Why Xbox Game Pass Will Help Microsoft Win the Console Wars (2024)

Xbox hasn’t been able to compete with Nintendo and Sony when it comes hardware sales and exclusive titles. Microsoft, however, is making moves that could not only turn the tide in its favor but also revolutionise the industry.

The vehicle for this revolution is Xbox Game Pass, which could lead to a console-less console war. Microsoft couldn’t beat its competitors the traditional route, so it looks more and more likely that it’s going just to change the rules of the competition. Knowing that Microsoft wants to be the industry leader in 2030, Game Pass will lead the charge to accomplish that goal.

It’s been six years since Game Pass launch, and according to Piers Harding-Rolls, games research director for Ampere Analysis, it’s a key pillar of Microsoft’s games revenue growth strategy.

Leaked company documents from last year reportedly showed Game Pass brought in almost $US3 billion in revenue for Microsoft in 2021, as reported by Tweaktown. The subscription service accounts for nearly 20% of the total Xbox revenue of $US16.2 billion and is close to the $US3.7 billion from hardware sales. With 25 million subscribers in early 2022, that number will likely continue to grow and go even higher when games from Activision Blizzard make the jump following the completion of the acquisition.

“Microsoft is pursuing this disruptive product strategy because it failed to carve out a consistent and growing share of the console market and needed to find a solution which enabled it to expand its audience reach and evolve opportunities beyond the console,” Harding-Rolls said.

While Game Pass is increasingly referred to as Netflix for video games, it isn’t close to the 247 million Netflix subscriptions as of October. It’s still no slouch, as the gaming subscription service reportedly surpassed 30 million subscribers, making it on par with Comcast’s Peacock.

“Brilliant strategy and, so far, brilliantly executed,” said Michael Pachter, managing director of equity research at Wedbush Securities. “By lowering the barrier to entry by $US500 (no console required), Game Pass should eventually grow in size to something like the Netflix audience.”

To reach those Netflix numbers, Microsoft will have to focus on three things: the games, the price, and the reach.

Acquiring Activision Blizzard is huge for Microsoft as it makes one of the biggest franchises, Call of Duty, a first-party title. Some stipulations are in place to keep the series from being Xbox-only, but this is still a major win for Microsoft. The acquisition also comes with other huge franchises such as Overwatch, Diablo, Starcraft, Warcraft, and Candy Crush. It’s also clear that Microsoft won’t stop with the acquisitions, with the Xbox boss Phil Spencer saying how acquiring Nintendo would be a “career moment.”

When it has the games, it’s up to Microsoft to determine the price. Currently, Xbox Game Pass Ultimate is $US17 a month, but what would entice more people to sign up for the service is the same thing that helped other streaming services: an ad-supported tier.

“That could see them add hundreds of millions of new subscribers over time,” Pachter said.

This ad option could be in the works. Xbox gaming CFO Tim Stuart spoke about how an ad-supported Game Pass could work in parts of the world that weren’t seeing a lot of consoles being sold.

“The vision I like to talk about is we have xCloud game streaming, so you can subscribe to Game Pass Ultimate, and you can stream hundreds of games to really any endpoint that has a browser experience,” Stuart said at the Wells Fargo TMT Summit in November, according to a report from Tweaktown. “For models like Africa, or India, Southeast Asia, maybe places that aren’t console-first, you can say, ‘hey, do you want to watch 30 seconds of an ad and then get two hours of game streaming?”

Not long after this talk, coders sniffed around the Xbox OS and found snippets of code that could be related to an ad-supported tier. The code referenced “earned time” and would be allotted 15-minute increments. The addition of these codes might mean that these ads will show up sometime in 2024.

With games taken care of and a possible lower-priced ad-supported tier on the way, it comes down to accessing the service. The primary devices that can play Game Pass are Xbox consoles, PC, Android, and IOS, but Microsoft continues expanding those options. Handheld devices like the Steam Deck, Legion Go, and Asus ROG Ally make it easy to take Game Pass on the go, but at home, newer Samsung TVs can play Game Pass games via an app without needing a console. Microsoft even brought Game Pass to the Meta Quest headsets earlier this month.

It’s also very clear that Microsoft wants to incorporate both the PlayStation and Nintendo platforms into the fold. Spencer said back in November that he views PlayStation and Nintendo users as part of the Xbox community. This came right before Stuart said at the summit how the company wants to bring Game Pass to any screen that plays games, including PlayStation and Nintendo Switch. Spencer denied any plans to bring Game Pass to its rivals’ hardware, but he did say that there are road maps for Xbox hardware and services with teams that want to continue to innovate. That innovation on the service side could be what revolutionises gaming.

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As a seasoned industry expert in the gaming and technology landscape, my extensive knowledge and experience enable me to provide insightful analysis on the transformative strategies Microsoft is employing within the gaming sector. My expertise spans various aspects, from gaming platforms and subscription services to market dynamics and strategic acquisitions.

The focal point of the discussed article revolves around Microsoft's groundbreaking approach to the gaming industry through the Xbox Game Pass. This subscription service has become a key driver of revenue growth for Microsoft, as evidenced by leaked company documents revealing nearly $3 billion in revenue for 2021. Such financial success is a testament to the effectiveness of Game Pass in reshaping Microsoft's gaming revenue strategy.

The article underscores Microsoft's ambitious goal of becoming the industry leader by 2030, and it highlights Xbox Game Pass as the primary vehicle to achieve this objective. With over 25 million subscribers in early 2022, the service's popularity is set to soar further, especially with the anticipated inclusion of games from Activision Blizzard following Microsoft's acquisition.

Key elements of Microsoft's strategy include:

  1. Shift to Subscription Model:

    • Xbox Game Pass is positioned as a disruptive force, allowing Microsoft to transcend traditional console market limitations and broaden its audience reach.
    • The subscription model, often likened to "Netflix for video games," has proven successful, with over 30 million subscribers reported.
  2. Financial Impact:

    • Game Pass contributes significantly to Microsoft's gaming revenue, comprising almost 20% of the total Xbox revenue, close to hardware sales.
    • Leaked data indicates the service generated nearly $3 billion in revenue in 2021.
  3. Strategic Acquisitions:

    • The acquisition of Activision Blizzard provides Microsoft with major franchises, including Call of Duty, making it a first-party title.
    • The article emphasizes Microsoft's intent to pursue further acquisitions, with Xbox boss Phil Spencer expressing interest in acquiring Nintendo.
  4. Pricing Strategy:

    • The article suggests that to reach the scale of services like Netflix, Microsoft needs to focus on games, pricing, and reach.
    • A potential ad-supported tier for Xbox Game Pass is proposed as a means to lower the barrier to entry, attracting a broader user base.
  5. Diverse Platform Accessibility:

    • Game Pass is not limited to Xbox consoles but is accessible on various platforms, including PC, Android, iOS, and emerging handheld devices like the Steam Deck.
    • Microsoft's strategy extends to making Game Pass available on non-traditional gaming platforms, such as Samsung TVs and Meta Quest headsets.
  6. Integration with Competitors:

    • Microsoft expresses a desire to include PlayStation and Nintendo platforms in the Xbox community, demonstrating a more collaborative approach rather than exclusivity.
    • While there is no confirmation of bringing Game Pass to competitors' hardware, the company aims to innovate in both hardware and services.

In summary, Microsoft's strategic shift towards Xbox Game Pass reflects a nuanced understanding of the gaming industry's evolving landscape, with a focus on subscription models, strategic acquisitions, diverse platform accessibility, and potential collaborations with competitors. This multifaceted approach positions Microsoft at the forefront of industry evolution, setting the stage for a console-less console war.

Why Xbox Game Pass Will Help Microsoft Win the Console Wars (2024)
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