While the video gaming industry has been a part of the global entertainment scene for over half a century, its scale has turned it into an unquestioned Titan. Today, gaming is larger than the global film and music business combined and last year it had a market value in excess of $160 billion. There are now an estimated 2.5 billion gamers around the world playing on a plethora of devices, ranging from gaming-dedicated PCs all the way to the tiniest smartphones.
The largest chunk of this global market is held by video game consoles at an estimated 30%, followed by PCs at 24%. Given this huge share of the pie, it is no surprise that gaming watchers keep a close eye on developments that impact these two channels. For consoles, for the last two decades, it has essentially been a three-horse race between entertainment powerhouse Sony and their line of PlayStations followed by Microsoft’s Xbox and then by Nintendo’s Titan.
The intense competition between these manufacturers has long been dubbed the ‘Console Wars’ and we are currently on the cusp of a new battle with the ninth generation of video gaming consoles as Sony’s PlayStation 5 and Microsoft’s Xbox Series X are about to go head to head during the all important holiday season. New console launches are usually very exciting for gaming watchers as well as for video game fans. The last time these two giants launched the previous generation of consoles was in 2013. Generally, a new console generation launch results in an average 19% growth in hardware sales, as well as substantial spikes in peripherals and software category sales. So considering the overall slowdown in this pandemic world, any harbinger of possible good news on the consumer front, especially in the all important holiday shopping season, has gaming watchers on edge.
Although Sony dominated the last round with a two-to-one market share over Microsoft, much is being said about how the IT industry juggernaut is changing to a strategy that could not only give it a shot at becoming number one in this generation of consoles (something Microsoft only managed to do once with the Xbox360 in 2005), but also completely redefine how the business of console gaming is conducted across the industry. Here are four reasons why Microsoft’s strategy and one environmental factor may put extra wind in their sails.
1) The Stars are Aligned: Covid-19 has made home entertainment a more pressing lifestyle choice at the expense of travel, eating out and others. This has resulted in streaming services, TV and video games witnessing an unexpected growth spurt. Nintendo was one of the first to report a spike in sales for their Switch console (it grew by an astonishing 24% despite being over three years old and resulted in riot inducing shortages across the US). Microsoft reported a 130% increase in online gaming sessions and the video gaming platform Twitch announced a monthly average of 1.4 billion hours of videogames played off their library. While the video game industry was expected to grow at a modest average of 2.24% yearly growth until 2024, after the pandemic was declared, video game sales, both online and offline, are up by a staggering 35%. While Microsoft has slowly been building what many have termed a paradigm shifting positioning strategy for many years long before the pandemic hit, the impact of Covid-19 will certainly help bring more momentum in 2020 and beyond.
2 Making the Cloud a Centrepiece: At the core of Microsoft’s strategy is the cloud. The company has been trying to build more muscle in online gaming with their highly successful online gaming service Game Pass. On its own, Game Pass allowed previous generations of Xbox users to access a library of nearly 100 games to download on consoles. In October, however, Microsoft announced they were merging their Game Pass subscription with their xCloud platform, a move that will dispense with the need to download games into hardware and allow gamers to stream new games to every generation of Xbox hardware in real time as well as to PCs and smartphones. This will incrementally increase access to Xbox games to new audiences and truly create what is being dubbed ‘The Netflix of Games’.
3 Taking the Sting Out of the Price: The high prices of hardware and software are key pain points for consumers. Now Microsoft has worked on making Xbox pricing relevant to consumers in more ways than one. Firstly, they are offering a lower price point for their latest hardware starting at only $299 (the full spec version is $499), which is significantly cheaper than Sony’s entry level offering. They have also offered to lock in players in some markets in a two-year commitment to their online gaming platform and the possibility to buy the hardware at hugely discounted prices. And if they don’t want the hardware and prefer to access Game Pass, they can do so on a variety of devices, even without buying the Xbox. While both Sony and Nintendo have some measure of online downloadable game libraries and Amazon and Google are still refining their cloud-based gaming systems, the experience of streaming online gaming through an Azure based platform like xCloud, clubbed with the sheer volume of titles available on Game Pass, is unbeatable value.
4 Making Content Central to the Ecosystem: While creating value through a pricing shift, Microsoft has not forgotten the old axiom that it is exclusive games (content) that will help sell the hardware (and the cloudware). The company announced that Electronic Arts (EA), one of the biggest names in game development, will provide their entire online playable catalogue of games free with the new monthly plan on Game Pass Unlimited service, thereby adding another 100+ titles to an already impressive catalogue. The company bought out Bethesda (a leading game studio behind titles like Doom and Fallout) for $7.5 billion. This was the second big gaming studio buy for Microsoft after Mahjong (makers of Minecraft) for $2.5 billion. Although both studios will continue to offer games to millions of fans on Sony and Nintendo, you get their new releases earlier on Game Pass and Xbox.
5 Taking the Console out of the Console War: Perhaps the most seismic strategy shift at Microsoft is the announcement that all new Xbox games will be available not only on the latest generation X Series, but on all older generation consoles, PCs and mobile phones as well. For the best experience and to take advantage of all the features such as lower load times, augmented graphics and seamless switching between games or devices, gamers will need to buy the latest generation hardware; however, if they choose not to, they can still play on older generation Xboxes and even mobile devices. The company is also moving away from the generational console battle that has long set the stage of the video gaming business and is focusing on providing users a subscription model as an entry point into their ecosystem while at the same time being platform agnostic. In other words, what matters now is that you play Microsoft’s games and whether you do this on a PC, a console or phone is secondary. That above all is a game changer for consumers and if other competitors like Sony and Nintendo as well as Amazon and Google follow suit, this console war is potentially the last one and the one that will truly matter.
Tariq Ziad Khan is a US-based marketer and a former member of Aurora’s editorial team. firstname.lastname@example.org.