Xbox in Transition (Premium)

This past weekend's X018 event was nothing less than Microsoft declaring that its Xbox platform is poised for a future in which the software giant can rule the industry.

Which may be a tough pill for some to swallow. Microsoft, after all, is in the midst of losing for the third straight generation of video game consoles. And this time, by a much wider margin than in the past.

But as I predicted years ago, Microsoft's strength in cloud services would emerge as a key component of its strategy for the future. The firm has no particular acumen when it comes to building hardware, but it excels at delivering software services at scale.

To its credit, the firm has also done a spectacular job of addressing its early Xbox One failures. It has created the most gamer-centric video game platform on earth. And it has set the stage for a future in which it will deliver games to a diverse range of hardware devices, and not just to its own Xbox-branded consoles.

Watching the X018 webcast, I'm struck by the fact that this was nothing less than a very long commercial. Not for games. But for Xbox Game Pass, the 1.0 version of this coming video game service. In fact, it's a bit relentless, just a series of promotional videos and on-stage cheerleading. But if you push aside the marketing nonsense, X018 was an important milestone for the company. A coming out party, if you will, for that services future.

I can't help but think of Microsoft's failure in mobile, and how that experience must be driving a differentiated approach in video games. When Microsoft lost in mobile, it had little to fall back on: Its legacy productivity applications and services are jus better-oriented to PCs and other devices with large displays. And as the workforce gets younger, the Microsoft brand becomes less and less compelling when it comes time to choose productivity solutions.

Xbox doesn't have this problem. Despite three back-to-back losses in consoles, Xbox is still a very strong and positive brand. And the software giant has millions of happy customers that are seeing their capabilities expand as the platform moves beyond the console. Unlike with mobile, Microsoft has room to grow here. (In fact, one might argue that gaming might become Microsoft's biggest push on mobile in the future, should everything work out as hoped.)

Xbox Game Pass is an obvious hint at the future. It's not hard to imagine how this service might expand into PC gaming and it's fascinating watching as more and better games appear immediately on the service. And then, as the technology emerges, it will transform a true streaming service that works across all devices with a high-speed Internet connection.

But some of Microsoft's less-heralded platform additions will reap big rewards in the future, too. The Backward Compatibility technologies have brought hundreds of Xbox 360 and original Xbox game titles to the Xbox One, and all of them are improved in some way just by showing up on t...

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