How Do We Still Not Understand Xbox? (Premium)

In 1997, Steve Jobs returned to Apple, saved it from bankruptcy by simplifying its product offerings, and then engineered the greatest comeback in corporate history. We will be studying this master class in leadership for generations to come, but one of the most momentous decisions Jobs made during this time was to expand Apple beyond a single core product, the Mac, into new markets like MP3 players, smartphones, tablets, and consumer subscription services, each of which eventually surpassed the Mac. In doing so, Jobs transformed Apple from a computer company into a consumer electronics colossus that is now one of the two biggest companies on earth.

Everyone reading this is familiar with this narrative, I’m sure. But I suspect that most of you forget the impetus for this shift: the failure of the Mac. In the early 2000s, Jobs and his team from NeXT succeeded in modernizing the Mac OS software and creating an iconic and unique series of Mac computers. But none of these innovations moved the dial at all against Windows and the PC. Even in the nadir of the Windows Vista years, the Mac never accounted for more than mid-single-digit market share. Apple survived, but it was vastly diminished.

Or, it would have been had Jobs not set his Sauron-like gaze on the MP3 market, a shift that resulted in the iPod, a product that, by the way, also failed in the marketplace while it was tied solely to the Mac. But with the move to Windows compatibility and the opening of the iTunes Store, the iPod surged. In late 2002, the iPod and other non-Mac hardware accounted for just 10 percent of Apple’s revenues. But by late 2006, the iPod and related products were outperforming the Mac by revenue—the Mac represented just 43 percent of Apple’s revenues at the time—and Apple finished that year selling 5.3 million Macs and 39 million iPods. And then the iPhone arrived in 2007, changing everything by triggering a period of growth that would go on to make the iPod’s successes look like a rounding error. In the most recent quarter, the Mac accounted for just 6.5 percent of Apple’s revenues and few even remember that this company’s name was once Apple Computer.

Failure has a way of clarifying things.

Related to that, one’s reaction to failure can help determine whether they succeed or fail in the future. Jobs is a noteworthy example of making a lot of right decisions at the right times, but it was triggered by failure. Had the Mac succeeded to some degree—double-digit market share within a short period of time, pick your metric—Apple Computer would still exist today.

Well, Xbox failed too. And as I wrote over six years ago, losing the console wars was the best thing that ever happened to Xbox. Here, as with Apple, it was the reaction to this failure that guided the future. Microsoft could have simply done what I and others recommended and spun off or sold this business, freeing itself of a money-losing entity and the resulting drag on earnings.

But that’s not what Microsoft did.

Thanks to Phil Spencer, that everyman genius, Microsoft went in a completely different direction and made the Xbox business make sense within the Microsoft of the Satya Nadella area by pivoting to cloud and subscription services while making the Xbox ecosystem more valuable to its fans through a sweeping series of innovations. You know the list—backward compatibility, Xbox Play Anywhere, Minecraft, Games with Gold, Deals with Gold, Xbox Game Pass, PC Game Pass, Xbox Game Pass Ultimate, Xbox Cloud Gaming, and a stunning series of studio acquisitions that was end-capped by the $68 billion Activision Blizzard acquisition and the dawn of a new era in mobile gaming—but it can all be summed up quite simply by a single phrase:

Meet your customers where they are.

It was this thinking that led to Microsoft bringing full-featured versions of Office and other products and services to iPhone, iPad, and Android, a move that would have been unthinkable had the software giant not—wait for it—failed in mobile first. And it was this thinking that makes Xbox all the more interesting today, both as a product line that can be successful financially and for its fans.

And yet.

There are small thinkers—or perhaps non-thinkers—who want Microsoft to hold its studio’s best titles for itself. These are the people who complained when the meaning of Xbox exclusivity shifted from just the console to the broader Xbox ecosystem, including also some mix of PC, subscription, and cloud streaming. And these are the same people who are now freaking out because of rumors that Microsoft will bring Starfield, Indiana Jones and the Great Circle, and other titles to rival console platforms like PlayStation.

Please. Wake up.

Given its inability to sell hardware, the only way that Xbox can succeed as a business is for it to broaden the availability of its games and subscription services to other platforms, reaching as many gamers as possible, where they are. And most gamers are not on Xbox hardware or, for that matter, on some combination of Xbox and PC hardware. Most console gamers are on PS5 and Nintendo today. And most gamers, overall, are on mobile.

The market opportunity is obvious enough. But this strategy doesn’t just make for Microsoft, it makes sense for Xbox fans, too. On several levels. And it’s not clear why this isn’t clear to some.

The expansion of Xbox titles and services brings a new portability component to the community, freeing Xbox fans to choose hardware for its specific advantages and not just for the artificial availability of certain games. (And that opens up even more games for those who choose rival hardware.) It opens up the playing field, literally, by letting multiplayer and co-op gamers compete against and partner with a much bigger audience in those games that support those features. It removes barriers between friends and family members who today choose rival platforms. There’s probably more, but you get the idea. The net result here is that a healthy, successful Xbox ensures that this thing fans love is around for the long term.

But there’s another thing these complainers are forgetting, and it’s just as important.

The availability of Xbox titles and subscriptions on platforms you do not use does not hurt you in any way. And that’s true even if you believe the above-noted benefits don’t impact you. It’s just better in general. For everyone who plays games.

This reminds me of music fans who reject favorite bands when they become too popular. It’s something I’ve never understood, this desire for the thing you love to be restricted to some small audience.

Many people do understand why the current Xbox strategy makes sense, of course. Laurent ran a poll today on Twitter, and as of this writing, almost half of the respondents favor Microsoft bringing what we now call Xbox-exclusive games to other consoles. And another quarter think this is acceptable on a game-by-game basis. These are the clear thinkers. But the final quarter of respondents is against this. These people are stuck in the past and are still fighting a war that was lost long ago. They’re not paying attention.

That poll will run for a few days, so we’ll see where it lands then. But for now, I will simply call on anyone who considers themselves to be an Xbox fan to consider what this shift really means, and what’s best, not just for them but for the entire community.

And I have a hard time seeing them not aligning with Phil Spencer and Microsoft on this one. Xbox is already bigger than just the console. It can and should be bigger still.

As fans, we should want that.