Xbox Business Update Podcast | Xbox Everywhere Direction Discussion

[Seanspeed]

If everything is an Xbox, nothing is an Xbox.

They're just turning into a 3rd party game publisher. They can make more hardware, but there's absolutely no reason people should buy it over something else. There's just almost no situation in which there wont be a clearly better alternative. They'll just sell ever worse than their current hardware. Eventually they'll realize there's no point in doing that anymore. Maybe they already know and just want to more 'smoothly' transition instead of doing a hard cut?

 

[fehu]

What bugs me is that if you have to sell hardware you have:
- huge R&D costs
- and then the actual production
- and software maintenance/upgrades etc
- and after selling, the eventual warranty (but just for 1 or 2 years)

If you go cloud you have:
- huge R&D costs
- and then the actual production
- and software maintenance/upgrades etc
- to have a server close to the users, or ditch completely some countries
- plus you must pay for energy/cooling/network bills and all the infrastructure and worldwide personnel to connect and maintain all these racks
- does something break after a standard warranty expires? still on your wallet to replace it
- with any sales figure cut by 30% to sell on other platforms

If you just make software, you have fixed costs, but on the cloud model, the more you sell, the higher the costs.
They have a wider view of hard numbers, but still, the math looks like it doesn't maths.

 

[Shifty Geezer]

If MS goes full third party I dont see why this wouldnt be possible.

What's in it for Sony? If GP is on PS6 giving crazy value, Sony will miss all those title sales' revenue. COD is going to net Sony ~$21 per sale on PS5 when it releases, times millions of copies. Of GP was on PS5, a lot of those COD players will be GP subscribers and Sony would get squat.

 

[rntongo]

What's in it for Sony? If GP is on PS6 giving crazy value, Sony will miss all those title sales' revenue. COD is going to net Sony ~$21 per sale on PS5 when it releases, times millions of copies. Of GP was on PS5, a lot of those COD players will be GP subscribers and Sony would get squat.

Oh yeah GP on PS6 or any Sony platform isnt happening. I meant more like using MS's cloud computing infrastructure to run their core cloud gaming services. I think it would only happen if MS is fully third party, otherwise there is some conflict of interest there.

 

[Shifty Geezer]

I meant more like using MS's cloud computing infrastructure to run their core cloud gaming services. I think it would only happen if MS is fully third party, otherwise there is some conflict of interest there.

Sony and MS were looking into that back in 2019

Under the memorandum of understanding signed by the parties, the two companies will explore joint development of future cloud solutions in Microsoft Azure to support their respective game and content-streaming services. In addition, the two companies will explore the use of current Microsoft Azure datacenter-based solutions for Sony’s game and content-streaming services.

 

[rntongo]

Sony and MS were looking into that back in 2019

Yes I wanted to add that remember the news back then. I wonder how far they went with that. With the trend towards bringing hw onsite away from hyperscalers, based on whats happening today, eventually Sony will have to build out their own cloud gaming infrastructure and pursue a hybrid cloud gaming approach or fully reliant on their cloud infrastructure.

 

[Shifty Geezer]

I doubt Sony can afford their own cloud system. Other cloud operators provide broader cloud services, not just game streaming. The cost to set up game streaming, which remains fairly niche, with no chance to repurpose it to other cloud activities, strikes me as prohibitive.

 

[Seanspeed]

What bugs me is that if you have to sell hardware you have:
- huge R&D costs
- and then the actual production
- and software maintenance/upgrades etc
- and after selling, the eventual warranty (but just for 1 or 2 years)

If you go cloud you have:
- huge R&D costs
- and then the actual production
- and software maintenance/upgrades etc
- to have a server close to the users, or ditch completely some countries
- plus you must pay for energy/cooling/network bills and all the infrastructure and worldwide personnel to connect and maintain all these racks
- does something break after a standard warranty expires? still on your wallet to replace it
- with any sales figure cut by 30% to sell on other platforms

If you just make software, you have fixed costs, but on the cloud model, the more you sell, the higher the costs.
They have a wider view of hard numbers, but still, the math looks like it doesn't maths.

Step 1: Capture the lion's share of the market. Step 2: Jack up prices.

That's the model for basically everything these days. It's very risky, but I also think Xbox is just kind of stuck now that they've largely committed to getting rid of console exclusivity. Their console sales are flatlining since starting this push towards multi-console releases, so they've backed themselves into a corner with basically one way out, and it's not a great one, but they've kinda got to try and make it work anyways. I'd hate to deal with toxic positivity in those meetings, while being talked to by the incompetent leadership that bizarrely still have their jobs after getting the division into this situation to begin with.

 

[Cappuccino]

In addition, COD Day1 Gamepass exclusivity and its success can be significant role in itself regarding the future of Xbox console strategy.

I don’t see how giving away their most successful franchise for $10 a month or whatever is a good strategy.

It’s also not exclusive, you can buy it anywhere except Nintendo.

 

[QPlayer]

I don’t see how giving away their most successful franchise for $10 a month or whatever is a good strategy.

It’s also not exclusive, you can buy it anywhere except Nintendo.

This is about attracting subscribers. I think they expect that COD alone will generate millions of new subscribers who will then become regular subscribers to play the game cheaper. In general, it can be said that the majority of people can easily jump into such a "cheap" subscription system, from which, thanks to the well-chosen games and business model, they don't even want to leave, so they stay in the ecosystem. If this works for MS with Gamepass, then they have hit the jackpot.

 

[Shifty Geezer]

Challenge to that is none of these games have been able to charge a subscription. There's no ongoing $5 a month to play Fortnite. Hence a subscription to play COD isn't in itself a good option. GP only makes sense for COD if you play a lot more content as well. If you mostly play COD, $70 for the game is cheaper then a year's sub. And if you play COD a bit and then stop to play other things, you can stop the subscription, and so get to play COD for $30 instead of $70 and MS misses out. If you like the value proposition of GP and don't want to stop your sub after finishing with COD...why aren't you already subscribing to GP?

So the gains of COD to GP would be the subset of gamers who are COD fans but not extreme fans who will want to play other games but who aren't already subscribed to GP for its value. Is that going to be a large pool?

 

[rntongo]

Step 1: Capture the lion's share of the market. Step 2: Jack up prices.

That's the model for basically everything these days. It's very risky, but I also think Xbox is just kind of stuck now that they've largely committed to getting rid of console exclusivity. Their console sales are flatlining since starting this push towards multi-console releases, so they've backed themselves into a corner with basically one way out, and it's not a great one, but they've kinda got to try and make it work anyways. I'd hate to deal with toxic positivity in those meetings, while being talked to by the incompetent leadership that bizarrely still have their jobs after getting the division into this situation to begin with.

Spot on really

 

[rntongo]

I doubt Sony can afford their own cloud system. Other cloud operators provide broader cloud services, not just game streaming. The cost to set up game streaming, which remains fairly niche, with no chance to repurpose it to other cloud activities, strikes me as prohibitive.

You could be right but I dont think so. I think a Hybrid approach works best for a cloud gaming service for a non hyperscaler at Sony's size. It will all come down to costing it out as more people move onto cloud gaming. Otherwise a lot of companies are actually moving either fully on prem or hybrid away from hyperscalers. The cost of using cloud computing services from hyperscalers is in alot of cases higher than owning your own hardware. I went to AWS summit NYC this year and realized why people like DHH are leaving the cloud, there is a lot of vendor lock in, the actual advancement in hw has surpassed the value you get from renting Amazon's hw. And you dont get the automated benefits of using hyperscaler's ever more segmented services i.e you human resource costs to use hyperscalers still increase. At my company we save money by building out our hardware with a colocation company although we still use some services from AWS.

But for example Amazon's cloud computing services came out of the fact they get peak loads during the black Friday period/Christmas season/Festive seasons. And then they can rent out/build out services to use that hardware when they dont use it. So the large scale comes from a need to provide general purpose computing services which Sony wouldn't be offering with gaming. Sony codesigns the hardware, orders it in millions, builds the OS, etc does a lot of the work needed already. The cost of using a hyperscaler could actually be more cost prohibitive relative to the hardware Sony can put together partnering with AMD or NVIDIA. As opposed to fully relying on MS or Amazon. But this is just my thought, I could very well be wrong.

 

[Cyan]

That's the model for basically everything these days. It's very risky, but I also think Xbox is just kind of stuck now that they've largely committed to getting rid of console exclusivity. Their console sales are flatlining since starting this push towards multi-console releases, so they've backed themselves into a corner with basically one way out, and it's not a great one, but they've kinda got to try and make it work anyways. I'd hate to deal with toxic positivity in those meetings, while being talked to by the incompetent leadership that bizarrely still have their jobs after getting the division into this situation to begin with.

agreed. I gotta say though that Xbox has always been, except in the X360 days, in a delicate position. I mean, Phil Spencer might have something to do with the current situation, but the issues started in the XB1 era. He tried to return to the X360 glory days building powerful hardware and imitate Sony's policies.

You can't win with USA alone. Europe, outside of maybe the UK -and even so-, never liked the Xbox. Japan never fancied the Xbox either. It was always too easy to hate on it.

The X360 was changing the perception quite a bit but when they started failing -even small failures seemed a big deal, where other consoles were forgiving- the customer's loyalty was bound to be gone, as it happened. There are other non-Xbox related issues with the current state of the market, but that's another story. Even worse they left the phone business, Lumia phones were excellent phones for the price, that's just another failure but I digress.

Everyone fails -N64, GC, WiiU, PS3- but you can't have success in a business handled with tweezers where most of the clients grew up in a world where Sony and Nintendo had the best consoles.

Also to succeed Nintendo had to totally abandon the hardcore market, the complete opposite of what one should expect.

 

[iroboto]

Challenge to that is none of these games have been able to charge a subscription. There's no ongoing $5 a month to play Fortnite. Hence a subscription to play COD isn't in itself a good option. GP only makes sense for COD if you play a lot more content as well. If you mostly play COD, $70 for the game is cheaper then a year's sub. And if you play COD a bit and then stop to play other things, you can stop the subscription, and so get to play COD for $30 instead of $70 and MS misses out. If you like the value proposition of GP and don't want to stop your sub after finishing with COD...why aren't you already subscribing to GP?

So the gains of COD to GP would be the subset of gamers who are COD fans but not extreme fans who will want to play other games but who aren't already subscribed to GP for its value. Is that going to be a large pool?

I don’t think MS has a choice here. A great deal of scrutiny from CMA and others have pretty much halted any direction of buying for exclusivity at least with respect to COD.

The idea situation is that subs pick up in growth market areas. And purchases pick up in traditional areas due to popularity.

Recall that in order to get ABK over the line, all this exclusivity business needed to be addressed.

MS is still playing it safe, as the FTC is still fighting them on things even now. This is probably their limit, whether they chose this path or not. MS is no stranger to anti-trust, they became very hands off everything for a long time to the point where it almost put them out of business.

Putting their games everywhere on every platform is what they promised the regulators. They are, as I can see, following through on that promise.

 

[Nisaaru]

In case of Cloud gaming Nvidia's policy change lately was quite interesting where they limit people's playtime and/or ask for more money. Shows this business has its own share of potential nasty impacts.

 

[iroboto]

In case of Cloud gaming Nvidia's policy change lately was quite interesting where they limit people's playtime and/or ask for more money. Shows this business has its own share of potential nasty impacts.

In order for cloud to work, oversubscription matters. If a person is playing like it’s a dedicated piece of hardware to them, the business model will never work.

 

[Cappuccino]

This is about attracting subscribers. I think they expect that COD alone will generate millions of new subscribers who will then become regular subscribers to play the game cheaper. In general, it can be said that the majority of people can easily jump into such a "cheap" subscription system, from which, thanks to the well-chosen games and business model, they don't even want to leave, so they stay in the ecosystem. If this works for MS with Gamepass, then they have hit the jackpot.

The problem is they need actual good games to keep people subscribed. At $10 a month just subbing for cod means you are paying $120 for each yearly entry, people aren’t going to just sub for cod.

What this does cannibalize though is the types that want to play cod for like a month and then quit. They’d get the game essentially for $10 and not renew their sub.

 

[QPlayer]

The problem is they need actual good games to keep people subscribed. At $10 a month just subbing for cod means you are paying $120 for each yearly entry, people aren’t going to just sub for cod.

What this does cannibalize though is the types that want to play cod for like a month and then quit. They’d get the game essentially for $10 and not renew their sub.

In fact, only MS has data on how many people subscribe and how many people remain subscribers for a high-volume game. For example, those who play COD because of multiplayer are constantly subscribing to Gamepass because of this. I know such situations. But as I said, we can only guess here, we will only know for sure when Microsoft publishes the increase in the number of subscribers.

 

[Cappuccino]

In fact, only MS has data on how many people subscribe and how many people remain subscribers for a high-volume game. For example, those who play COD because of multiplayer are constantly subscribing to Gamepass because of this. I know such situations. But as I said, we can only guess here, we will only know for sure when Microsoft publishes the increase in the number of subscribers.

This may all be true but it’s not exactly conductive to conversation. We’re speculating on the profitability of these subscription services and MS’ overall strategy, of course we don’t have any numbers on this, then there wouldn’t be anything to speculate on.