The End of Consoles? (Premium)

Thanks to the failure of the Xbox One, Microsoft’s videogame strategy has shifted dramatically in recent years. But this past week, the firm came clean. The future of Xbox lies not with standalone consoles but rather with the people who play games. And that’s true no matter where they prefer to do so.

It used to be so simple. Videogame fans who wanted to sign-up for Microsoft’s take on this market simply bought the newest Xbox, which for most of this platform’s existence, was a standalone, dedicated console.

But a lot has changed over the past 20 years.

When Microsoft announced the first Xbox, Bill Gates was still the chairman of the software giant he had cofounded, and the hardware was a thinly-disguised Intel x86-based PC, a “DirectX box” that would make up for the failure of the firm’s previous partnership with Sega on the Dreamcast. But subsequent hardware generations seesawed wildly between hardware architectures, with the Xbox 360 adopting PowerPC chipsets in 2005 and the Xbox One arriving with AMD x64 chipsets in 2011.

While Nintendo and Sony had had decades to build up enthusiastic fan bases and exclusive franchises, Microsoft, as the newcomer to this market 20 years ago, needed to work harder just to be an also-ran: In the first three generations of consoles in which Xbox competed, there were some software hits, like Halo and Forza, but Microsoft’s hardware never performed particularly well. So Microsoft, even more so than Nintendo and Sony, had to worry about retaining fans as much as it did with earning new customers.

One approach to doing so was backward compatibility: Despite the different hardware architectures, Microsoft worked to ensure that some library of games from previous-generation consoles could be played on the new Xbox hardware. How it did so is sort of beside the point, but this work became the cornerstone of Microsoft’s gamer-centric strategy changes in the wake of the Xbox One debacle: That console wasn’t at all competitive from a unit sales perspective, triggering fears that Microsoft would drop or spin off the platform.

That didn’t happen. The Xbox One launched the holiday season before Satya Nadella became Microsoft’s third CEO, replacing Steve Ballmer. A veteran of Microsoft’s commercial and cloud businesses, Nadella shouldn’t have been particularly interested in videogames. And he quickly required the businesses within Microsoft to justify their existence financially, leading most infamously to the death of Windows phone in 2015.

But Nadella surprised us all. He agreed to purchase Minecraft and the company that made it for $2.5 billion in 2014, and he bought into Phil Spencer’s vision that Xbox could be a cornerstone of Microsoft’s then-emerging future as a cloud computing superpower. Microsoft might never be successful selling Xbox hardware—its console business has never made a profit—but it could leverage its acumen in cloud computing and AI to become a videogame leader as gaming expanded into both areas.

I have been writing about this not-so-subtle shift in focus for years.

In 2016, I wrote about Microsoft’s “audacious” plan to expand Xbox gaming to include another kind of compatibility via cross-platform play in which PC and console gamers could play together in the same game at the same time. In 2017, I wrote that losing the console wars was the best thing that ever happened to Xbox: It forced the firm to rethink its entire strategy, with the software giant again expanding compatibility to include cross-platform play, progress, saves, and achievements across both Xbox One and Windows 10 PCs via a program called Xbox Play Anywhere. Then Microsoft also introduced Xbox Game Pass in 2017, which initially provided unlimited access to over 100 Xbox One and Backward Compatible Xbox 360 games for $9.99 per month on Android. And over time, Xbox Game Pass expanded to the PC, and, with Xbox Game Pass Ultimate, to the cloud via Xbox Cloud Gaming.

Over this time period, the focus of Xbox has shifted from consoles to become a much broader ecosystem at which you, the user, sits at the center. The most recent announcements see Xbox coming to smart TVs, new streaming devices, new markets, and, of course, new device types like iPhones, iPads, Windows PCs, and Macs, via web apps. Microsoft even has a plan to bring Xbox Series X-class gaming to previous-generation Xbox One consoles via Xbox Cloud Streaming. Suddenly, the strategy is really accelerating.

What this means to Microsoft, game makers, and fans of Xbox is that this platform is no longer about a single hardware device. It’s about playing games anywhere, almost literally. And that means that Microsoft’s Achilles Heel in gaming, its inability to make profitable consoles, will soon no longer matter. And while I’m sure that the software giant wishes that it could sell more Xbox Series X|S consoles—thanks, component shortage—maybe it will all work out for the best. After all, cloud-based gaming is far more lucrative, and this is a business that Microsoft can conduct profitably.

And no worries. For those who do prefer standalone consoles, Microsoft will of course continue making them, and there will even be some advantages for those who are “all-in” on Xbox and wish to use, say, an Xbox Series X and Xbox Game Pass Ultimate with Xbox Cloud Gaming. Choice is good. And with Xbox, your choices are about to improve almost exponentially. It’s a great time to be an Xbox fan.