As a lifelong gamer and tech enthusiast who has seen countless console wars unfold over the years, I can’t help but feel a sense of excitement and anticipation when it comes to the future of Xbox. While I’ve always been a fan of Microsoft’s innovative spirit, I must admit that their execution hasn’t always lived up to their vision.
2024 will be remembered as a pivotal year not only for Xbox, but the game industry at large.
In recent times, the game industry’s growth has been minimal at best, while costs have been escalating rapidly. Warnings sounded years ago about AAA gaming being unsustainable are now unfolding gradually. This year, we’ve seen massive layoffs in publishing companies, closures of studios, and a drop in venture capital investments for new gaming projects, causing significant disruption across the industry. At the moment, it’s Xbox that seems to be experiencing these challenges most acutely.
As an analyst, I can share that Microsoft’s gaming division, encompassing Xbox studios, Bethesda, and Activision-Blizzard, has experienced significant downsizing with thousands of layoffs this year. Simultaneously, the Xbox brand has garnered some impressive content successes, such as Indiana Jones and the Great Circle, which could potentially be one of their best exclusive titles in recent years, despite the ongoing discussions about it. However, it’s essential to clarify that while it is an “Xbox exclusive” for now, it will be available on PlayStation a few months down the line.
Following The Game Awards 2021, The Outer Worlds 2 – a game previously confirmed as exclusive to Microsoft – was announced for PlayStation. This suggests the next stage of Microsoft’s gaming strategy, known as Latitude, which Phil Spencer hinted has no boundaries for games that could appear on PlayStation. Essentially, it seems Xbox is moving away from the concept of “console exclusives” in the future. Instead, most games will either be released simultaneously across platforms or have a limited time exclusive period, with a few exceptions due to practical reasons like developer availability and resources. Even popular franchises like Halo, Forza, and Gears of War may not be strictly tied to the Xbox brand.
What’s the fuss about? Is it really significant? What prompted Microsoft to take this action? If they’re dropping exclusives, what does that mean for the future of Xbox console hardware? Let’s delve into it.
The dilemma
Post-pandemic, it appears that gaming involvement remains relatively stable, as playtime hours and expenditures have decreased according to certain assessments. Analytics companies such as Newzoo and Circana attribute this industry’s growth restraint to increasing costs and a decline in natural user recruitment. Shawn Layden, a gaming veteran from PlayStation, has pointed fingers at social media platforms like TikTok, Instagram, and YouTube for some of the blame, arguing that they divert the attention of the incoming generation away from gaming.
The focus has shifted from Gen-Z; it’s now Gen-Alpha who’s stepping into the spotlight. Interestingly, younger generations are increasingly drawn towards watching game videos rather than actively playing them. As markets reach their peak, it’s a challenge for existing ones as costs have escalated quicker than growth. This has led to an intriguing situation where platforms like PlayStation and Xbox are expanding their horizons by collaborating with Steam and Epic Games, while also supporting each other, such as Xbox now extending support to PlayStation too.
Short video content, quickly satisfying but possibly influenced by algorithms tailored to individual preferences, has become a popular pastime for numerous people, whether positively or negatively impactful. Due to this trend, Xbox, being at the bottom end compared to Nintendo and PlayStation, appears to be affected earlier, which could explain some of its recent strategic moves.
According to Microsoft, it’s experiencing an unprecedented number of users on its Xbox consoles, a fact confirmed directly to its shareholders in legally binding statements. It would be risky for Microsoft to lie about such matters due to potential legal repercussions from the U.S. SEC. In other words, the situation isn’t as grim as some online discussions might lead you to believe, especially considering that major AAA game publishers are still keen on developing games for the Xbox platform. If things were really in a bad state, we would expect to see many big-budget AAA games avoiding the platform – but this is not happening (at least not yet). In fact, games that initially launched as PlayStation exclusives have moved to Xbox to explore new income streams, with Genshin Impact and Death Stranding being recent examples. This transition wouldn’t happen if there wasn’t a viable business opportunity on Xbox, and it seems that even more unannounced games previously exclusive to PlayStation are planned for the Xbox in 2025 as well.
Fans anticipate and respond to projected future scenarios regarding Microsoft’s Xbox. If Xbox doesn’t continue growing, there might be a higher likelihood of developers leaving the platform in larger numbers. With more developers departing, there could be a noticeable absence of thrilling games on the platform that you enjoy. In such a situation where people no longer trust Xbox as their primary source for content, why would they stick around? As the user base dwindles, so might the interest of developers to stay. This could potentially lead to a vicious cycle.
Most of Xbox’s revenue currently stems from the sale of Xbox consoles, earnings from games and microtransactions, as well as subscription-based services such as Xbox Game Pass. However, the challenge lies in maintaining growth while keeping pace with escalating expenses.
The solution
To seek out fresh income streams and combat escalating expenses, Microsoft started making their games available on PCs as early as the release of Quantum Break about a decade ago. This approach, even though it placed them third initially, has proven beneficial for them.
Microsoft has shown remarkable resilience in generating profits from the Xbox venture, even after multiple setbacks and missteps. The Xbox One’s public relations fiasco nearly spelled doom for the brand, while the Xbox 360 era was plagued by the infamous RROD issue. In the face of challenges like Covid-19 and a massive chip shortage that hindered initial rollout during the current generation, the Xbox Series X|S has thrived, achieving record revenue and user growth. This success can be attributed to their focus on service innovation, strategic acquisitions such as Activision-Blizzard, and branching out into new platforms.
One way to rephrase the given text in a more natural and easy-to-read style could be:
Indeed, that situation is under close examination at the moment. Xbox, initially a well-supported startup within Microsoft, has grown so large it surpassed Windows itself. Now, investors are closely examining Microsoft’s moves after providing a substantial financial boost to Activision-Blizzard. If Call of Duty Black Ops 6 had not been such a massive success but rather a disappointment, investors might be doubting CEO Satya Nadella’s strategy, and they probably are, given how quickly Google, Facebook, and xAI are catching up with OpenAI and Microsoft’s own AI platforms.
In essence, Xbox needs to expand according to Microsoft CEO Satya Nadella. He stated to shareholders today that the goal is to “reshape the concept” of being an Xbox enthusiast, focusing more on locating players in their preferred spaces rather than investing vast sums, potentially billions, into costly user recruitment strategies. With digital libraries tied to the platforms they reside within, Microsoft observes at gatherings such as Summer Game Fest that users are not frequently transitioning between consoles, despite their cross-platform strategy.
The announcement of The Outer Worlds 2 for PlayStation didn’t stem from a game being postponed past 2025, or due to Xbox or Obsidian needing immediate financial assistance. Instead, it was a choice made because the four Xbox games initially intended for PlayStation did not significantly affect active Xbox console users. Microsoft interprets this as an indication that players are content where they are and unwilling to switch platforms solely based on what the other side offers.
Microsoft believes that many of the younger Gen-Alpha and Gen-Z users I previously mentioned are transitioning from iPads and Nintendo Switches towards Windows PCs, as these devices offer similar flexibility and openness to mobile devices.
Microsoft is proactively addressing the current gaming trend by planning to incorporate Steam, Epic Games Store, and potentially other platforms onto future Xbox consoles. Additionally, they are heavily investing in enhancing the gaming experience and usability of Windows on devices such as the ASUS ROG Ally and Lenovo Legion Go. Reports suggest that Microsoft is also developing an Xbox handheld device.
This strategy is, of course, fraught with risk.
The risks
Microsoft is heavily focused on data analysis and telemetry due to the unique challenge of balancing shareholder expectations with customer needs. Often, there seems to be a disconnect between what investors desire and what customers prefer. This situation fosters a need for formal accountability that can limit spontaneous innovation based on intuition or prioritize a customer-centric approach.
Microsoft often struggles to keep up with the pace of innovation because it gets overshadowed by more agile competitors like Zoom and Discord, especially in areas such as consumer communication platforms where Skype once held the top spot. This is due to corporate inertia, which hinders progress and allows newer companies to outpace established ones that become complacent and rely too heavily on spreadsheets for accountability instead of proactively investing in customer-focused initiatives.
In essence, Xbox appears to be staying abreast of emerging trends that they can’t directly influence. However, there’s a concern that Microsoft might be yielding territory based on inaccurate information, thereby setting off a self-fulfilling prophecy. Regardless of the outcome, given its size and financial resources, Microsoft can afford to invest in the next major technological development. During the surge of service games during the pandemic, Xbox was the investment, which possibly influenced their purchase of Activision-Blizzard. We’re now witnessing an AI boom, and companies are eagerly buying AI startups. Interestingly, Microsoft has also dabbled in the trendy “metaverse” with a series of brief investments. However, these forays didn’t seem to yield significant results.
With Xbox, most of its funds are being allocated towards sectors experiencing growth. It’s been mentioned that Xbox Cloud Gaming has experienced significant growth recently, particularly boosted by the move to include more games that can be purchased in addition to those available through Xbox Game Pass. Given the growing popularity of PC gaming, a substantial amount of investment is also directed towards improving the Xbox-related gaming systems on Windows.
My concern, again, is that Microsoft is spreading themselves thin here. With Xbox Cloud Gaming, they’re competing against NVIDIA GeForce Now, which is 100% all in on cloud as their only gaming platform, while Xbox can only commit so many resources. On PC, Microsoft is going head to head with Steam, which is 100% all in on PC, while Xbox can only invest so much. On console, PlayStation is 100% all in on cannibalizing Xbox’s market share, while Xbox is fighting with one arm tied behind its back.
Splitting the effort against so many different fronts could risk potentially losing all of them, and seeing Xbox collapse in on itself to become another third-party publisher akin to EA or Tencent. For Xbox customers who are digitally locked specifically to Xbox hardware, the phrase “This is an Xbox” when referring to a Samsung smartphone rings utterly hollow and out of touch. If I can’t play all of my games on all of these devices, they are certainly not Xbox, and they’re certainly not the Xbox that Microsoft seems to be moving away from.
These vulnerabilities could easily be taken advantage of by businesses eager to see Xbox fail. Many Xbox enthusiasts might prefer switching to PC since Xbox games can be purchased on PC with cross-buy. However, there are numerous others who desire a console that can be placed beneath their TV and used with a controller, without the need for a keyboard and mouse. In such cases, the choices would be limited to PlayStation or Nintendo.
At CES 2025 in Las Vegas, Valve is set to unveil the first third-party hardware running SteamOS, posing a potential challenge to the dominance of Windows as a gaming platform. These devices, certified by Valve, will offer a glimpse into how much more optimized SteamOS with Proton is for gaming compared to Windows. Criticisms regarding Windows 11’s hardware limitations, privacy concerns like Windows Recall, and integration of ads within the Windows shell have raised questions among gamers and consumers alike. If SteamOS manages to evolve into a user-friendly alternative for multi-modal gaming that rivals Windows, it could potentially pose an existential threat to Microsoft as well. Resolving this issue would fall under both Microsoft Gaming and Windows divisions, which historically have not shown strong collaboration.
In essence, it’s the nature of rivalry that these companies like Valve, PlayStation, Nintendo, Microsoft, NVIDIA, and others engage in – they’re vying for our hard-earned money and time. This struggle drives them to develop superior products and offer better value. Competition has resulted in initiatives such as Steam sales and Xbox Game Pass. It prevents prices from skyrocketing and encourages innovation. Even with the intense competition that Xbox is experiencing, there are numerous opportunities and reasons for hope.
The reward
Previously, I mentioned this point. Once Valve launches home consoles powered by Steam that match or surpass the performance of a PS5 or Xbox Series X, and offers exclusive games from these companies, the entire discussion about multi-platform gaming might appear somewhat trivial.
It’d be ideal if all games weren’t exclusive to certain platforms. If my computer were as versatile as Microsoft advertises (an “Xbox” in disguise), I’d love to play my entire Xbox library on my Lenovo Legion Go laptop. Unfortunately, I’m about to board a flight, and my gaming options are restricted mainly to Xbox Play Anywhere titles. I appreciate Xbox Play Anywhere, but it’s disappointing that so few games, predominantly from third-party developers, actually support the feature.
I concur with Microsoft’s assertion that this is the direction things are heading. The notion of my content being confined to a single device seems preposterous. Unfortunately, they’ve constructed a system where the majority of my content is tied to one device exclusively. Xbox Cloud Gaming, which allows you to bring your own games, will be beneficial, but it’s the native experience that most people will likely prefer in this case.
Redefining what an Xbox fan is isn’t really something Microsoft or Satya Nadella can claim control over. You can’t force someone to be a fan of something they don’t like, nor understand. Microsoft hasn’t done a good job of explaining their plans for delivering upon their “This is an Xbox” message. It feels more like a vision, than something that they can truly execute. There are so many constraints, so many competitors, so many moving parts — to get their entire legacy of content, and its legacy fanbase, and its third-party devs on board with supporting its vision for the Xbox PC store, Xbox Cloud Gaming, and future Xbox hardware seems utterly alien to me right now.
But what if they pull it off?
Imagine a scenario where every game available for Xbox also supported Xbox Play Anywhere. This would mean you could play these games seamlessly across any device, anytime, anywhere. It’s not just about playing on Xbox; it’s about enjoying the features of the Xbox ecosystem even when running an Xbox game on a PlayStation, Steam OS, or Nintendo Switch 2.
I would love to see Xbox consoles find a future as part of a wider, broader, device agnostic ecosystem. I’m not sure Microsoft has been able to make a compelling pitch for that so far, to customers or developers. It’s evident in the fact many Xbox fans don’t feel confident in Xbox’s future. It’s evident in the fact very few PC devs support Xbox on PC.
… But what if they pull it off?
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2024-12-17 13:39