Microsoft’s new gaming strategy: grow your addressable market

Microsoft, owner of Xbox, has set out a future for its gaming division that moves away from games exclusive to its own hardware, by expanding compatibility of its owned titles to other consoles – a sign that gaming is shifting.

Why Microsoft’s Xbox moves matter

There’s a kind of symmetry at work between Xbox and Microsoft as a whole. Once upon a time, Microsoft’s raison d’etre had been to put a “PC on every desk and in every home, running Microsoft software”. But that placed a limit on the competition; there was still lots of money to be made selling services to users of Apple devices running Apple operating systems. 

Since CEO Satya Nadella began his reign, Microsoft has shifted its thinking toward finding the biggest addressable market. It appears that the company, fresh from the closure of a major acquisition deal, is now applying that philosophy to gaming.

The story

Following its $75 billion acquisition of Activision Blizzard, maker of the hugely popular Call of Duty franchise among others, regulators and gamers had been concerned about the newly bolstered Xbox universe becoming a defensively closed shop. 

Having cleared the regulatory process, it appears that the newly enhanced Microsoft operation has adapted its ideas around gaming to take in the bigger opportunities offered by intellectual property. To do so, it will open up four unnamed titles to Sony and Nintendo consoles.

“We have more Xbox players off of Xbox consoles than on Xbox consoles today,” says Microsoft’s gaming chief Phil Spencer, in an interview with the Financial Times. “Those lines will continue to diverge. That’s a good thing for the health of the business because the hardware we sell is not a profit driver for us in our organization.” 

• A critical element: games and software are more profitable than hardware, while also allowing the company to keep up with Sony PlayStation’s larger audiences at a time when gamers are updating their expensive next gen consoles less frequently. 
• Revenue growth in gaming is expected to continue flatlining over the next year or two, so the adaptation indicates a plan to unlock growth through IP, especially as more premium titles come to mobile.
  

Subscriptions have been an important part of the Xbox business for some years following the Xbox Game Pass service, which gives people access to games across the Xbox console and PC. Specifics are hard to come by, but it’s possible that certain key Xbox titles – especially those that might benefit from the network effects of multiplayer mode – will be opened up to PlayStation and Nintendo Switch. 

A manifesto

In a short manifesto setting out the idea of “Xbox everywhere”, Spencer explains how the fragmentation faced by multi-device players is a vitally unmet need that the company intends to plumb: 

“We have a different vision for the future of gaming. A future where players have a unified experience across devices. A future where players can easily discover a vast array of games with a diverse spectrum of business models. A future where more creators are empowered to realize their creative vision, reach a global audience, unite their communities, and succeed commercially. A future where every screen is an Xbox.”

Sourced from the Financial Times, The Verge, WARC. Image: Microsoft