Microsoft CEO: Xbox Is Now A Much More Central Part Of The Company

Microsoft have had businesses locked into their ecosystem for years, but consumers they've often failed with (Windows phone, Internet Explorer and others either failing or going into decline) with even Office and Windows versions bought less often by home users now.

Now they've seen Apple, Google and others get consumers in and from that earn lots in other ways - between learning from that and a good head of Xbox, it's likely why gaming is one of the big targets for them.

Get people buying Xbox consoles, Surface devices, Windows PCs for gaming and using cloud gaming, and in addition to the money from 3rd party licences they're likely to buy games, films and music in your ecosystem as well as use your apps and search engine.

Rewards for example encourages the use of Bing and the purchasing of films and TV.

It's why the worry over Game Pass being profitable always makes me laugh - even if it was a loss leader (and at mass I suspect it's very profitable) Microsoft are happy to swallow the cost as a way to get you in

@uptownsoul Short of rises for inflation, I'd guess it's at least a good few years till we see any significant rise - particularly given the subscriber numbers are point of pride for them on the earnings calls.

Game Pass gets people into Microsoft's ecosystem in the same way an iPhone gets someone into Apple's - and that's worth a lot to them.

So even if Game Pass wasn't profitable (and given the rate of subscriber growth everyone can't be on the £1/$1 deals as they'll have expired now - many like me might be on All Access) they'd happily keep it as a loss leader for now propped up by the corporate side's profits.

Indeed, they've suggested they might do further offers like family plans and cloud-only memberships, and I actually think they may lower the Ultimate price a bit if/when they get rid of Gold (as you'll no longer have that as a benefit of Ultimate).

In time, it might slowly raising it once game subscriptions become more mainstream and they can eke more profits from it - but I wouldn't be surprised if that's a long way out, given they can instead profit more from offering cosmetics and DLC (hence why Halo Infinite multiplayer is completely free instead of just on Game Pass)

@uptownsoul They are still in the user acquisition phase, based on similar models for streaming platforms and other start ups i'd estimate we are at least a few years away from a potential price hike.

Once they start getting a steady cycle of games out from all those 23 studios at that point they will have to take a look at how they are competing, what the churn rate is like for Game Pass and many other metrics.

It may be they don't even NEED to increase the price. i.e. If they do exceptionally well with it between now and then and have 40-50 million Game Pass subscribers who are ACTUALLY paying full price, and not a lot on low cost deals like right now. But I find that unlikely.

Look at price hikes for Netflix, Spotify, Uber, Deliveroo, etc. same business model - capture the market with aggressively low prices and a wonderful product. Lots of low cost entry points until they've cornered a large section of the market.

It could be they add a cost increase in another way e.g. make a third tier with more perks... although they've limited themselves there with the 'Ultimate' branding, difficult to top that

In short I don't see it happening anytime soon. Enjoy it.

@uptownsoul Different model in many ways though - Netflix has no way to get extra income, while MS can sell DLC, cosmetics and other Xbox / Microsoft products now you're in their ecosystem.

They're not reliant on Game Pass - Netflix's entire profit is based on their subscription price, while MS can subsidise it / only make a small profit on it if it's bringing in other income and allowing them to brag about numbers on earnings calls.

In time it might rise or have different tiers, but it's finally a big consumer win for MS when they've failed with so many others - so I suspect it'll instead be used to get customers in the door for a long time yet, with family and cloud-only plans a priority first

@uptownsoul Yes Netflix eventually put up their prices (as did Uber, Prime, etc.) BUT it was always after they had reached a certain ubiquity and had enough users locked into their service to make the number of subs they will lose acceptable as a business decision. Not to mention the bad will/press they will get.

Microsoft are still heavily in the user acquisition phase and many users are still on low cost deals, if they were to raise prices now too many would leave or let their sub lapse. (The churn rate would be too high)

You also have to remember we are in a little bubble here as heavily engaged enthusiasts posting here. We love game pass more than most as we utilise it more than the average consumer. The average player is not fully sold on Game Pass yet.

Until Microsoft has a large proportion of those players under their belt paying full price for Game Pass it is unlikely to go up. The majority have to feel the service is essential, and outside our bubble I don’t think they are there yet.

I do agree I think it is a question of when… not if, but it’s not anytime time soon if past services are anything to go by. (This is a tried and tested model)

@uptownsoul @Widey85 made a great point that Game Pass doesn’t happen in a bubble. Getting people into Game Pass also may lead to more engagement with the platform and more sales of DLC, MTX and other games. The key here is getting you locked into their ecosystem and spending there.

However this works both ways. There is some evidence that Game Pass is hurting typical game sales e.g. look at some of the recent breakdown of top selling charts numbers where many are 80-90% on PlayStation and only 10-20% is on Xbox even when a game isn’t on Game Pass. This is worrying and loses MS sales money.

To be clear this isn’t conclusive but the truth is we just don’t know, we don’t have enough data, to be certain if Game Pass will actually be sustainable long term, or sensible when you factor in ALL the pluses and minuses.

This is Microsoft’s big gamble.

But for now it’s the best deal in gaming enjoy it.

@themightyant I think the percentages are going to be skewed for a while given how many PS4s (and potentially PS5s if Sony have been producing loads while MS has been using XSX cores to upgrade the cloud) are in existence, as well as the Xbox user base for now potentially preferring other types of games on the whole.

Those numbers are also usually physical - it's a bit less of a whitewash (although yes still high but not too out there compared to the PS to Xbox ratio) when digital is included - and Xbox does digital better (and easier with Smart Delivery etc) with keys sold by Amazon, Cdkeys etc.

The Switch destroys both of them, but the Wii U wasn't a success - so there's some hope that MS offering something different will bring in a wider user base.

I still buy games full price when I want them at launch - the only difference being if I'm uncertain about a game / it has a buggy launch I know I've got Game Pass to play while it waiting for it to be sorted or reviewed, and I imagine that's typical of a number of gamers.

As someone else said, everyone sees PS = gaming, so it'll be a while till that is turned around (and Game Pass is a major tool in that) so the percentages are likely going to be that way for a bit

@Widey85 Again all great points!

Yes those sales are physical, but Sony also sells most to digital too. We don't usually have a breakdown of full numbers on the splits but can see how much is made proportionately on annual earnings reports etc. Hence I said it wasn't conclusive, but there are questions/ possible concerns.

Switch is still mostly physical for AAA games hence they usually lead those charts.

I agree that Sony and PlayStation has such strong brand perception that will be difficult to shift for the masses. Plus so many are embedded in that ecosystem = difficult to shift. (Edit: Sony is dropping the ball too) Still it is fascinating watching MS try, especially with Game Pass which is probably the single biggest change to gaming in recent times. Whether it fully works is anyone's guess. Regardless in the mean time we reap the rewards with Game Pass. Enjoy it.

@themightyant Agreed I've no doubt PS leads in the digital counts too, just from the few reports I've seen that have digital too Xbox aren't as far behind as they are physical.

And agreed Sony probably have a 70/30 split in the non-Nintendo market (it was 65/35 roughly going into this generation and it looks like the PS5 has more units built than the XSX so has probably skewed it a bit further while the xCloud servers were upgraded) so it's a massive job for Xbox to pull it back even 50/50.

Game Pass is one thread, I imagine acquisitions in order to make Xbox too big to ignore will be another plus like Sony doing more publishing for third parties - and they seem to be massively expanding their in-house teams to push out AAA/AA games regularly for GP in a few years.

I'd also hope to see some true innovation - for example being able to play PC games on your Xbox (maybe via a partnership with Steam) or helping to port more games to it. I'd love to see AoE4, Total War and others on Xbox.

It'd also be cool to see them do more family-friendly or "out there" things like they did in the 360 days.

I know the Kinect fiasco has them terrified of gameplay peripherals but Mario Kart / Mario Party rivals using a controller with a gyro in or clever use of mobile phones could be really good, or even just get out in front of trends like Among Us, Fall Guys and others that generally seem to happen last on Xbox

@uptownsoul If you mean the purchase of Bethesda, it's a capital expenditure - it can be written off against tax and Bethesda still has "value", so they don't need to make billions in profit to offset it.

On their balance sheet, instead of the billions of dollars they now have an asset that will be calculated as being worth a similar amount - and probably more if they invest in it the way they have their own studios.

The spending on third-party games (and first party investment) again will generally be considered "start up" money, with only the long term profitability considered once it's at critical mass - at that point, yes if they're not making much profit on it they might put it up

@Widey85 Agreed, I like how you think!

I don't know what the split is right now... I also don't really care as long as neither company gets too dominant - competition is good for us the gamers! Though I don't have a horse in the race because I play on all. But honestly I think it's better for gamers if there's a bit of uneven split, to keep then innovating and honest. A 50/50 status-quo could be a disaster with neither needing to really push forward.

Microsoft seems to be slowly getting a bigger foothold in the small but important enthusiast space which can slowly lead to more adoption via word of mouth over time. Sony's less consumer friendly approach is also alienating some which plays into MS's hands a bit. But it's difficult to get people to jump ship, brand loyalty and ecosystems are hard to break from, not least when all your friends may play there. It'll be interesting to see how this plays our in the long term, but also in the shorter term over the next couple of years.

I'd love to see a little more innovation from MS too... but not on gimmicks. I'm not a big fan of motion controls, particularly for long play sessions but small things work well.

I do like the PS5 DualSense. Not all ideas hit home and many developers don't use the features well, but when they do it's great.

Haptics definitely add something. Motorised triggers less so, but they're not bad and can be additive and turned off. There's gyroscopic motion controls. Less celebrated features like the mic and speaker are great too. The mic allows FAR easier searching and typing, I love it. And the speaker can add a layer of immersion when done well. Lastly the trackpad, probably the least utilised feature, but a few games use if for shortcuts, swipe up for one action, swipe down for another, etc. As games get more complicated and more PC games come to console this is useful.

All in all there's a LOT of tech in the DualSense that developers can utilise but don't have to, it's a useful sandbox. It would definitely be nice to see MS innovate more in this space or at least have a bit more parity which would lead to more better implementations all round!

Agreed on PC support on Xbox, though I'm not sure some of those would translate well to couch play as the whole UI is designed around you sitting 2-3ft from a screen not 10-15 feet, the bigger screen doesn't always account for this. I had this problem with Big Picture mode on Steam on a TV. Would need work from devs... and better accessibility options at the same time!

Lastly Xbox defiantly needs a family friendly angle, big gap in their first party portfolio... Bring Banjo back! and their own Animal Crossing with Viva Pinata! Sadly they don't seem interested in that.

This is my biggest concern with Microsoft right now. I have yet to be convinced with how well they run all their global studios. There have been a few too many duds and a lot of OK, but not great, games. Too many "not for me" games too. Of course this is all subjective) but all in all I expect a little more, but am hopeful. Come on 343 nail that campaign!

@uptownsoul I think we all know the Gold price hike was less about "passing the cost onto the consumer" and more about trying to strong arm Gold users over to Game Pass. Step one in the process of removing Gold altogether. It failed.

I've agreed from the top that there will likely be a price increase at some point, not least due to inflation, but it's unlikely to be any time soon. Not sure what else we can say.

@themightyant Yeah Viva Pinata got my friend's now-wife playing - which is an accomplishment as she thought games were silly.

I suspect with the studios they were light-touch at the start (hence the issue with Rare and Everwild and 343i and Halo Infinite, where mild reboots / management changes have been needed) but I'm hoping now they're starting to realise you still need a central authority keeping things in line.

I'd definitely like to see DualSense features make it to the controller (they had a Pulse questionnaire on it on the Insider app so fingers crossed) and yeah not so much gimmicky stuff but more innovative use - for example the PS quiz game that uses your phone, or most phones have a gyro so if Xbox wanted a Mario Kart type game, they could maybe use the phone gyro instead given we wouldn't want to all buy 8 new gyro-enabled controllers.

I do miss the big group in a room playing like we had in the 360 days - the Switch definitely has that area now, but it'd be nice to have a few games that could do it. Happy for them to be third-party or multi-plat though.

I doubt we'll reach 50/50 this gen, but a more equitable split I'd enjoy because it might mean more games ported to Xbox - and until then, MS need to step up and pay for some to prevent it becoming a slippery slope (less games port to Xbox, people thing Xbox has less games so go elsewhere, like last gen)

@uptownsoul I agree with @themightyant - the Gold price rise was likely a badly-thought out move to push people to Game Pass.

Long term they seem to want Gold gone, but that'll remove a major feature of GP Ultimate - guess they might add in a different benefit (maybe Ubi+ or triple Reward points?!) or lower the price slightly at that point.

After that, yes they'll likely raise the price to make it more profitable - but the argument I've heard that they need to raise it due to the Bethesda purchase isn't really true due to the whole asset vs cash value on the balance sheet.

They may very well use new tiers as a way around it though - which would be intriguing depending on what they offer

@Widey85 All great points.

Yes the linking a phone is a good idea for more party/casual games. That's You was fun and meant you don't need 4 controllers (which are bloody expensive nowadays, downside to all the tech in them). It's actually where Switch has done really well with things like Overcooked needing just 2 sets of joycons for 4 players, and xbox with allowing last gen controller support.

Party games are a GREAT way to introduce people to gaming as well and expand your playerbase. When they inevitably release Cloud based Game Pass app built right into TV's this sort of game, combined with phone support could be HUGE way to get typical non-gamers interested in the platform without a large cost outlay. Perhaps even make the game free as a draw. Huge opportunity there.

Agreed couch co-op and competitive multiplayer titles seem to have deserted us again. I was praying for Xbox to bring back a community led game like 1 vs 100 during the pandemic.

@themightyant Yep I remember a few years back everyone playing that HQ Trivia game, MS doing a 1 vs 100 thing with some reward point prizes to get people in would have been great and given a similar community feel

On the plus side the "2 and a half" approach MS are taking with many of their studios (staff them up and invest to make two big games, while a smaller passion project is allowed too) may yet reap rewards in games we didn't even realise we wanted - so fingers crossed

@uptownsoul "Why did Microsoft try to strong arm Gold subs in such an abrupt way?" I think the answer to the question is not as simple as Game Pass is 2x more, though that is definitely a key factor.

I agree that on the whole all services are would like to increase their monthly fees, but increases are not done lightly. The human psychology of this is very complex. Many services have crumbled from price hikes and the timing has to be just right.

So why did they try to do it? It's commonly accepted that MS would like to sunset Gold and just have Game Pass as their main service. But they can't easily for a number of reasons, most prominently
1) There are a lot of paying subscribers
2) A lot of subscribers have paid up to 3 years in advance
3) As @Widey85 said it's one of the key perks of Ultimate over standard GP. (It's certainly why I initially went GP ultimate)

This leaves them in a predicament.

It's difficult to just stop Gold completely or change the Terms of Service significantly due to #2.

If they make Online free it's a problem with both #1 & #3.

If they include online with standard GP it's a problem with #3. Though I think they are adding enough value to Ultimate with EA, Cloud, PC etc. that this MAY become possible, Especially if they add some other useful perk like Ubi+ or another.

In future THIS may be when they hike the price of GP standard i.e. they add online as part of the package. Or add a third tier.

Honestly I think they believed this was the least worst option to get towards where they want to be i.e. No gold but Game Pass. But it didn't work out.

@Widey85 1 vs 100 is one of my favourite Xbox memories.

I hadn't heard of this "2 and a half" approach. Sounds wonderful on paper, hope it yields some wonderful surprises.

@themightyant Primarily it's the enlargement of a number of the studios to do 2 major projects - Obsidian (Avowed, Outer Worlds 2 plus Grounded and the secret project), Playground (Fable, Forza Horizon 5), Rare (Sea of Thieves and Everwild) and Ninja Theory (Hellblade, Project Mara).

But then they also keep teams for DLC, updates and special projects, which is where I read it as "2 and a half" modelled on the US military's "2 major wars and a minor war" ethos.

So yeah might not be all studios (yet at least) but it definitely might encourage some cool smaller games too