Microsoft CEO Satya Nadella spelt out his vision for Xbox in 2017

[Nitro]

This is a duplicate of a post I made 5 years ago. It has some solid quotes that bear repeating.

Let's start with Microsoft CEO Satya Nadella because he is the driving force behind these changes and his remarks offer the most clarity. In Nadella's 2017 book Hit Refresh he talks about embracing new opportunities and building surprising new partnerships with long-entrenched rivals:

Satya Nadella: There was an audible gasp and more than a smattering of chuckles in the auditorium when I reached into my suit jacket and pulled out an iPhone... On the giant screen behind me, a close-up of the phone appeared. One by one, the app icons flashed into view—iPhone versions of Microsoft classics like Outlook, Skype, Word, Excel, and PowerPoint as well as newer mobile applications like Dynamics, OneNote, OneDrive, Sway, and Power BI. The crowd erupted in applause.

Seeing me demo Microsoft software on an iPhone designed and built by Apple, one of our toughest, longest-standing competitors, was surprising and even refreshing. Microsoft versus Apple has been such a prominent and even contentious rivalry that people forget we've been building software for the Mac since 1982. Today one of my top priorities is to make sure that our billion customers, no matter which phone or platform they choose to use, have their needs met so that we continue to grow. To do that, sometimes we have to bury the hatchet with old rivals, pursue surprising new partnerships, and revive longstanding relationships...

We have to find smart ways to partner so that our products can become available on each others' popular platforms... Our talent for partnerships was a key to what made us great. It's the kind of thing that can happen to any great company. Success can cause people to unlearn the habits that made them successful in the first place. We knew we needed to retrain our partnership muscles. We had to look anew at our industry and find ways to add value for our customers whether they were on an Apple device, a Linux platform, or an Adobe product... Sometimes it's necessary to go back to your roots an reinvent yourself after so many years of change...

Two months after being promoted to the senior leadership team by Nadella in 2017, Phil Spencer outlined this vision to the Wall Street Journal for the first time:

Microsoft in September promoted Xbox chief Phil Spencer to executive vice president, reporting directly to Chief Executive Satya Nadella rather than Windows chief Terry Myerson. In an interview, Mr. Spencer said his new role is designed, in part, to give him more latitude to reach gamers on any device, rather than using "gaming to make Windows more successful." That means, one day, more Microsoft first-party games could appear on other platforms, he said, such as Apple Inc.'s iPhones or perhaps even Sony Corp.'s PlayStation 4, as its building game "Minecraft" does. Mr. Spencer acknowledged console sales are important, but said Microsoft is more focused on growing game software and services. He said the company measures the success of its gaming business by revealing the number of people who use its online service Xbox Live.

Many people dismissed the Wall Street Journal transcription, doubting Phil Spencer would allow additional Microsoft IP on other platforms. Some gamers asked him to disown or correct the report. Phil Spencer offered a diplomatic response:



GeekWire's Nat Levy visited Microsoft's Redmond campus a week later where he was told the same thing:

The days of the Xbox console as the primary focus of Microsoft’s gaming division are numbered. [...] Microsoft aims to let people play its games not just on Xbox devices and Windows PCs, but also smartphones and tablets, and eventually, rival consoles.

If you wonder why Jez Corden is turning the attack dogs onto Satya Nadella , now you'll have a better understand why.

OPINION: This week's big Xbox drama showcases how little people trust Nadella's Microsoft — a legacy forged in the death of Windows Phone

Xbox uber fans are notorious for freaking out first, asking questions later. But it isn't their fault — it's Microsoft's.

www.windowscentral.com

 

[Jim Ryan]

Incredibly insightful and almost prophetic for a post so far back.

But as you say, the signs were there if someone was willing to notice them.

 

[Zzero]

I think people link Xbox, MSG and Gamepass too much in their minds and that is very apparent now.

Having your own, successful console ecosystem is a great benefit to your company if you can maintain it. It gets you 30 percent of others' digital sales, control of both the front-end (so ad-space and user storefront data) and back-end (so you can build in things like a Wiimote, Kinnect, touch screen or whatever else your internal team wants to push,) and massive free marketing for first party titles. But it has costs too, designing the systems is a big time sink, most units are sold at a loss and, since you need a selling point, your own games are locked to it reducing their customer-base. These costs are not small and building and maintaining one is a mountainous challenge, one that few have the stomach for. I suppose Microsoft will keep theirs going for as long as it can survive as a devalued asset (probably they launch that successor in 2026 and give up in 2028 after noone has brought one or launch in '28 alongside Sony and give up in '30.)

As to MGS, its in a very weird place now because it just absorbed A-B (including King) and will have to transform those assets, hyper-aligned towards in-game monetization into ones aimed at monthly subscription fees. But, still, most of its bits and pieces are solid enough on their own that they can retain value and be kept or sold if Gamepass fails.

And then there is Gamepass... So, Gamepass really, really, really depends on if consumer devices remain closed ecosystems or if they open up. If they remain closed then GP is in a bad place, they'll have PC, Xbox, streaming over tv and Android. That means they miss out on the biggest two console markets and the joint largest mobile market, and have to convince PC gamers to switch away from Steam. If they get pried open in the courts (more likely than ever now, but still years off) then Gamepass "wins" that battle but still might struggle in the way all streaming services not named Netflix do. But, still, this is what Satya wants. Perhaps it will succeed, but its equally or more likely it becomes a car crash.

 

[Ezekiel]

Where I see a disconnect, is that their actions contradict that.

Why cancel PS5 version of games from acquired studios?

Were they simply gaging the market to see if they could overthrow Sony?

So after 3 years of this gen, and heavy subsidization of hardware and services, and 100 billion in investment, they decide now is the time to pull the plug?

 

[flaccidsnake]

Thanks for posting this! Sony people should consider that this is actually a good and right approach Satya is laying out. It's from a position of weakness, obviously. MS would've rather had made the iPhone. But still, software is infinite global money at the speed of light. Hardware is tight margins and a logistical nightmare. If your competitive advantage is in software, maybe you don't need to be a hardware vendor.

Having massively successful software distributed on a competitor's hardware is not a bad thing. Even paying 30% to a competitor is not a bad thing.

 

[Nitro]

Where I see a disconnect, is that their actions contradict that.

Perhaps Satya was willing to pause and give Spencer leeway on condition Xbox met its targets. Satya and his bean counters finally got spooked and said "enough." The strategy of acquisition works fine in either regard, only now those games release on additional platforms. And let's be honest, Spencer's reputation took a serious beating during the FTC hearings. Everyone was looking forward to hearing Sony secrets, but it was Microsoft and Spencer who came out infinitely worse. That would explain the doublespeak. Spencer was often on-message ("When everyone plays, we all win") while simultaneously trying to stave off the master plan for as long as possible.

 

[Nitro]

Sony people should consider that this is actually a good and right approach Satya is laying out.

Agreed. We don't buy hardware to admire its form factor alone. We don't place these systems on a shelf beside a spider plant for 7 years merely to gaze wipe the dust away. It's the games that matter and Xbox Game Studios is going nowhere. Privately, there isn't a development studio anywhere that would not prefer having more people enjoy their work. One day in the future, we will look back at this silliness and chuckle.

 

[Systemshock2023]

I can see the point but MS has to first and foremost work on the obvious quality issue they have If they want MGS to become a software juggernaut.

MS only has 1 A tier studio (excluding the acquisitions) and that is Playground Games. Coalition is A tier from a tech standpoint (best handling of Unreal Engine) but having them on the Gears franchise is a disservice, since it's past its peak.

I can somewhat excuse them for red fall and specially Starfield. After all, MS was the one that decided to postpone it's release, imagine it's quality had it launched in 2022.

But Forza 8 is just inexcusable. I just can't understand why they dropped the ball so bad. Turn 10 had lots of time and dropped support for last gen consoles. That game should have been miles above the competition visually and content wise.

 

[Yurinka]

Seems itt always has been their plan, and makes sense. If you release the games in more places you can sell more money. To sell games gives them money, to sell consoles makes them lose money. For them, being on a position where their console had a tiny market share make sense to make this move.

Specially when having moved most of their big IPs to GaaS.