Microsoft's new weapon in the console war

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.