Hiko, i have been a Steam user for decades and to this day, with or without competition, they have done everything that supports me as a customer. You don't need competition if you can have faith with the company. Sounds weird I know, same can be said for Nintendo. The issue is MS and Sony clearly cannot be trusted and will run away with everything if they can. As a business standpoint, I don't see the need for a 3rd platform and to MS it's only a money drain just to sell subs. 

Xbox will still make controllers and still make games, its just the dedicated hardware the business needs to justify. 

Lets look at the 3rd party publishers in the industry by revenue & profit on their best years since 2009.

1. Activision Blizzard - Net Income ($2.6bn) & Revenue ($8.8bn).
2. Electronic Arts - Net Income ($3.0bn) & Revenue ($6.9bn).
3. Take Two - Net Income ($589m) & Revenue ($3.5bn).
4. Ubisoft - Net Income ($163m) & Revenue ($2.5bn).

I didn't include Tencent or NetEase because they're more than Gaming companies and it's hard to find their specific Gaming only revenues and profit. Also, it's a bit unfair because they literally control the entire Chinese market, nobody can get into the market without having to partner with a Chinese company so they have a huge advantage. I didn't include Japanese companies because they're smaller than all the Western ones, and Embracer isn't worth listing either.

"Gaming" is doing around $16bn for Microsoft right now on an annual basis in Revenue. PlayStation is doing around $25bn IIRC and Nintendo around $16bn as well but Nintendo's incredible 1st party sales and extremely high selling hardware business counters Xbox's 30% cut in store transactions. There is a reason why Fortnite, GTA, Call of Duty, etc. Are mentioned regularly in Fiscal Reports as growth drivers too.

Consoles making a loss is irrelevant to PlayStation and Xbox because they make it up in the billions from Xbox Live/PlayStation Plus and the 30% store cut. The Windows Store cut is irrelevant to Xbox if we're going to be brutally honest, Xbox is very unlikely to be making any worthwhile money there. So we'd have to weigh up if going 3rd party would replace the losses from the 30% cut of every single transaction made on the storefront and the loss of Xbox Live Gold.

Xbox currently makes $16bn annual and Activision-Blizzard makes around $8bn. Xbox would literally have to become the biggest third party publisher to make it worth their while to go fully 3rd party unless they want to lose billions in revenue and someone will say what about profits but the fact is that Microsoft doesn't report profits on anything aside from the overall business, seeing Xbox's revenue shave off billions would be a dire sight because we'd still not know profits, neither would the shareholders.

Look at Xbox's recent quarter, $3.6bn was "Gaming" overall and "Nearly $1bn" was Subscription Services (Which includes Xbox Live Gold). Hardware was $500m and "Content & Services" which also includes Subscriptions was $3.1bn. So if we round up "Nearly $1bn" then that means $2.1bn in the quarter came from "Content" and what 1st party content did Microsoft release in that quarter? Hi-Fi Rush, Age of Empires II for Xbox and Goldeneye HD. Hard to say how much 1st party content accounted for that $2.1bn" but given their releases I'd say it was a small amount. We'd have to account for 3rd party sales on other platforms too (such as Minecraft) but then they'd also take a 30% cut off Microsoft.

Even if we say half is Xbox IP sales (extremely unlikely), that would still make $1bn coming from 3rd party sales.

Annual Gaming is $15.4bn right now. Content & Services is around $12bn of that, 78% of the total in a Fiscal Year where Xbox released Grounded, Pentiment, Hi-Fi Rush, Goldeneye and Age of Empires II HD. How much do we think of that $12bn is Xbox Live Gold and 30% store cuts? Phil says Game Pass is around 15% of the "Content and Services revenue" so that would be $1.8bn so far in this Fiscal Year which Game Pass accounted for. The remaining $10.2bn would be Xbox Live Gold and "Content". Taking into account their 1st party in this Fiscal Year has been dire so far, it likely doesn't account for much, a few hundred million? If that? Maybe Minecraft makes up a large chunk? But it's only $30 so I doubt it. Also take into account any 3rd parties on other storefronts (Steam/PlayStation) also take a 30% cut from Xbox.

Lets think of Minecraft...Its best years have been around 20m in sales, it's currently a $30 title. Lets say $30 x 20m which gives us 600m at an maximum, if all of Minecraft's sales happened on the Xbox stores where Xbox would take 100% of the transaction, which we know is nonsense but we don't know the platform breakdown. Even if we say 600m for Minecraft (impossible) and 400m for 1st party (high estimate I would say) that would only give us 1bn which still leaves us with $9.2bn between 3rd parties and Xbox Live Gold.

I think it's safe to say that Microsoft would lose billions if they were to abandon hardware, in revenue and in profits.

Will fully multiplatform make up for that? Well...If they want to remain the same $16bn company then they'd have to make $8bn more than the current biggest 3rd party publisher in the industry, do we genuinely believe that XGS + Zenimax have that much more selling power than annual CoD + Diablo, Overwatch, World of Warcraft, Candy Crush, etc?

I don't...Not yet anyway, Xbox will need to acquire a ton more content...And they just failed at getting Activision-Blizzard.

They'd also have to grow their upcoming new IPs into major hits alongside revitalising some older IPs. They'd definitely need a Mobile developer.

The other option is Game Pass absolutely explodes but they'd need it on Steam, PlayStation and Switch. Even if Xbox killed their Hardware. Nintendo and PlayStation still have no reason to accept Game Pass on their service unless Microsoft gives them a nice split of the revenue/profits, Nintendo and Sony especially, won't want Game Pass taking away 3rd party sales from them, taking away that 30% cut.

• Is Xbox hardware less important to Xbox? Yes.
• Does that mean it's not important? No.

Game Pass needs Xbox hardware, Microsoft needs the 30% cut and unfortunately also need Xbox Live Gold.

There ain't no chance Xbox is going to be like "lets shave billions of revenue off our balance sheet" and watch Xbox turn from a $16bn revenue driver to a $10bn or less and be able to spin that as a good thing to the public or shareholders unless Microsoft makes a change and starts reporting profits on individual business units which even then isn't guaranteed to be a huge difference.

Xbox can't abandon Xbox hardware until they do multiple things.

• Have a large scale mobile presence.
• Massively increase Game Pass PC adoption.
• Find a replacement to Xbox Game Pass - Getting it on PlayStation/Nintendo isn't a guarantee.
• Grow some IPs to juggernaut levels and release them more regularly.

So to sum up.

• Do I need Xbox hardware? Nobody needs gaming hardware, but do I want Xbox hardware? Yes.
• Does Xbox need Xbox hardware? Absolutely, as of right now and in the near future.

The Hardware business is justified by the 30% cut, Xbox Live Gold and now, Xbox Game Pass.

Additionally, xCloud is literally powered by Xbox hardware, why is that? Because it makes it far easier to bring titles to xCloud and upgrade it faster, developers who develop for Xbox consoles will only have to make a few configurations to enable their games to work with xCloud. As opposed to Stadia's solution which required developers to custom port their titles to Stadia's specific hardware specifications and is one of the reasons that Stadia had such shit support.

If Xbox hardware is abandoned then xCloud might as well be abandoned too otherwise it will end up like every other Cloud failure, few developers want to go through the effort of making customised ports for such a tiny and insignificant market. And in that case, Microsoft would then have to go harder on native ports to Mobile to expand their business.

MS will need to make console hardware for as long as console hardware is relevant to gaming. GP as a service isn't ready to go full cloud nor is the industry ready for full cloud services. GP is a service that download games on hardware that allows you to play your games. There is a reason that XCloud is only an add on instead of its own main service. MS recognized that the rest of the world including the US does not have the infrastructure for cloud only services not to mention the ISP and how they handle their internet services with metering and charging extra for going over data limits.

While GP is MS main focus for growth, in order for MS to achieve that growth, they need a hardware presence at this stage to continue to obtain and lock in consumers to their ecosystem. Just think about it now, you can get GP without an Xbox and run it from your android or Iphone. You can even screen share that to your TV if it has cast capability but who out their is even doing that. I tried it to see how well it looks and it looks like jank. So while MS could go all software subscription, without console hardware being able to show their games in the best of lights, the take up of GP will not be to the level MS require in order for the service to be profitable enough. GP is going to be an add on service for a while until MS can build enough successful IP where it can stand on its own. Until then, MS is a long way from obtaining that goal. ABK probably would help things move forward faster but not that much faster.

SO no, MS will be in the console business for as long as Nintendo and Sony. The difference is that MS will try to disrupt the market with GP and hope they can build it to be successful on mobile platforms as they continue to expand their gaming division.

I disagree, people will answer to your post and to your title.  If your title is misleading then its really up to you to change it to focus the discussion on what you want it to be.  Not everyone is going to read your post to determine your conclusion on the issue instead most will look at the title and either have a pro or con opinion on that.

You really should focus your title to exactly what you are discussing to limit confusion.

Ryuu makes a good point about Xcloud that I believe we all forget. Its run on Xbox series X hardware. This means that MS will continue to need to make Xbox hardware which give developers a platform to support in order for their cloud solution to be viable in the market.

Now the title makes sense, thanks for changing it

I don't need Xbox personally, but you are wrong on X1 or Series burning money from MS. They may not have high profits (MS doesn't show the numbers), but the HW itself hardly is losing more than 1 or 2 games worth of profit, so considering the 10+ average it console sells and the subscriptions the HW itself is advantageous to MS.
Regarding needing MS to keep Sony in check I don't believe in it, PS2 dominated the market with easyness and still had price, quantity and quality while PS4 had a much stronger competitor in X1 and didn't cut prices besides once and in PS5 situation is similar regarding sales and besides the price increases due to inflation/exchange ratio there is no interest from either MS or Sony to cut prices at the moment.

Think about the PS3 and the message Sony put out during that time.  You would work 3 jobs to get this device.  You are mistaken if you believe that if Sony totally dominated the market that they would make the same decisions in the absence of MS.  I doubt we would have seen PS services anywhere near what they are today compared to MS pushing internet and Games with GOLD.  There are a lot of things Sony has done in response to MS compared to what they traditionally do. Even the PS4 is a direct result of how well the XBox 360 performed because building an extremely complex hardware device that makes it difficult for most developers to extract all the power out of the machine was never a good business decision.

So yes, the PS4 and PS5 are direct results of Sony pushing the advantages they have to make sure to keep ahead of MS and while you personally as a PS gamer believe MS has no impact on Sony direction, history show different.

I do dispute the "MS doesn't care they are third" I can bet they would like and plan to be first, but yes that is beside the point as really if it profits enough it is acceptable at the moment for leadership while they plan on how to take first place.

MS doesn't care about being first place in console sales, they just need to stay competitive.  Instead, MS want to be first in delivering games to multiple platforms around the world and decouple from being dependent on hardware.  That does not mean they will leave the hardware space because its still important but their is a lot of money to be made by delivering games to as many devices as possible.  All of these are long term goals but the first goal is to build a library of AAA games that consumers feel they must have.  Whether they achieve this goal is another story.