$10: The price of admission into the Xbox ecosystem next generation

Xbox Game Pass is the big bet by Phil Spencer that ultimately got him the seat on the senior executive leadership team at Microsoft.

Phil took the reigns of Head of Xbox after Don Mattrick left Microsoft from the disastorous launch of the Xbox One. At that point, Phil had to right the ship of where Xbox was heading and started making “user-friendly” moves with removing the Kinect. Later on he had to show his value to the Windows organization led by Terry Myerson at the time and then you saw things like Xbox Play Anywhere, that allowed you to play Xbox and PC games through the Microsoft Store with one payment. While this was happening, Xbox wasn’t getting any increase in budget and was really cash strapped and the games that were being released weren’t doing so well critically and commercially outside of the Forza Horizon series. While all of this was going on and Windows was being split apart, Phil was already setting up his organization for the future under CEO Satya Nadella. He had to prove out his organization’s worth but he knew that as soon as Satya became CEO, which wasn’t that far off from when Phil became Head of Xbox. That’s when last year Xbox started Xbox Game Pass, a subscription service at $10 a month for over 100 games.

Over the course of several months Phil and Satya definitely talked about gaming and see where it was going and Phil has been very adamant on focusing on the user and letting people play games whereever they are and on any device that they were on (this type of talk started with Xbox Play Anywhere). I don’t know this for sure but I can bet that Phil talked to Satya about streaming and Xbox Game Pass and how it can be the subscription and the future for their platform. He obvoiusly had to crunch the numbers for potential subscriptions and have an understanding how they will reach billions of users. That’s when xCloud came in. Cloud gaming isn’t a new “thing” in the technology space as it really started with OnLive, which eventually would be bought by Microsoft’s competitor Sony through Gaikai. There is an Giantbomb E3 interview with Phil, I believe it was last year after Game Pass launched where he talked about streaming and that they couldn’t do it until it financially made sense. A couple months ago, xCloud was introduced and it showed how Microsoft had put 4 Xbox One S stripped apart and put into blades. I believe this will be true of the first trials of the service and then they will go bigger into those blades so that it is not 1 user per “Xbox One S” inside of a blade and instead have them powerful enough to virtualize sessions. That’s when it will make financial sense and something that is scalable into the billions of users.

With the introduction of xCloud and knowing how Xbox Game Pass works, there is a connection between them in other forms of our lives, media content. Netflix and Spotify both have streaming as apart of their subscription and that’s how they can scale to all over the globe. This is something that Phil recently said in an interview that there is a synergy there:

“And obviously, when you look at that, we have multiple business models that will work with streaming. But, the connection of streaming with the subscription model makes a ton of sense. You see it in music, you see it in video. So, you can look at Project xCloud and you can look at something like Game Pass, and you can see there is a natural synergy between those two.” https://wccftech.com/spencer-hesitate-studio-only-one-device/

That’s why I believe that the xCloud service will be apart of Xbox Game Pass by default. Microsoft has been following Netflix’s model all the way through and it is an understood model that everyone in the world understands, they are just bringing that model to gaming. As I stated in this forum post https://www.thurrott.com/forums/microsoft/xbox/thread/xbox-live-multiplayer-paywall-why-i-think-it-will-go-away , I believe that the multiplayer paywall will go away because of XGP (and in that same post I stated that the future of Xbox Game Pass was streaming). Microsoft wants to reach as many users as possible with a model that they understand, I pay a low price to stream content. They want to roll this out globally, and that’s how they can grab other parts of the market that don’t want to buy a console (or they don’t even sell a console in that region). I also believe that with this subscription you will also be able to stream your own games and not only the ones in the Xbox Game Pass library. Microsoft doesn’t want to stop you from playing whereever you are, but they do need you to pay to use their service, the more you play, the more likely you are to buy something like Downloadable Content or Microtransactions. Microsoft also doesn’t care what device you are running on be it a console, pc, mobile. They just want you to be a gamer into their ecosystem.

Microsoft has done some very bold moves since Satya has become CEO and I think the next big one will be this one for gaming. The next generation of gaming will have more options than every before for a user. Microsoft will have a streaming console as revealed from Brad Sams, they will have multiple consoles (S and X) but they will also have a streaming service for any device. I think that the latter is going to be what puts Microsoft over the edge. I look at something like this:

$10/mo: Use your own device (mobile, Xbox One console, etc…), stream games that you own and Xbox Game Pass

$10/mo + ($99-$149): Use your Xbox “5C” streaming console, to stream your own games and Xbox Game Pass

$10/mo + ($299-$399): Use your Xbox “5S” console to play games locally and Xbox Game Pass (also can stream to other devices)

$10/mo + ($499-$599): Use your Xbox “5X” console to play games with highest fidelity and Xbox Game Pass (also can stream to other devices)…i think this device will have a form of real time raytracing personally.

This allows Microsoft to satisfy every type of customer out there. If you want to own a Microsoft console or you don’t want to and you just want to try out their games. Getting that subscription money from users that wasn’t even a customer of Xbox before can now become one with the lowest barrier to entry, $10. Their total addressable market is in the billions of users. There’s a huge mobile gaming market in Asia that is one of Microsoft big targets. Microsoft has actually started a gaming asian group for lack of a better term that will outreach to developers out there to get on the Microsoft platform. Microsoft talked at the Samsung developer conference talking about xCloud and how they can reach so many more users through game streaming. Mixer is there as an easy to get to more users to use their service. Imagine watching someone play a game on Mixer and they want to invite you as you were talking to them in a chat, you can immediately play if you have Game Pass…but that’s also a potential place to sell game pass as well. You see a game on Mixer and you are interested in playing it, there’s a button that says “buy game pass and play this game instantly”. That’s what xCloud can do. That’s why Google is also in this business. Streaming also allows Microsoft to compete with Apps Stores as well. You can buy a little game on the app/play store or you can use this subscription to play console like games. It’s also a way for gamers to get into the Microsoft ecosystem. This streaming service can also be applied to Windows Mixed Reality and other VR/AR headsets. Phil does want it on every device.

Microsoft is increasing their studio output not only for having better exclusives, but to reach different niches in the market. They are no longer just focusing on the “big” mainstream games, they are trying to do what Netflix and Spotify do, get every type of content that people like, not just the popular ones and satisfy those users. If you satisfy enough niches, you get the entire market. That’s why you will continue to see more studio acquisitions and that’s why ID@Xbox is very important to them. A lot of those games are becoming games that launch on Xbox Game Pass. It’s all about increasing the value of Xbox Game Pass and getting people on it. This gameplan that Microsoft has is to not win the “console war”…it’s about getting gamers wherever they are in the world and monetizing them. Unlike Netflix and Spotify, gaming has a better model in which they can get more money from a user from a single game. Monetizing from DLC/MTX and letting users outright buy songs while also subscribing is more lucrative than only having a subscription. 100m subs = 1 billion in revenue in one month alone…but as I stated, that’s just on subs, games can monetize even more. With the addressable market in the billions, you can see the potential to make a ridiculous amount of money. The lowest barrier to entry will get the most users.

That’s why Satya believes in this endeavour and that’s why Phil got on the executive leadership team because of the potential money.