Microsoft Has A Problem With Xbox It Can't Buy Its Way Out Of

Super Mario Odyssey is available only on the Nintendo Switch. Over 9.7 million copies were sold between its launch in October and the end of 2017. Image: Nintendo

Microsoft is in a weird place. It has sold an estimated 30 to 50 million Xbox Ones, placing the company a distant second in the console race behind Sony’s PlayStation 4 with more than 75 million. And Nintendo’s Switch console? It’s a runaway success.

In just over a year, Nintendo sold more than 17 million Switch consoles; it’s the fastest-selling console in US history. Nintendo attributes this success primarily to one thing: a lot of really good games you can play only on the Switch.

The Xbox One, by comparison, isn’t doing so great — though on paper it’s competitive with or outright better than the competition from Sony and Nintendo.

Starting at $329, the Xbox One is cheap and jammed with great games to boot. Even the lowest-end model of the Xbox One supports HDR, a high-end video technology that makes games look better on TVs that support it.

It does everything a set-top box like the Apple TV does, like let you watch Netflix. And it plays blockbuster games.

The Xbox One S, the entry-level model, costs a cool $329. Image: Florence Fu / Business Insider

In reality, though, it's the console I’m least likely to suggest.

The PlayStation 4 has many of the same games, like the latest Call of Duty title and a bunch of great exclusive games, including the critically-acclaimed God of War.

Though the Nintendo Switch doesn’t have third-party blockbusters like Call of Duty, it has a big edge in terms of exclusives — there’s no other way to play the latest Super Mario games. That’s a pretty big advantage.

And if you already own a PlayStation 4 or PC? There simply aren’t many major Xbox exclusive games that make the Xbox One worth owning. And this year’s big Xbox One game, Crackdown 3, just got delayed to February 2019.

Crackdown 3 has been shown off by Microsoft for several years, but has yet to launch. Image: Microsoft

So what’s Microsoft going to do? That’s the big question.

Here are some ways it could go.

1. Microsoft could buy a game publisher or development studio, which was rumoured earlier this year

Image: EA

The latest rumours suggest Microsoft is considering an acquisition of some sort — a game-development studio or publisher that could bolster Microsoft’s stable of intellectual properties.

The companies most recently rumoured as acquisition targets are:

1. EA, the maker of “Madden NFL” and “FIFA,” among many others. 2. Valve, the operator of Steam and the maker of “DOTA 2,” “Half-Life,” and much more. 3. PUBG Corp., the South Korean subsidiary of Bluehole Studio that makes/manages the very popular “PlayerUnknown’s Battlegrounds.”

But does that make any sense?

Michael Pachter, a senior analyst at Wedbush, told us earlier this year that there was "close to zero probability of buying EA."

There’s a good reason for that, and it’s the same reason that Microsoft’s unlikely to buy most any of the other major game publishers, like Ubisoft, Activision, Take-Two Interactive, or Bethesda Softworks.

EA, like many other major game publishers, has a business dependent on making games for every platform, including Sony’s and Nintendo’s. If Microsoft were to buy one of these publishers, it would be to keep that publisher’s games for the Xbox platform.

That makes any such acquisition a poor business choice. Not only would the publisher cost Microsoft a ton of money up front to buy, but it would be difficult to make money back on the investment when it’s suddenly limited to developing for only Xbox.

“That would lower EA revenues — by a lot, unlikely to be made up by growth on Xbox — and would make a purchase prohibitively expensive,” Pachter said.

Though EA has a large library of intellectual property, losing the revenue of selling that intellectual property on competing platforms would hurt too much. This same scenario applies directly to the other big publishers, from Activision to Ubisoft.

2. Microsoft could lean in to its PC business and walk away from consoles altogether

Image: Microsoft

There’s a major initiative called Xbox Play Anywhere at Microsoft’s Xbox division that’s years deep now.

The concept is simple: Any game published by Microsoft will come to the Xbox One and Windows 10. You buy it once and get it both places. If you save a game in one place, you can pick up the game where you left off on the other device. It’s pretty sweet!

And it may very well be the future of the Xbox business.

“The next platform might end up being the PC,” Pachter said. “The Xbox Anywhere initiative seems to acknowledge that a Windows 10 PC works fine as a game console.”

That doesn’t mean saying goodbye to Xbox as a platform. It could live on in software form — for instance, as a user-friendly interface on your TV. Maybe Xbox as we know it becomes a component of another device, like an Apple TV or a Roku.

In the short term, Microsoft is unlikely to abandon the Xbox console. But you can perhaps expect Microsoft to shift its focus toward the PC.

“There probably will be a next generation,” Pachter said, “but it is likely to be smaller.”

3. Microsoft buys Valve, thus acquiring Steam (and much more)

Gabe Newell, the president of Valve, is a former Microsoft employee who left to found Valve Software in the mid-90s. Image: Valve

Steam, Valve’s computer-based storefront and platform for gaming, is huge; somewhere in the ballpark of 200 million people use it every month.

If Microsoft’s looking to the future of Xbox as a computer-based platform that works anywhere, instead of only on a dedicated piece of hardware created by Microsoft, buying Valve would be a way to bolster that initiative.

Not only does Valve have Steam, which brings a huge chunk of new users and has a lucrative storefront, but it also owns a bunch of classic gaming intellectual property. The Half-Life franchise, for instance, could finally see its long-promised third instalment as a big Xbox exclusive.

But Valve is a private company, and there’s no way to know how much it’s worth. Valve takes a 30 per cent cut, on average, of Steam sales, and Steam is the most widely used game store on Earth. Pachter estimated Valve did “around $US2 ($2.63) billion in Steam sales” in 2017.

All of this is to say that Valve could be outrageously expensive to buy, and it’s entirely possible it’s not up for sale.

4. Microsoft comes out with a new Xbox in an attempt to start a new “generation” before Sony

Image: Florence Fu / Tech Insider

Microsoft just released the extremely powerful $649 Xbox One X in late 2017, so I’d call this one the least likely possibility.

That said, Microsoft could very well surprise everyone with an early launch of the successor to the Xbox One.

The Xbox One is coming up on five years since its launch, making that an early sunsetting — game console generations tend to last five to 10 years. It would be an especially surprising move, given the relatively recent launch of a significantly updated Xbox One console in the Xbox One X and what it means for the Xbox platform.

In so many words, the Xbox One X offers a major update to the hardware while retaining compatibility with existing Xbox One games, which look and run better on the Xbox One X but must be playable on the original Xbox One from 2013.

Think of it like smartphones: You expect your old apps to work on your new phone. Microsoft could be moving toward this approach, where the Xbox One is “The Xbox” and new consoles are upgrades. Your game library moves forward with you and that’s that.

It fits in well with the Play Anywhere initiative, but it might be difficult to pull off from a technical perspective. At some point, new games will require newer hardware, which could leave owners of older consoles out in the cold.

5. The Xbox becomes a streaming game platform

Xbox Game Pass is a subscription-based service for the Xbox One that offers access to a large library of games from Xbox 360 and Xbox One, but each game must be downloaded before play. Image: Microsoft

Forget about downloading games. Maybe Xbox’s future is being the Netflix of gaming.

Microsoft has been working on a streaming service for gaming “that doesn’t require a console,” Bloomberg described Phil Spencer, an executive vice president, as saying in November 2017.

There’s already a service called Xbox Game Pass that offers a Netflix-like instant library of games on Xbox One, but games must be downloaded individually (not streamed instantly, like Netflix).

The new streaming service is expected to launch some point in the next three years, and it’s entirely possible it won’t require a dedicated piece of hardware made by Microsoft — like, say, an Xbox One — to play games.

Would such a service offer access to a library of games, or would games be sold a la carte? It’s unclear.

None of the few existing services like this — such as PlayStation Now from Sony — have been very successful. PlayStation Now, for instance, has a library mostly of old games. Moreover, streaming services introduce technical problems, like network latency, that can turn gaming into a mess.

These hurdles could no doubt be overcome. But it’s an uphill battle.

This article originally appeared on Business Insider.


Comments

    Forget about downloading games. Maybe Xbox’s future is being the Netflix of gaming.
    It might be, but not in a streaming sense - Microsoft know that it simply won't work.
    But you can perhaps expect Microsoft to shift its focus toward the PC.
    Except they won't, because as a shop front it's already dominated by Steam - Microsoft are content supplying the most popular gaming OS. There's little real way for them to get a grip on PC gaming - it failed with GFWL and it'll fail again with the Windows Store. They won't buy Valve/Steam, because Valve won't sell.

    This doom and gloom stuff is similar to the rhetoric that was tossed about last generation when the PS3 was on the bottom - and it didn't kill Sony to just push on, learn from their mistakes and push forward with the next generation. Microsoft made a good attempt with the Xbox One X - easily the most powerful console out there when it comes to pushing pixels, even putting some midrange gaming PCs to shame (if you can tolerate 30 FPS) when it comes to 4k displays. They're not going to do any of these 5 things because they don't need to right now. It's too late in the current generation to do anything, people have already picked a side.

    The Xbox One is coming up on five years since its launch, making that an early sunsetting — game console generations tend to last five to 10 years.

    Just putting it out there that the original Xbox lasted only 4 years on the market before the Xbox 360 was launched. This is despite the fact that it was touted as the world's most powerful console at the time - ironic that it was actually the first console of that generation to be superseded.

      In terms of console generations, which is what the author stated. The 6th generation started in 98 with the dreamcast and ended in 05 with the 360. That's 7 years for the generation.
      In terms of production for individual console the Xbox came out in 01 and was discontinued in 09, that's 8 years.

    I really just want to punch all the "the future of gaming is streaming" idiots in the mouth.

      Those of us still on ADSL will join you.

        I am on FTTP NBN and the idea of streaming games stills sounds horrible to me.

      I don't want it either but eventually it will be the case simply because the companies can charge you a subscription fee for it

      It's a statement that needs to come with several caveats to the point that it's meaningless. The foreseeable future of gaming sure as fuck isn't streaming. Most NBN connections can't support it, and most of the country doesn't have NBN and won't until several fucking YEARS from now.

      You might as well argue that the future of evolution is organic/synthetic hybridization. That the future of our solar system is the heat death of the sun.

      Like... sure. Good job. Well-spotted. Means nothing now, means nothing next year, means nothing in five years, when our second-rate insufficient network STILL probably won't be complete, or probably even ten when people are talking about a replacement for the NBN that will be rolled out over the subsequent ten fucking years.

    They're stuffed. If they go early with next-gen Sony will just announce a better specced PS5 right before Microsoft's retail launch and ruin the party. Crackdown is not a system seller. At all. Buying into exclusives at the last minute only alienates and pisses off the gaming community. Although buying Studios (Rare) hasn't worked out too well either. They need to invest in talent now and position for 3 years from tnow. Then they need to stay the course and not flip flop. They need better engagement with the community and better foresight in order to predict trends. Look how nimbly Epic adapted to the battle royale trend.

    Meanwhile 30 to 50 million? We can't get closer than a 20 million spread? That doesn't seem right.

    Last edited 10/06/18 11:54 am

    Its funny, the article thinks about all these scenarios, but avoids the glaringly obvious.

    Microsofts strategy is to bring every game it can to the current platform, and then use that library going forward indefinitely. This gives them time for new IP's to be developed and hit the market.

    As for acquisitions, if Microsoft is going to acquire publishers or studios, they'll be smaller studios, not unwieldy behemoths like EA.

      "Bringing every game it can to the current platform" Hasn't resulted in any real success for them thus far though, Ppl aren't not buying remasters on Ps4. It's also likely that the next PlayStation will have backwards compatibility despite the sales of remasters, With no new games for xbox driving sales of the console, They hardly have time to wait for new IP's to be developed, They have no choice but to wait, This is hardly a strategy.

      The strategy of the ongoing large library of games is indeed a good one, but it doesn't work when coming up against Sony.

      Sony clawed so much market share from Microsoft at the turn of the last generation after it made a few strategical miscalculations, it will be certainly hard to get that back.

      I think Microsoft will hold back on launching a new console, new generation or another incremental, to see what Sony does. They can't afford to lay their cards out and have Sony come out and counter them again.

      Sony have been a good exclusives factory for the last few years and Microsoft's haven't had the same quality on average. They have do deliver strong exclusives in the back end of this generation to bring back the PS4 players, but I can see it happening without Sony stuffing up.

    They seem to have invested too hard into their future without any thought of here and now. Also, why would I buy an Xbox if I can play all of their big titles on PC; which thanks to some simple tech can get relatively low latency if I want to play from my couch on the tv.

      You miss the point - you are already at that point buying their games and in their ecosystem :P.

        Except a lot of people don't hence why Horizon 3 didn't get much pc love. People don't want the Windows Marketplace and will forgoe actually buying games like SoT and SoD2 because the trials mean you only have to try it.

    2008 - Nintendo and Microsoft are doing amazing with the Wii and 360, the PS3 is failing and Sony is screwed.
    2014 - Sony and Microsoft have amazing new consoles, the Wii U is failing and Nintendo is screwed.
    2018 - Nintendo and Sony have run away success consoles. The Xbox One is failing and Microsoft is screwed.

    There are three major console makers. It’s highly likely that one will be at the bottom of the group at any given time. Stop assuming that means it’s doom and gloom and they’ll be shutting up shop soon. People finally just stopping watching for Nintendo to die, let’s not do the same to Microsoft please

    They need a better stable of smaller first and second party devs under their umbrella to compete with the likes of Guerilla and Santa Monica. Get these guys churning out a series of deseriable (but not neccesarily system-selling) titles. Avoid putting too much hope in big killer apps (e.g. Halo) that can backfire if they're poorly received. Embrace indies, but not too indie.

    I wonder how many Xbox ones were sold purely as a cheap uhd player. If Sony didn’t miss that trick in the pro the Xbox sold number seven could have been quite small indeed.

    Jumping on a NextGen console would not help them at all except, at the beginning due to the surge of novelty, if it doesn't fix any of the issues that made the XBone a failure.

    "Starting at $329..." Hardly, even EB Games sell them for under $280.
    I bought one for $220 and have seen them for as low as $199.

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