of the platform" with respect to games is romanticizing history a bit.

. . . although I will agree with the sentiment that Microsoft never really had a solid plan for PC gaming.

Microsoft wouldn't really have a response to Steam until 2012, with the release of Windows 8, which had the first iteration of the Windows Store. Even today, the Microsoft Store is struggling to compete. I see a lot of mobile-first apps and games, which don't make a lot of sense for my dual monitor / keyboard / mouse setup.
Consumers do think about these things when choosing a console, and "the one that gives you free games every month" is naturally going to lose out to "the one that lets you play all its new games for free" (yes, I know, just imagine the little asterisked caveats around the word "free" in those sentences, please).
A swipe at Nintendo's proposed strategy?

Last I checked, the Switch is selling quite well, and their subscription service won't be available until later this year.

Also, the PC is very strong in not charging for online services - Steam does not charge for its services, despite offering services like in-game chat, an in-game browser, online screenshot storage and management, etc. You buy the game, and that's it. There is no monthly charge to play a multiplayer game online.

I actually think it kinda sucks that console developers feel a need to charge for being able to play a game online. I can understand some of the extra services (like chat) being under the umbrella of a subscription service, but not the ability to play games online.
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Chris Payne Managing Director & Founder, Quantum Soup Studios3 months ago
This will make a HUGE difference to multiplayer games, which need a decent userbase off the bat to show their potential. Games like Evolve would have been much more successful in an ecosystem where players have already paid and are looking for something fresh to justify that commitment.
How often have you tried out a Netflix show that's "not usually your cup of tea" just to see what the fuss is about?
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Klaus Preisinger Freelance Writing 3 months ago
MIcrosoft tried to leverage their big brands to close the gap to PS4, it did not work. Outside the U.S., what is the relevance of Halo, Forza and Gears really? A sordid bunch of big alpha male games, while Sony and Nintendo release franchises which a surprising number of women play as well. Imho, MIcrosoft is in a niche of their own design. It does not mean those are bad games Microsoft is making, but one can see a more limited audience than with their competitor's games. Especially Gears seems to be made by people who weren't told that 90ies Tim Allen was supposed to be a parody.

To make matters not better in the least, instead of paying $60 for an entry ticket to games littered with microtransaction shenanigans, people shall pay $10 per month? Or are we naive enough to pretend that those were to vanish as well? The Netflix of games? Since when does Netflix have any layers of monetization beyond the initial subscription? There is no lootbox that unlocks 4k on a random season until I collect them all. Here is my money, 1000h of Netflix (co-)produced content per year, thank you very much. The equivalent of a 20h hour grind free game every week. The difference between Netflix and Game Pass could not be any larger, the production capacity of both companies could not be further apart. To humor yourself what third parties and indies do, subscribe to Humble Monthly for a month to get a taste in scope and audience diversity.

So let us assume Microsoft fixes those issues as well and suddenly we have a $10 per month service which blows away all ages and demographics. How will third parties react to Microsoft saturating the market? How will retail react? Will they drop Xbox from stores like a hot potato? Netflix, Amazon, Google, Apple, those are all big online, but in the real world, they all live as small plastic cards next to packs of cigarettes at the cash register. I fear that is not enough to go up against Sony and Nintendo.
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Jeff Kleist Writer, Marketing, Licensing 3 months ago
@Klaus Preisinger: Virtually all Netflix shows also have physical and digital sales releases by their production studios. There is often a window, a year on the Marvel shows for instance, but yes, there is ancillary revenue they get s cut of. Depending on the show, they also may see revenue from t-shirts, action figures and the like. Stranger Things has been huge on that end.
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