(Business Perspective) Does MS really need Xbox Hardware?

[Ryuu96]

Azzanation said:

Ryuu96 said:

See Post.

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.

1) Xcloud can be available on everything (TVs etc)

2. Microsoft would lose hundreds of millions in revenue from Xbox Live Gold.

2) The loss of Gold will be recovered with 2 major audiences.

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.

3) You lose the Live revenue and gain it all back plus more with GP growing.

4. Microsoft makes literally billions from the 30% cut of 3rd party software transactions.

4) They will gain more money with GP subs increasing.

5. Sony would likely not accept a Game Pass with 3rd parties.

5) Sony don't have to accept GP. If they don't, someone else will and they will create competition for Sony because they give their potential Rival a phenomenal deal over them.

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.

6) MS can easily fill GP with its own games. 20+ studios making games including their history of previous games.

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.

7) MS won't need the 100% cut because they will gain 200m+ more gamers to potentially buy their digital games. The billions they make on relying on hardware also has to recover the billions they spent on creating the hardware. They can cut the loss completely.

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.

8) They won't need to Port if PS is the main platform. XCloud will be on TVs just like GP. So if you cant play on your Xbox, go play on your TV.

9. You'd have to find a way to transfer the millions currently subbed to Game Pass on Xbox over to PlayStation or Switch.

9) Time will convert people over to PS. Also GP is a service not a console. GP will be accessible on all major tech products. Its pretty simple.

Personal speculation of a possible future doesn't refute actual facts and figures as to why it makes financially sense for Xbox to stay in the hardware business. I'll try to respond either way but nothing you've said has countered the actual numbers that I've provided to you, random speculation isn't a counter. I could say in 10 years Xbox hardware will sell 150m and thus it makes sense for Xbox to stay in the hardware business but I won't because that's baseless speculation with nothing to back it up.

Just like saying that Xbox going 3rd Party would suddenly turn them into the largest 3rd Party Publisher in the industry by a huge margin and suddenly all of Xbox IPs will be selling incredibly amazing and hundreds of millions will sub to Game pass and everyone will be using xCloud where they can't use native hardware, Lol.

1. You didn't counter half of what I said here, xCloud uses Xbox hardware because it's easier for developers to support it. Saying "xCloud can be on everything" doesn't mean anything to what I said. Stadia failed in part because the business model was trash and in part because it was too much effort for developers to support such a tiny market.

xCloud is already everywhere. It doesn't mean it will take off and replace Consoles. xCloud is an uncertain future and as of right now isn't even profitable for Microsoft, Fortnite on iOS xCloud was by Microsoft's own admission, a disappointment. There is a very real chance that xCloud never takes off in a large scale because there's a lot of things against it; Native hardware will always be better, internet connections and data caps, the slowness of ISPs to upgrade, the distance from a Azure data centre, etc.

2. Have any data for that? Microsoft would have to generate billions in Revenue from becoming a 3rd Party in order to replace the billions they'd lose from Xbox Live Gold + 3rd Party Content (30% Cut).

You're arguing right now that Xbox as a 3rd Party would generate more Revenue than the current largest 3rd Party Publisher (Activision-Blizzard-King) but not only more Revenue, they'd have to double them. Xbox is not going to kneecap itself from a $16bn company to a $7bn company (below Activision) or even a $10bn company (slightly above Activision's $8bn).

3. You lose both the Xbox Live Gold Revenue + Game Pass Ultimate Revenue (when subs drop down to Basic Plan) which is a $5 difference per sub.

4. Guesswork...

5. Sony doesn't have to accept Game Pass and they'd be fine without it. Xbox currently already has Game Pass, PlayStation doesn't, and you don't see that hurting PlayStation sales at all. Who would even accept it if Microsoft was out of the market? Nintendo? Which would largely be done through xCloud thus making it a lot less appealing.

Not to mention, without Xbox, the audience for Nintendo and Sony just becomes larger because it's now a 2 Console Market instead of a 3 Console Market. Nintendo could accept Game Pass in a theoretical but it won't mean nothing to Sony who will continue to sell huge amounts because the audiences are differentiated enough.

They'd both almost certainly only accept a Game Pass with 3rd Parties and both take a cut from Game Pass of Xbox.

Same logic can be used with Steam, has Steam accepted Game Pass yet since it's on Windows Store? No. Because they don't have to.

6. No they really can't. Firstly their "history" of previous games would have to be ported over, costing time, money and resources, that is being moved away from developing new titles.

Secondly, 23 Studios (1 is Mobile) so 22 Studios for Game Pass on Consoles. They can't "easily fill" Game Pass without 3rd Parties. Even the stated goal of 4 AAA's Per Quarter wouldn't be enough without 3rd Parties to fill it too, and EA Access. You're talking about losing hundreds of titles. AAA's are taking longer and longer to develop, 4-6 Years on average now, they'd need a lot more studios without 3rd Party content.

Also, studio amount means nothing, it's the employee count which is more important of a metric, and Xbox Game Studios + Zenimax have around 5,000 Employees combined...In comparison to Ubisoft's 20k and Activision-Blizzard-King's 10k. Nintendo has more employees than Xbox.

7. Throwing out 200m won't mean much without knowing how many will take advantage of it. You also never give evidence for the "billions lost on Hardware" and the "billions spent on creating Hardware" whilst also ignoring that Surface would likely also incur similar RnD costs whilst being a smaller business than Xbox.

200m+ Gamers doesn't mean anything if Xbox's IPs aren't grown into massive juggernauts, as I keep repeating, Xbox IPs would have to reach the scale of CoD, Diablo, Overwatch, Candy Crush, etc, as that is the floor. Not just match but exceed the scale, bigger and more, than ABK.

You'd have to have multiple Xbox IPs which are 30m+ Sellers, multiple Xbox IPs which can generate $1bn in Revenue in 10 Days like CoD can, I'm sure a few could achieve that, such as Elder Scrolls, but it wouldn't be enough that could achieve that to turn Xbox into double the size of ABK as a third party.

8. What? They do need to port titles to PlayStation, Lol.

"If you can't play on your Xbox, go play on your TV" is an awful solution which wouldn't be viable for millions of Gamers, Lol. In addition there are a few genres which absolutely suck on xCloud.

9. Game Pass has millions of users on Xbox and there's no telling where they will go if Xbox shuts up shop on their Hardware. They could be a large chunk who simply move to Steam, they could be a large chunk who move to PlayStation but there would be millions who would be no longer interested in subbing to Game Pass once it removes 3rd Parties, if Sony even accepted it in the first place.

As I've already said, there's a lot that Xbox would have to do before going 3rd Party, if they ever do.

• Grow more than a few of their IPs into massive juggernauts.
• Acquire a huge Mobile developer and massively expand their Mobile footprint.
• Significantly grow in size (employee headcount) and acquire a lot more studios.
• Hope that xCloud has massive improvements, hope that ISPs have huge improvements.
• Have a regular (yearly) release of a massive IP.
• Massively increase Game Pass PC adoption.

Nobody is going to be happy seeing Xbox turn from a $16bn business to a $10bn or less business, Microsoft needs to maintain the same size by going third party and that same size is double ABK, Lol.

All of the improvements above would increase Console sales too though and thus even more $$$ on the 30% cut.

Last edited by Ryuu96 - on 11 May 2023