A Few Thoughts About xCloud and the Future of Xbox (Premium)

Yesterday, Microsoft provided its first public demonstration of Project xCloud, its coming cross-platform game streaming service. This one is personal for me: I was among the first, if not the first, to point out that Microsoft should evolve the Xbox platform beyond consoles and PCs. And that, in doing so, it could align these efforts with its cloud prowess and leap past traditional competitors such as Sony and Nintendo.

I still feel very strongly that this is all true, and when Microsoft revealed Project xCloud last October, I was ecstatic. Not so much about being right per se, but rather that the software giant’s plans so closely aligned with how I saw its future. On a deeply personal level, I want Xbox to succeed. I prefer this platform over those of Microsoft’s rivals, I’ve bristled at what I think of as pointless criticism of its strategy, and I’ve long felt that Xbox is the most gamer-centric platform available. Taking Xbox—and with it, Microsoft—to the next level with xCloud just makes sense to me.

Since October, there’s been a lot of speculation, both about xCloud specifically and about how Microsoft will get from here—a world in which it makes hardware consoles and Windows, the superior PC-based gaming platform—to there, a future in which hardware matters much less, if not at all, and the platform shifts from the client to the cloud. Some feel that the current system of console generations and Windows PCs will simply continue forward, while others believe that these antiquated ideas will fade just as surely as VCRs, 8-track players, and Sony’s Minidisc.

My views aren’t quite that extreme.

I see this as a transition, and I believe that consoles, PCs, and xCloud-hosted games beamed to smartphones, tablets, living room set-top boxes, and other devices will co-exist for some period of time. In the beginning, consoles and PCs will provide superior gaming experiences to streaming devices. But that will shift over time, as the convenience of cloud-hosted gaming undercuts the technical superiority of dedicated gaming hardware.

This shift has already started happening, by the way. The reason so many gamers choose consoles from companies like Sony, Nintendo, and Microsoft boils down to convenience: They just work. Compared to PCs, which can provide better graphics and performance, they are much simpler. You just turn it on and go. Gaming PCs, by comparison, are complex, expensive, and require constant handholding at a per-game level. It’s like Netflix, but instead of spending more timing finding content than watching it, you could spend more time frigging with in-game settings than actually playing the game.

On the flipside, transitions are tricky for the companies that big stakes in both the present and the future. Consider Microsoft generally: The firm pushes cloud computing, AI, and accessibility really hard right now, and investors are eating up, making the once somnambulant firm among the richest one to three companies on earth. But the reality of Microsoft’s business today doesn’t mesh with the marketing: Microsoft’s biggest business makes Windows, not Azure or Office 365. Oops.

The trick for Microsoft, then, is to milk its existing cash cows while transitioning its product line and its customers to the cloud- and subscription-based offerings that it feels form a better and more diverse foundation for the future. It’s a delicate balance. Customers who rely on legacy products like Windows—old news to Microsoft’s investors—don’t understand why they get such short shrift at Microsoft’s corporate events. Meanwhile, investors don’t want to hear that Windows is going gangbusters despite the general decline of the PC market. They want to hear about the cloud.

In gaming, Microsoft faces exactly the same issue. The firm has lost all three console generations in which its participated, and this most recent Xbox One generation, despite its technical superiority, has sadly performed the worst. But the firm has product to push today, from its consoles to Windows 10-based gaming to its mobile efforts and its burgeoning cloud services like Xbox Game Pass. It can’t simply announce that xCloud and heterogeneous gaming are its future. Doing so would immediately sink whatever mindshare and usage it currently enjoys.

So it must play the game, if you’ll pardon the pun. Today, it will over-emphasize the fact that traditional console- and PC-based gaming isn’t going anywhere, and fictitiously claim that it sees consoles, PCs, and xCloud coexisting for many years to come. They will coexist, of course. But you need to look past the short-term—an obvious new Xbox One console here, the long-delayed porting of Microsoft IP from console to PC there—to get a clearer view of where this is going.

And it’s going to the cloud.

No, not in 2019. And not for the next few years. But it’s inevitable.

Still, I’m always curious to watch Microsoft manage this kind of transition. You may have noted my puzzlement over its continued use of an imaginary business called “commercial cloud,” in which the firm cherry-picks a non-transparent selection of services from different real businesses to present an analyst-friendly view that it is competing effectively against Amazon. In the case of gaming, what I’m looking for is the reassurance to fans that there’s nothing to worry about: Microsoft isn’t about to drop its Xbox hardware business.

And boy do they deliver.

“We’re developing Project xCloud not as a replacement for game consoles, but as a way to provide the same choice and versatility that lovers of music and video enjoy today,” Microsoft’s Kareem Choudhry explains. That’s an interesting comparison, given that digital music and video have completely replaced physical media as a delivery method, leaving trendy but inconsequential products like vinyl LPs to the hipster subculture.

“We’re adding more ways to play Xbox games,” he continues. “We love what’s possible when a console is connected to a 4K TV with full HDR support and surround sound – that remains a fantastic way to experience console gaming.  We also believe in empowering gamers to decide when and how to play.”

This messaging is so on point for Satya Nadella’s Microsoft that I literally laughed out loud when I read it. It’s like it was generated by something called Satya.AI to appeal to both Microsoft’s Senior Leadership Team and Microsoft’s investors. It’s brilliant, and it positions Xbox as both inclusive and diverse. Smart.

Left unsaid here, of course, is that modern mobile devices are also capable of 4K and HDR graphics, and that such devices are, in fact, far more readily available and accessible than are consoles hard-wired to TVs and stuck in a particular room. Laptops, tablets, and then smartphones supplanted desk-bound PCs years ago, and they will similarly do so for gaming. There is a coexistence there, of course—some people, myself included, still use desktop PCs—but it’s a lopsided coexistence. Consoles and gaming PCs won’t disappear. But they will be the minority.

“We believe in the future where you will be able to seamlessly access content on your phone, tablet or another connected device,” he continues, as if this were some new idea. “Imagine that you just began a single-player campaign the day before heading out of town and want to keep playing from where you left off.  Maybe you just need a few more minutes to wrap up that weekly challenge before you head into work, but your bus just won’t wait.  Or maybe the living-room television is occupied by someone else in the household when you arranged to play co-op with your friends.”

I believe in this future too. And I believe that, while Microsoft can’t say this overtly right now because, again, it is protecting its current business during a transition, that most of that “continuing where you left off” stuff will never actually involve a PC or gaming console. Again, not immediately. But inevitably.

Anyway, kudos to Microsoft for both doing the right thing and for saying the right thing. It needs to achieve a delicate balance during this transition. And it’s one that I am so very happy not to have to worry about myself.

Let me be clear. The future of gaming is in the cloud, period. And for now at least—let’s see what Google announces next week before we get too cocky—Microsoft is leading us to that future. I couldn’t be happier.