I've probably said this in one form or another in the past but, basically if it comes to it, Microsoft needs to shift the Xbox model away from a console approach and towards a gaming-centric PC approach. Stop trying to compete with Sony & Nintendo, stop conjuring up these boogeyman gaming competitors in Google, Amazon etc., stop chasing after the pie in the sky that is subscription gaming, and focus on the actual competitor who took over the gaming space YOU once had as your own: Valve.
Steam, by all accounts, should have been something Microsoft created. Their gaming roots are in PC going as far back as Flight Simulator, Minesweeper and that sort of stuff. In the '90s MS-DOS and Windows had a virtual monopoly on PC gaming. They still kind of do now, but for the vast majority of gamers on PC that's something they see as being Valve's thing, due to Steam, even if the OS is still Windows. And, with some recent developments, Valve are shifting reliance on Windows to being a lower priority thanks to their work with WINE and Steam OS to dramatically shift up compatibility.
Valve's original goals to shift PC Gaming away from Windows and towards Linux never went away; considering PC Gaming is one of the few reasons a lot of people even have Windows or PCs anymore, you'd think Microsoft would want to secure that space and maybe try doing things in a way Valve couldn't. Microsoft said back when the original Xbox was coming out, that the reason they did it was to stop PlayStation from replacing PC & Windows. Well, PC & Windows are still here, but PC Gaming belongs to Valve these days, and with some more effort, they'll be able to make it so that PC games don't really need Windows anymore after all. When that happens, it is the death knell of Windows IMO, so Microsoft had better try doing something to change that.
Which is where Xbox comes in. Again, one of the other reasons the Xbox was even made was to get game developers using DirectX, so they could stay in the PC ecosystem, where Windows exists. Well, guess what? Most 3P games come to PC these days, including even a lot of Japanese ones, and it wasn't that way a few decades ago. So in a way, Microsoft already accomplished that task so...why are they still trying to push Xbox against PlayStation & Nintendo? It's clearly not working, it hasn't been working since the end days of the 360. They're bleeding cash left and right on the division, seeing double-digit declines when competitors are seeing double-digit growth, in a post-COVID lockdown environment no less...what's the real reason they continue to operate Xbox on the traditional console business model?
My guess is that they want to leverage Xbox to gain Azure clientele, kind of like they did with Sega, but...they can do that anyway without pushing Xbox as a "console" anymore. It's an "ecosystem", right? You want that ecosystem on other manufacturer devices, right? So why are you actively providing a conflict of interest? Why not just transform Xbox into a brand of custom OEM-style NUCs?
Take a page out of Valve's book, but do it better. Stop marketing Xbox as a console, start marketing it as a console-style PC box great for gaming & productivity. Make it run full-fat Windows with all the usual options. Sell the hardware at a healthy profit margin upfront instead of taking losses. Scale back the total volume of units accordingly. Integrate the Xbox Store into the Windows Store and rebrand the latter into something else. Let Xbox users use their systems the same way someone can use a Windows PC (including whatever launcher/storefront they prefer, such as Steam or EGS). Start being a true multiplatform publisher and bringing your content to as many devices as can realistically run them, Day 1. That means stuff like Forza Horizon 6 on Xbox, Windows, PS5 Day 1. Pentiment 2 on Xbox, Windows, Switch 2, iOS (Apple Arcade) Day 1.
Or, in select cases, maybe ports to other platforms come a bit later due to the nature of the game. Flight Simulator 20xx or whatever, for example, temporarily a Windows exclusive so by extension also on Xbox Day 1, but it takes some time to come to PlayStation to accommodate for some things. Same with an Age of Empires, and so on. And I think if MS does that, they have an easier means of getting Game Pass on other platforms in some curated way that's customized to the platform holder's requirements.
Of course, all of this also requires them to play by rules other 3P publishers have to play by, and I have had a growing feeling that part of MS's strategy so far, as I've seen other people put it so well, is that they want to buy so much content that they can then leverage to strong-arm other platform holders into playing by their terms and getting Game Pass on those platforms the way Microsoft wants. Meaning no percentage cuts, no licensing fees and the such. Basically, they want to do what EA did to SEGA back with the Genesis/MegaDrive, but dialed up to 11. That simply won't work. The fact is, those other platform holders have earned enough success with their stuff, and put in the money/time to do so, that they are allowed to determine a standard fee or licensing cost, or percentage cut, for other companies using their platform and selling their 3P content to the customer base of the platform holder. There's nothing controversial or wrong with this practice, it's been a thing since forever.
It seems like Microsoft (and to a lesser extent, Epic) want to change this and there're a lot of good reasons why that'll never happen. The fact it's one of the largest 3P publishers in gaming and one of the largest tech companies in the world suddenly pushing for it, should show it's less about liberating costs for smaller teams, and more about increasing their profit margins at the expense of platform holders hosting their content. Any form of costs liberation that trickles down is a side effect, and for some ecosystems a potentially destabilizing one. A company like Microsoft could turn right around and eliminate the 30% cut requirement on Xbox as it is today, and be completely fine, because Xbox revenue is less than 10% of the company's total general revenue and even less of their net profits. That type of move simply doesn't have anywhere near an impact on Microsoft as it would on, say, Sony.
So basically, the things I suggest for Microsoft would require them to be humble here, and if there's any intent in the pursuit of acquisitions to leverage that content against other companies to strongarm exceptions for their content and services on other platform ecosystems, then that has to go. Because it's the wolf in sheep's clothing that a lot of these companies are weary about, and feel they've seen enough of to openly challenge them on. If regulators ultimately come to that conclusion, too, then we already know how the results of this ABK deal are going to play out. But I think this ABK deal would have gone through a lot easier if Microsoft weren't in fact operating Xbox as a traditional console, and didn't try pushing back so hard against Apple in the Epic vs Apple case. Ironically those two things have made this acquisition very difficult, and the fact they went for ABK so soon after JUST closing Zenimax only adds onto it.
But ultimately, I feel if MS wants to make Xbox successful on its own merits, especially in the case the ABK deal is ultimately blocked, then they need to shift away from thinking "How do we beat Sony/Apple/Google etc. in gaming?" and more towards thinking "How do we make Xbox and gaming a self-sustaining, profitable business venture?", and I feel the answer to that is becoming increasingly obvious. Just go truly 3P, but at the same time, keep Xbox going as a dedicated gaming NUC/mini PC product line to push Windows gaming. Given their experience with consoles, Microsoft could bring innovations to the NUC/mini PC market and be more competitive there compared to other OEMs. They can still invest into gaming R&D with this approach similar to console; even though their total volumes will be lower, now they can sell them at an actual profit, and still be price-competitive or cheaper than other OEM NUCs with similar specifications.
They could even start with that shift sometime this generation, by just providing an upgrade fee for Series S & X owners to install full Windows OS on the platform. A lot of owners would jump on that opportunity ASAP. Of course, when they do it, they'd need to ensure other parts of the pie are in place, so it would be a few years away I feel, but that would help bridge the transition for what's to come. This could then enable Microsoft to actually deliver on the "Series" part of their initial Xbox marketing; if you shift the model towards something like a gaming-ready NUC/mini PC, you can update the product line with 2-year refreshes of higher-spec'd machines, or different form-factor configurations, so on and so forth. That gives more use for the All-Access program, too. And, unlike Series S & X, those refreshes (or at least some of them) can allow for modular upgradability with things like the RAM, CPU, GPU etc.
Also like I just said, console-like R&D budgets can still more or less be applied here, and there are two reasons why. The first is because they'd want the new Xbox devices to meet a certain performance minimum in lockstep with whatever specs Sony's systems provide. The second is because, if they're going to essentially move Xbox towards a NUC-like PC model, why not just merge the division into the Surface one? I don't know the specifics of how that'd work, but the Surface team was already partially involved with the Series S & X's design, and they've done a pretty good job. If there're a couple things the Surface devices are known for, it's premium build quality and unique form design innovations. And being rather pricey; they'd need to keep the prices on Xbox devices a bit lower, but they can still have that healthy profit margin on the hardware which is part of the point of the shift.
In fact, this could be beneficial to the personal computing devices side of Microsoft. Didn't they see a 19% drop in revenue the previous quarter? Maybe a merger of the two departments would be a good thing in light of such. So, if you merge the Xbox & Surface divisions/units, what to do with the game software & publisher parts? Well, those can still stay under Microsoft Gaming. Game Pass? I think maybe you fold the other Xbox services teams into them, and any other consumer entertainment services, just make one large Consumer Entertainment Services division out of the lot, and they comprise of the sub-teams that can communicate with other divisions like Microsoft Gaming (in the case of the Game Pass sub-unit). So you've got, in this scenario, Xbox hardware & Surface under the personal computing division, the XGS/Zenimax/(maybe, if they get them) ABK teams under Microsoft Gaming, and Game Pass & xCloud as a part of some Consumer Entertainment Services division.
Of course, if they're not operating Xbox under the traditional console business model anymore, they're going to lose some revenue they currently get. Folding XBL Gold into Game Pass and shifting the Game Pass unit to another division also means less for Microsoft Gaming division. But they make up for that by being a true multiplatform publisher; no more arbitrary exclusives (outside of games specifically for Windows that may need some time to get ported elsewhere, like the AoE-type stuff), and bringing as many games to as many platforms Day 1 as possible, natively. In turn that opens more windows for Game Pass (albeit curated per platform's needs) and thus subscription revenue. Integrating the Xbox Store into the Windows Store and Game Pass into that (since Microsoft owns Game Pass, they can specify whatever content support into it as they wish) can help with providing subscription perks for various 1P titles, and help entice Steam users to buy more from there & sub to Game Pass on Windows devices (which can include Xbox devices).
Steam, by all accounts, should have been something Microsoft created. Their gaming roots are in PC going as far back as Flight Simulator, Minesweeper and that sort of stuff. In the '90s MS-DOS and Windows had a virtual monopoly on PC gaming. They still kind of do now, but for the vast majority of gamers on PC that's something they see as being Valve's thing, due to Steam, even if the OS is still Windows. And, with some recent developments, Valve are shifting reliance on Windows to being a lower priority thanks to their work with WINE and Steam OS to dramatically shift up compatibility.
Valve's original goals to shift PC Gaming away from Windows and towards Linux never went away; considering PC Gaming is one of the few reasons a lot of people even have Windows or PCs anymore, you'd think Microsoft would want to secure that space and maybe try doing things in a way Valve couldn't. Microsoft said back when the original Xbox was coming out, that the reason they did it was to stop PlayStation from replacing PC & Windows. Well, PC & Windows are still here, but PC Gaming belongs to Valve these days, and with some more effort, they'll be able to make it so that PC games don't really need Windows anymore after all. When that happens, it is the death knell of Windows IMO, so Microsoft had better try doing something to change that.
Which is where Xbox comes in. Again, one of the other reasons the Xbox was even made was to get game developers using DirectX, so they could stay in the PC ecosystem, where Windows exists. Well, guess what? Most 3P games come to PC these days, including even a lot of Japanese ones, and it wasn't that way a few decades ago. So in a way, Microsoft already accomplished that task so...why are they still trying to push Xbox against PlayStation & Nintendo? It's clearly not working, it hasn't been working since the end days of the 360. They're bleeding cash left and right on the division, seeing double-digit declines when competitors are seeing double-digit growth, in a post-COVID lockdown environment no less...what's the real reason they continue to operate Xbox on the traditional console business model?
My guess is that they want to leverage Xbox to gain Azure clientele, kind of like they did with Sega, but...they can do that anyway without pushing Xbox as a "console" anymore. It's an "ecosystem", right? You want that ecosystem on other manufacturer devices, right? So why are you actively providing a conflict of interest? Why not just transform Xbox into a brand of custom OEM-style NUCs?
Take a page out of Valve's book, but do it better. Stop marketing Xbox as a console, start marketing it as a console-style PC box great for gaming & productivity. Make it run full-fat Windows with all the usual options. Sell the hardware at a healthy profit margin upfront instead of taking losses. Scale back the total volume of units accordingly. Integrate the Xbox Store into the Windows Store and rebrand the latter into something else. Let Xbox users use their systems the same way someone can use a Windows PC (including whatever launcher/storefront they prefer, such as Steam or EGS). Start being a true multiplatform publisher and bringing your content to as many devices as can realistically run them, Day 1. That means stuff like Forza Horizon 6 on Xbox, Windows, PS5 Day 1. Pentiment 2 on Xbox, Windows, Switch 2, iOS (Apple Arcade) Day 1.
Or, in select cases, maybe ports to other platforms come a bit later due to the nature of the game. Flight Simulator 20xx or whatever, for example, temporarily a Windows exclusive so by extension also on Xbox Day 1, but it takes some time to come to PlayStation to accommodate for some things. Same with an Age of Empires, and so on. And I think if MS does that, they have an easier means of getting Game Pass on other platforms in some curated way that's customized to the platform holder's requirements.
Of course, all of this also requires them to play by rules other 3P publishers have to play by, and I have had a growing feeling that part of MS's strategy so far, as I've seen other people put it so well, is that they want to buy so much content that they can then leverage to strong-arm other platform holders into playing by their terms and getting Game Pass on those platforms the way Microsoft wants. Meaning no percentage cuts, no licensing fees and the such. Basically, they want to do what EA did to SEGA back with the Genesis/MegaDrive, but dialed up to 11. That simply won't work. The fact is, those other platform holders have earned enough success with their stuff, and put in the money/time to do so, that they are allowed to determine a standard fee or licensing cost, or percentage cut, for other companies using their platform and selling their 3P content to the customer base of the platform holder. There's nothing controversial or wrong with this practice, it's been a thing since forever.
It seems like Microsoft (and to a lesser extent, Epic) want to change this and there're a lot of good reasons why that'll never happen. The fact it's one of the largest 3P publishers in gaming and one of the largest tech companies in the world suddenly pushing for it, should show it's less about liberating costs for smaller teams, and more about increasing their profit margins at the expense of platform holders hosting their content. Any form of costs liberation that trickles down is a side effect, and for some ecosystems a potentially destabilizing one. A company like Microsoft could turn right around and eliminate the 30% cut requirement on Xbox as it is today, and be completely fine, because Xbox revenue is less than 10% of the company's total general revenue and even less of their net profits. That type of move simply doesn't have anywhere near an impact on Microsoft as it would on, say, Sony.
So basically, the things I suggest for Microsoft would require them to be humble here, and if there's any intent in the pursuit of acquisitions to leverage that content against other companies to strongarm exceptions for their content and services on other platform ecosystems, then that has to go. Because it's the wolf in sheep's clothing that a lot of these companies are weary about, and feel they've seen enough of to openly challenge them on. If regulators ultimately come to that conclusion, too, then we already know how the results of this ABK deal are going to play out. But I think this ABK deal would have gone through a lot easier if Microsoft weren't in fact operating Xbox as a traditional console, and didn't try pushing back so hard against Apple in the Epic vs Apple case. Ironically those two things have made this acquisition very difficult, and the fact they went for ABK so soon after JUST closing Zenimax only adds onto it.
But ultimately, I feel if MS wants to make Xbox successful on its own merits, especially in the case the ABK deal is ultimately blocked, then they need to shift away from thinking "How do we beat Sony/Apple/Google etc. in gaming?" and more towards thinking "How do we make Xbox and gaming a self-sustaining, profitable business venture?", and I feel the answer to that is becoming increasingly obvious. Just go truly 3P, but at the same time, keep Xbox going as a dedicated gaming NUC/mini PC product line to push Windows gaming. Given their experience with consoles, Microsoft could bring innovations to the NUC/mini PC market and be more competitive there compared to other OEMs. They can still invest into gaming R&D with this approach similar to console; even though their total volumes will be lower, now they can sell them at an actual profit, and still be price-competitive or cheaper than other OEM NUCs with similar specifications.
They could even start with that shift sometime this generation, by just providing an upgrade fee for Series S & X owners to install full Windows OS on the platform. A lot of owners would jump on that opportunity ASAP. Of course, when they do it, they'd need to ensure other parts of the pie are in place, so it would be a few years away I feel, but that would help bridge the transition for what's to come. This could then enable Microsoft to actually deliver on the "Series" part of their initial Xbox marketing; if you shift the model towards something like a gaming-ready NUC/mini PC, you can update the product line with 2-year refreshes of higher-spec'd machines, or different form-factor configurations, so on and so forth. That gives more use for the All-Access program, too. And, unlike Series S & X, those refreshes (or at least some of them) can allow for modular upgradability with things like the RAM, CPU, GPU etc.
Also like I just said, console-like R&D budgets can still more or less be applied here, and there are two reasons why. The first is because they'd want the new Xbox devices to meet a certain performance minimum in lockstep with whatever specs Sony's systems provide. The second is because, if they're going to essentially move Xbox towards a NUC-like PC model, why not just merge the division into the Surface one? I don't know the specifics of how that'd work, but the Surface team was already partially involved with the Series S & X's design, and they've done a pretty good job. If there're a couple things the Surface devices are known for, it's premium build quality and unique form design innovations. And being rather pricey; they'd need to keep the prices on Xbox devices a bit lower, but they can still have that healthy profit margin on the hardware which is part of the point of the shift.
In fact, this could be beneficial to the personal computing devices side of Microsoft. Didn't they see a 19% drop in revenue the previous quarter? Maybe a merger of the two departments would be a good thing in light of such. So, if you merge the Xbox & Surface divisions/units, what to do with the game software & publisher parts? Well, those can still stay under Microsoft Gaming. Game Pass? I think maybe you fold the other Xbox services teams into them, and any other consumer entertainment services, just make one large Consumer Entertainment Services division out of the lot, and they comprise of the sub-teams that can communicate with other divisions like Microsoft Gaming (in the case of the Game Pass sub-unit). So you've got, in this scenario, Xbox hardware & Surface under the personal computing division, the XGS/Zenimax/(maybe, if they get them) ABK teams under Microsoft Gaming, and Game Pass & xCloud as a part of some Consumer Entertainment Services division.
Of course, if they're not operating Xbox under the traditional console business model anymore, they're going to lose some revenue they currently get. Folding XBL Gold into Game Pass and shifting the Game Pass unit to another division also means less for Microsoft Gaming division. But they make up for that by being a true multiplatform publisher; no more arbitrary exclusives (outside of games specifically for Windows that may need some time to get ported elsewhere, like the AoE-type stuff), and bringing as many games to as many platforms Day 1 as possible, natively. In turn that opens more windows for Game Pass (albeit curated per platform's needs) and thus subscription revenue. Integrating the Xbox Store into the Windows Store and Game Pass into that (since Microsoft owns Game Pass, they can specify whatever content support into it as they wish) can help with providing subscription perks for various 1P titles, and help entice Steam users to buy more from there & sub to Game Pass on Windows devices (which can include Xbox devices).
