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.
6 thoughts on “Xbox Adrift: Can Microsoft save the Xbox One? Should they?”
Hey! Perfect timing. Thought I’d check Pietriots to see if there was anything new and a new article had just been published.
I do find the Xbox brand to be in a curious state. Some people think its doing great and others thing think Microsoft is getting ready to throw in the towel. I was talking about videogames with my cousin and he was wondering how the Switch was doing and he was blown away to learn about how it already surpassed Wii U sales and was closing in on GameCube’s lifetime. He played a lot of Gamecube during the Wii years and was shocked to learn it had sold that low. He was also surprised to learn that Xbox One was not selling as well since it seemed like all his friends had one. It does seem among Xbox fans that they really do like the console and what Microsoft offers or keep thinking it’s going to suddenly take off. I’m sure there are pockets and clusters of places where it is popular but actual sales figures and numbers show that such people and places are becoming the minority. Still, much like Nintendo, it seems like Microsoft and the Xbox brand being doomed is starting to just become a common reaction to any news from the company. It’s hard to know how serious such rumors may be.
That said, I think the acquisition of Mahjong and Minecraft may have caused or represented a shift in the company. Sony entered the videogame market, in part, because the saw the value and profit of not only making the hardware but then controlling and profiting from the software for that hardware. Sony made VCRs, tape players, cd players,l etc but they never really controlled the software used in those devices. Videogames represented a market where they could have both. However, with DS and Wii leading the charge and the boom of the smartphone and tablet markets, gaming expanded in the demographics of who could and were interested in playing games and changed how they could be played or accessed. Minecraft really benefited from this new expanded market and getting that software onto all formats it could to maximize sales. If Microsoft were to limit Minecraft to just the Xbox, well, it might boost sales of the console a bit for those who love it to keep playing but it would like killing the goose that laid the golden eggs. It would probably kill off a large portion of the fanbase and allow other competitors to step in and fill the void in the marketplace. Perhaps the realization that instead of limiting software to a single console by means of exclusives in order to move more consoles and grow in a smaller market is not as profitable as allowing software to proliferate in all manner of devices and hardware for maximum sales like Minecraft has done is causing a rethink on how Microsoft will approach gaming.
The ironic thing about this year’s E3 was that a lot of people liked the software shown by Microsoft but weren’t interested in buying an Xbox as they figured they could get it on PS4 or PC for the most part. The idea of them becoming a gaming software company seems like a smarter decision than trying to keep fighting in the hardware portion of the market. Even Windows has seen the success it has because it was software focused and Microsoft didn’t try to get into the hardware market and limit its OS to its machines only like Apple. Yeah, Apple has gone on to see great success thanks to moving beyond just computers but, before that, its market share was nothing compared to the size of Microsoft. In addition, MS announced a bunch of other game studios they bought or were creating. Again, if they are planning on pumping out more software, sure, maybe they can limit it to exclusives for themselves although will that really maximize the potential profitability of that software? Plus, if it is exclusive to Xbox and PC, having that PC option still hurts the Xbox console from being a necessary purchase or growing that install base.
Plus, as you say, the war for the living room was always a strange battle and one that no really longer exists or isn’t as major as it might have once seemed. In a way, Nintendo realized this with the Wii U and off-tv play because people can be sitting in the same room but using different devices. Since they are more gaming only, they wanted a system that would allow people to keep gaming even if the TV was in use. Sony and MS were different in that they just wanted people to use the device for watching TV or gaming or listening to music or whatever. They wanted to be an all-in-device to be people’s default purchase but that never really quite worked out because its a jack-of-all-trades master of none situation. Therefore, what benefit is it for Microsoft to keep making the Xbox console? What is its purpose? Do they still think that it’s the way to be people’s go to source for entertainment in the home? Even Sony has gone to referring to the PS4 as more a dedicated gaming system than multi-media entertainment device.
I’m not sure if they will go to a cloud-based online gaming subscription as you suggest or has been rumored but I do think they may go in a path like Sega and focus more on software and trying to be a top software developer which may then lead them to trying out a gaming subscription service when they’ve got enough product to sustain it.
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I just think they’re so well positioned to transition Xbox to a cloud service because that’s where their technical and competitive strengths lie right now. They’ve never had the creative culture to be a top (game) software developer.
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That’s true. I don’t see Nintendo being anywhere even close to having the knowledge or ability to pull something like that off and special hardware to match their software is something that’s pretty ingrained in their development philosophy. Sony might be able to put something like that together but, again, there is nothing about their current business model and products that really demonstrates their thinking of heading in such a direction. If anyone is going to try and do this or pull it off, Microsoft is the best positioned company to do it.
Even though Microsoft may not have the creative culture to be a top game developer, I think that’s partly why they are trying to buy other companies and talent and hope these acquisitions can make up for that. I think part of the problem is that Microsoft needs to better diversify it’s gaming library. When I think of MS, I just think of First Person Shooters. I know that there are other types of games that one can find on the console but they just don’t seem to get much mention or gain much traction in the public’s perception of the system’s library. At least, not with me.
Great article, and it encapsulates everything I’ve been sating for years. The xbox brand is trash, and has been trash for years. Not because of the gamers, or the games, or even the console; but because of the people running the xbox brand.
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I actually think now Microsoft has the management team that could salvage the brand but they’ve inherited so much baggage.