Xbox One has the smallest presence in the gaming industry that the brand has ever had. It’s plain to see that while SS Microsoft sprouts wings and sails towards the clouds, Xbox is a raft floating hopelessly adrift in a choppy sea of home consoles. Microsoft are an astonishingly successful company who have been more than happy to abandon unsuccessful side ventures. Yet despite Xbox costing the company billions and forcing them to obscure the financial performance of the division every annual report, they remain committed to the brand. With the battle for the living room over and lost, it’s time for Microsoft to let go of consoles and reposition itself in the gaming industry.
A brief history of Microsoft
Whole tomes exist about the history of Microsoft, which at it’s zenith was, the most valuable company in history (adjusted for inflation). So I’ll give you the short version. Founded in Alberque in 1978, Microsoft sold BASIC compilers until it struck big when it licensed MS-DOS to IBM in 1981. At the time of the deal, Microsoft didn’t actually have a working product so they just bought a quick and dirty operation system off a street vender in Seattle, as you did back then, and sold it on. This shameless use of corporate bastardy to establish itself in market and then dominate through anti-competiive practices would serve Microsoft well till the end of the millennium. Microsoft’s intended takeover of the globe was only stopped by various intergovernmental agencies in collusion with the communists of the free software movement. Under pressure from multiple fronts, embattled founder Bill Gates handed over CEO responsibilities to his fellow college dropout Steve Ballmer. Under Ballmer, Microsoft stagnated, losing marketshare across all sectors except video games, where they started from zero and haemorrhaged money to gain a foothold. Despite Ballmer’s clueless management, they were large and diversified enough to never be in any danger. After wasting billions of dollars on a Finnish phone maker to get into smartphones six years after the iPhone, Ballmer finally gave up and handed the company to visionary Satya Nadella. Nadella has realigned the company around cloud services to enterprise clients improving profitability across the company
and Microsoft is back in the race to be the first trillion dollar company. (Apple became the first trillion dollar company overnight between writing and proof reading/publishing this post.)
How Xbox fits in
According to hazy testimony of events 2 decades prior, when Sony announced that the Playstation 2 would be competing against Windows and that the machine was central to home entertainment, Microsoft’s DirectX team began work on the DirectX-box, a home console and living room trojan of their own. The name Xbox might’ve been the most ingenious move. A name paradoxically memorable yet generic. The edgy ‘X’ prominent and recognisable, yet ‘X’ can mean a variable. What’s an Xbox? It’s the box that plugs into your TV to do anything you want. Imagine how stupid you must be to call your machine the ‘Playstation’ or the ‘Gamecube’ if you want to target mass pop media consuming drones. The plan was straightforward:
- Establish the ‘Xbox’ brand.
- Aggressively market to hardcore gamers.
(A group with an insatiable consumption of home entertainment on their own.)
- Market the entertainment capabilities to the other family members.
- Profit! Microsoft now dominates the living room as they do the home study.
In the first iteration, despite burning billions of dollars, Microsoft successfully established the Xbox brand and had a loyal following of mindless gaming enthusiasts, largely in part to their spending spree on esteemed and talented game developers. The Xbox 360 began its life cycle focusing on gamers but pivoted later in the console cycle to push home entertainment more broadly. The disastrous, ongoing shitshow which began with the Xbox One’s announcement and continued through the launch period was largely blamed on the ‘not games’ focus of the machine. With the departure of Don ‘Dorky Dad‘ Mattrick, Phil Spencer realigned the Xbox One as a gaming machine but the console has never picked up the traction of its predecessor and is now adrift with half the install base of the Playstation 4 and Switch outstripping it 2:1 in month to month software and hardware sales.
What went wrong
I began writing this section and it just kept going. So many things went wrong for Microsoft and the Xbox that it could be its own article so I’m going to have to summarise. In the end, neither Sony, nor Microsoft succeeded in their ambitions to take over the living room and Microsoft’s lack of attention on games saw it lose ground to Sony.
The Zune brand was meant to be key in the convergence around Xbox, but it was effectively assassinated by Apple when they announced the iPhone just 2 months after the filthy poo-brown coloured Zune launched in late 2006. Microsoft and the rest of the console makers allowed over the top streaming services to deliver content directly through their consoles. But most of all, no one won the living room because the living room was smashed. Across the developed world household sizes are shrinking and people are bringing more screens; phones, tablets, laptops, into the living room. Zoomers are watching youtubes on their phones, Millenials scroll instagram endlessly while broadcast television fills the background noise.
If anyone was going to be the sole victor of the living room it would have be Sony. Sony produce, record and distribute around 25% of the world’s music, television and movies. Sony manufacture televisions and high end sound systems. Sony own the Blu-Ray format, whose hollow victory over HD-DVD in the optical media format war punctuates the point that optical media is dead.
Spotify and Netflix are now the dominant brands that deliver entertainment media to consumers, two companies dedicated to their niche while Microsoft, Sony, Amazon, Apple and Google flounder on the sidelines. The focus of Spotify and Netflix is why they succeeded and the lack of focus from the diversified megalith conglomerates is why they failed, and from Microsoft that lack of focus even extended to games. The Xbox One is the victim.
Possible rescue missions
There’s two obvious courses of action for the Xbox brand:
- The first is business as usual.
Microsoft has a long year history of throwing money at problems and the Xbox has been a chief recipient. Under business as usual, Microsoft pump money into a big marketing campaign, lock down some key developers and score a few big name exclusives to differentiate its game offering from that of Playstation. And the focus has to be on Playstation. It’s not that Switch is unimportant, but the Switch is such a different proposition to the Xbox One that it’s impossible to compete directly with it.
The reason Microsoft might consider this straightforward approach is one, that it’s straightforward and two, that home console gaming hypothetically has enormous growing potential in emerging markets. The reason its potential and not a guaranteed money spinner is that the gaming in China, India, Eastern Europe and the Middle East is primarily done on personal computers or mobile devices. Whether these markets embrace a luxury item like a dedicated games console as they grow economically remains to be seen. Game consoles established themselves in the living rooms of Japan, Western Europe, North America and Australasia before computers or mobile phones became common household items. As computers and especially mobiles are now necessities for participating in society, even in developing countries, it’s quite possible that these emerging markets will never embrace the dedicated games console and stick to games on their existing machines.
- The other approach is to abandon consoles and focus on the cloud.
Satya Nadella loves clouds. He was born in them and it’s where he’s successfully taking Microsoft. To truly focus Xbox on the cloud, Microsoft can leave the Xbox One in the stormy seas and take Xbox Live Game Pass above the storm to the clouds. A device agnostic game distribution network where subscribers pay a monthly subscription to access any game they want from a growing library. It wouldn’t be a shitty streaming service – you’d download the full game beforehand, but you could play your game on your phone, laptop or smart TV once it installs. DLC, micro-transactions and loot box bullshit would all be gone because all the payments would be through the one subscription. I shouldn’t have to fill in the blanks but High Snobietry wrote an extended puff piece for what an expanded Game Pass service might look like.
The main reason why Microsoft may consider this option is that most noises out of the company suggest they’re already working on it. There’s plenty of reasons to be sceptical that they are though or even that the concept would work. For a start we would need a significant increase in the power of the average consumer’s computer or phone for them to be viable high end game platforms. Microsoft would have to cut a lot of deals with various hardware gatekeepers too, but we live in a world where Apple allow Spotify and Kindle on iPhones despite operating their own competing services so it’s not impossible. Microsoft would also have to keep the struggling brand afloat until they’re ready to launch, but where they are positioned now they could get first mover advantage as the online distributer of games on demand and hit up the emerging markets without having to convince them to buy a gaming console.
After almost twenty years, Xbox is in the worst shape it’s ever been in and the same old approach won’t start to work now because it’s never worked for Microsoft. It’s time for Microsoft to abandon consoles and forge a new path in cloud gaming.