Microsoft CEO Satya Nadella describes a three-pronged gaming approach, across Xbox console, PC, and mobile

What you need to know

Yesterday, Microsoft reported its quarterly earnings for the company, marking another strong quarter for the firm.
For gaming specifically, Xbox grew by 61%, largely driven by Activision-Blizzard and services. This offset a hefty 42% decline year-over-year in Xbox hardware revenue.
In comments to analysts, Microsoft CEO Satya Nadella described Xbox’s forward-looking strategy, focusing on console, PC, and mobile.

As a seasoned analyst with over two decades of experience in the tech and gaming industry, I’ve witnessed the evolution from floppy disks to cloud gaming, and it’s safe to say that the landscape has never been more dynamic or exciting. Microsoft’

Yesterday, Microsoft released their Q4 2024 earnings report, showcasing robust expansion for the company. The tech giant experienced a 15% increase in overall revenue, with impressive development across most sectors. However, the Surface segment has been gradually decreasing, dropping by 11%, marking its seventh straight quarter of decline. A notable exception is the gaming sector, where Microsoft has witnessed significant growth.

Boosted significantly by Activision-Blizzard and its services, Xbox experienced a staggering 61% increase in revenue. With more growth anticipated for upcoming quarters, this is quite an achievement even without Activision. Without Activision’s contribution, Xbox still managed to grow by 4%, which is a notable accomplishment considering the industry-wide downturn. However, the sales of Xbox hardware continued to decrease, dropping by 42% compared to the previous year. Microsoft highlighted that its gaming user base has expanded significantly to an astonishing 500 million monthly active users, positioning it as one of the largest gaming platforms in history. Interestingly, a growing number of these users are not using traditional consoles such as the Xbox Series X and Xbox Series S.

In a recent earnings discussion, Microsoft’s CEO, Satya Nadella, shared updates on Xbox’s shifting business approach, emphasizing that the console continues to serve as the primary focus of the company.

“Our approach in investing in gaming has been to strike a balance between our passion for gaming, particularly Xbox and its console content, while also aiming to provide content for all platforms where games are played. We start with PC and then extend to other game-playing locations.”

To put it another way, Satya emphasized that Activision’s focus is chiefly on expanding Xbox’s reach beyond consoles, particularly into the mobile and PC markets, where Xbox has faced challenges historically. With games such as Hearthstone, Diablo Immortal, and Candy Crush Saga in its portfolio, Activision can be seen as a strong player in the mobile gaming scene.

When considering Activision’s collection, it offers us valuable resources to cater to both PC and console gaming. Moreover, resources for mobile devices, a territory we haven’t ventured into before. Therefore, we believe we now possess the content and the means to reach all conventional large-scale platforms where games are played, which include consoles, PCs, and mobiles. However, we’re equally enthusiastic about these novel opportunities as well.

As a researcher delving into the gaming industry, I recently found myself excited about Microsoft’s strategic move to expand its Xbox Cloud Gaming platform onto Amazon Fire TV Stick 4K devices. This means that users can now enjoy hundreds of console games for an initial investment of just $50, making it significantly more affordable compared to the Xbox Series S at $250 or the Xbox Series X at $499. However, it’s essential to note that cloud gaming demands suitable network conditions for an optimal experience.

As an analyst, I can express it this way: “Expanding access in various gaming platforms significantly aids us in connecting with new and existing gamers globally. This multi-platform approach is instrumental in boosting our software, services, and transactional revenue – key performance indicators we are striving to achieve over the long term.”

Xbox hardware has declined, but the industry has never been about hardware sales

In recent times, the landscape of video game platforms has significantly changed. Some who reminisce about the era of Xbox 360 and PlayStation 3 might overlook the current dominance of free-to-play, service-based games that thrive mainly on microtransactions, rather than being sold as premium upfront purchases. Although classic $70 boxed games aren’t likely to vanish anytime soon, the rise of “forever” games has extended the lifespan of previous generation consoles such as Xbox One and PlayStation 4, as many gamers are content to remain in their current space, enjoying titles like FIFA, Call of Duty, and Fortnite, which continue to release and update on older consoles.

Microsoft has adapted its approach to suit the changing environment by acquiring some of the world’s largest service games, a move aimed at adapting to the shift. As costs inevitably rise, so must methods of earning revenue. It could be more profitable for a 2024 player to stay on the platform they’re currently using and cater to them, rather than invest in moving them to your platform. This is likely why Microsoft has expanded to PC and PlayStation markets, bringing games like Sea of Thieves (previously exclusive to Xbox) to new territories.

I’ve suggested that Microsoft should be mindful not to weaken their current assets, as they might inadvertently exclude themselves from influencing the gaming industry’s development. If Microsoft overlooks their established console user base, there could be potential risks. Allowing third-parties like Apple and Google to dominate mobile platforms, while allowing other entities such as Steam to control PC gaming, is not without its dangers. For instance, Apple might work against Microsoft’s proposed Xbox mobile gaming store. Having a platform they can fully manage will benefit Xbox in the long run, but it should be done carefully to avoid alienating loyal users.

The predicament currently facing Microsoft and other gaming platform leaders centers around expanding their user base. As Nadella pointed out, they aim to attract new gamers through cloud technology while also acknowledging the same group in the same breath. Essentially, these companies are merely swapping a similar customer pool of approximately 250 million users, which is not viable as expenses escalate. It’s unclear how Microsoft will transform casual or non-gaming consumers into high-value customers, but relying on traditional methods might not suffice in this scenario.

2024-07-31 14:39

What you need to know

Xbox hardware has declined, but the industry has never been about hardware sales

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