Azzanation said:
Sorry for skipping you, I literally didn't see this post but ill respond. Xbox drops Xbox hardware, this will open the gate for Sony to accept a 1st party only GP as well as selling more games separately on PS hardware (No, they cannot bring all their 1st party games across, as they still have to support their current hardware, which won't be a issue if they drop hardware in the future) 1st Party GP on 2 major console markets in Switch and PS means they will have over 200m+ customers that have access to GP, that will make up the cost of losing Live and digital software sold on the underselling Xbox hardware. Yes you cut a lose to gain a much bigger gain. Porting is not an issue. They have all the time they need to port games over, some are already on PS and Switch. MS's end game is subs, removing hardware means they can remove the costs of billions in RnD, Customer support stations, exclusive deals etc. What they gain is 200m+ potential subs for GP which in return will continue to grow earning Xbox billions monthly, if they can score enough subs. This will easily make up any lost ground with hardware. |
Cons
1. Xbox hardware is needed for xCloud. Microsoft uses Xbox hardware for xCloud because it makes it easier for developers to work with it and easier to upgrade when needed. This is because if the developer has already done the work to port to Xbox consoles, it can be more easily configured for xCloud. Take a look at Stadia which was custom hardware making it harder for developers to support and thus it had awful support.
2. Microsoft would lose hundreds of millions in revenue from Xbox Live Gold.
3. Xbox Live Gold is inherently linked to Game Pass Ultimate as a major selling point, if it were to be removed then a large portion of Game Pass Ultimate subscribers would very likely drop down to Game Pass Basic = Less revenue.
4. Microsoft makes literally billions from the 30% cut of 3rd party software transactions.
5. Sony would likely not accept a Game Pass with 3rd parties.
6. Even if Sony accepted a 1st Party Only Game Pass, it could cause users to unsubscribe because it's not feasible that Microsoft can fill it all out on their own. Sony would also likely demand some sort of Revenue sharing too from Game Pass, they aren't going to allow it for free.
7. Abandoning Xbox hardware means Microsoft has nowhere to get 100% of the cut on 1st Party Sales aside from Windows Store which nobody uses. Selling titles on Sony hardware means that Sony takes 30% of the cut rather than the 100% which Xbox gets on their own hardware.
8. Porting is an issue, unless they wanted to start fresh then they'd have to port dozens, if not hundreds of 1st Party titles over to PlayStation and Switch. Porting costs time, money and resources. Unless they use xCloud for the past titles but Cloud Gaming is simply not feasible for many and may never be feasible or even a preferred option for a large portion of Gamers. It's an uncertain market.
9. You'd have to find a way to transfer the millions currently subbed to Game Pass on Xbox over to PlayStation or Switch.
_______________
Microsoft spends billions in RnD on all of their divisions, it is the whole point of RnD and RnD in one division can have beneficial applications in other divisions or across the board with new tech advances, software advances, etc. Microsoft still does have a Surface line-up which they no doubt spend billions on in RnD too and Surface is a much smaller division than Xbox. Making a loss on Hardware is irrelevant because the 30% cut more than makes up for it.
You need to ask yourself a simple question, do you believe that Microsoft as a 3rd Party would be bigger than Activision-Blizzard-King? Because that is your floor, Activision-Blizzard-King are currently the largest 3rd Party Publisher at $8bn FY Revenues. Microsoft Gaming is $16bn. Microsoft Gaming would have to not only beat Activision-Blizzard-King but double them in order for this to not look like a bad move and maintain their current Revenues. Fortnite, Call of Duty, Grand Theft Auto, etc, are all mentioned regularly in Fiscal Reports because they are large revenue drivers.
There is absolutely no chance that Xbox as it currently stands is anywhere near a Revenue driver as much as ABK is in 1st Party Software alone.
I'll repost my Quarter calculations: Xbox's Recent Quarter = $3.6bn "Gaming" and "Nearly $1bn" on Subscriptions (Xbox Live Gold + Game Pass), Hardware = $500m. Content and Services (Subscriptions) = $3.1bn. Around $2.1bn in the Quarter came from "Content" in a Quarter which Microsoft released Hi-Fi Rush, Age of Empires II HD and Goldeneye HD. I can only guess but I'm pretty confident in saying the vast majority of that $2.1bn came from 3rd Parties.
Look at Fiscal Year as a whole: $15.4bn. Content & Services = $12bn/$15.4bn, 78% of the Total. In a FY which Xbox released Grounded, Pentiment, Hi-Fi Rush, Goldeneye and Age of Empires II HD. Phil recently said that Game Pass accounts for around 15% of Content & Services so that would give us $1.8bn to Game Pass. The remaining $10.2bn would be Xbox Live Gold and Content.
Taking into account the extremely light FY, I would confidently guess that the vast majority of that $10.2bn is 3rd Party transactions. Now you may ask what about Xbox software currently selling on PlayStation/Steam. Well it gets tricky to work out now because every transaction made on Steam/PlayStation Stores, Microsoft will only take 70%.
Lets use Minecraft as an example though, its best years are around 20m in Sales. It's a $30 title. That gives us $600m a year at a maximum if all transactions happened on the Xbox store where Xbox would take 100% of the cuts, which we know is nonsense but since we don't know the platform breakdown it's too hard to work out. Even if we give Minecraft a very generous $600m and lets say roughly $400m for other 1st Party content, that would only give a total of $1bn and still leave us with $9.2bn between 3rd Parties and Xbox Live Gold.
Even if Xbox IPs made $2bn. We'd be left with $8.2bn from 3rd Parties and Xbox Live Gold in the Year. You remove that then Xbox is now a $7.2bn Business. Now they have to make up $7.2bn in 1st Party Content by going fully 3rd Party.
If they want to remain the same $16bn FY company, then they need to double what the current biggest 3rd Party Publisher makes, that is not happening, few have the selling power of Activision-Blizzard-King. They are a machine. Xbox has to consistently beat CoD, Diablo, Overwatch, Candy Crush, World of Warcraft, etc.
Just to be clear, it's not that they have to 'beat' ABK specifically but I'm using ABK as an example of where the floor is for Xbox as a 3rd Party and putting into perspective what they would have to beat (by double) to remain the same $16bn a year company. I'm putting into perspective that even ABK's juggernaut selling power doesn't come close to $16bn a year.
Microsoft isn't going to willingly shave off billions from their business and I think the fact that we aren't told profits would actually go even more in favour of Microsoft NOT doing that because the only data we would have, and shareholders would have, is Xbox halving their business. Microsoft does often not report profit on individual business units.
Microsoft is nowhere near being able to go 3rd Party. What they'd have to do first is a few major adjustments.
- They'd have to massively expand their Mobile presence in order to replace a lot of the lost Revenue, King is one of the biggest drivers of ABK.
- They'd have to massively improve the Windows Store experience, until then, 90% of PC Gamers are using Steam over Game Pass PC.
- They'd have to hope that xCloud takes off in a big way - Unlikely, Imo and made harder if they drop Xbox hardware.
- They'd have to find a way to transfer the millions of Game Pass Subscribers on Xbox over to other Consoles.
- They'd have to find a replacement for Xbox Live Gold for Game Pass Ultimate.
- They'd have to grow multiple IPs into massive successes.
- They'd have to acquire a lot more content Imo and they just failed at getting ABK. Not because of Xbox hardware but because of xCloud.
Right now there is not a chance in Hell that they could go 3rd Party and even in the near future Imo. I think this future is 15 years away at minimum with the amount of things they'd have to do, many of these things will also grow their Console business too. Xbox Hardware at 50m-60m selling can still be a huge Revenue and Profit driver via 3rd Party/1st Party, they don't have to be #1.
Essay Pro