Microsoft is in the gradual process of pivoting its games business from the traditional integrated console-based hardware, content and services product offering to a broader multi-screen horizontal proposition driven by a combination of its online platforms: Xbox Live, Xbox Game Pass and the Microsoft Store. These platforms are underpinned by Microsoft’s Azure cloud infrastructure, support various forms of monetisation and offer both download (where relevant) and streaming distribution of games available on the Xbox platform.

The company’s aim is to broaden its reach and deliver revenue growth by offering Xbox games content on-demand to consumers when, where and on what device they want. The shift to ‘on-demand’ consumption has been predicted by our analysts as the final wave in the game sector’s digital transition since the late 2000s and, for high-end content, is currently enabled by expensive GPU-based cloud infrastructure and mainstream consumer adoption of high-speed fixed-line and wireless networks. While the mechanics of bringing high-end AAA games to the huge audience of mobile-first gamers is sound on paper, this content strategy remains relatively untested, although Microsoft would argue this is just one entry point to the Xbox ecosystem. 

Over the last three years, Microsoft has been putting in place the building blocks for this broader product strategy: the launch of Game Pass on console, its extension to PC, the development of its cloud gaming technology, the infrastructure build-out of Xbox instances in the Azure cloud and the roll-out of streaming distribution in Game Pass Ultimate. Yet, gaps in the consumer-facing product strategy remain, several of which Microsoft has confirmed it is addressing in the short-term.   

Examining Microsoft’s multi-screen product strategy reveals existing gaps

Microsoft’s intention is to roll-out its content and service platforms across all key device categories. Ideally, it would like to ensure that the Microsoft Store is available in combination with its Xbox Game Pass subscription offers, but practically this is easier to implement on some platforms more than others. Inclusion of the storefront is important because engaged Game Pass users need this avenue to spend on premium and in-game content – this is where the synergies exist. Also, there are still plenty of games – both premium and free-to-play – that exist outside of the almost 500 in Xbox Game Pass Ultimate. Allowing access to these games remains very important.

Microsoft has confirmed it is working on the following in terms of its rollout:

• Upgrading its xCloud infrastructure from the original Xbox One to the latest Xbox Series X hardware – this will allow the streaming experience to deliver higher resolutions and take advantage of graphics technologies such as ray tracing (at the cost of higher data usage and bandwidth requirements for users)
• Integrating cloud gaming directly into the Xbox app on PC – this brings cloud gaming, Game Pass and the storefront together into one app
• Integrating cloud gaming technology into the console experience – this could potentially deliver an improved user experience to console gamers, enabling approaches such as try-before-you-buy or instant play of games while they download
• Partnering with smart TV manufacturers to bring ‘the Xbox experience’ to their platforms – developing a TV-based Xbox offering ‘off-console’ is a significant move and underlines Microsoft’s commitment to removing the cost barriers to high-end TV gaming  
• Designing and building its own streaming devices to bring Xbox to users on connected TV screens – this will allow a fully integrated experience for cloud gamers on TV and would give Microsoft better control of the experience across connected TV devices but at the cost of raising the entry price to consumers
• Introducing new subscriptions (likely at a lower cost and potentially mobile-only for example) allowing Microsoft to address audiences in specific markets such as India

What’s missing?

There are a few areas that still need addressing. These include:

• Streamed free-to-play and premium games outside of Game Pass
• A properly integrated and native mobile experience for both iOS and Android (beyond the Galaxy Store implementation) including both Game Pass and Microsoft Store - the ability to achieve this is dependent on Apple and Google app store policies and whether they are amended in the weeks or months to come

Microsoft is laying the foundation for an end-to-end cloud-based gaming value chain

Of significant importance is Microsoft’s growing games ambitions in the B2B space for games development, games hosting, cloud services and live service tools. These B2B products are increasingly underpinned (again) by Azure and are part of the foundational work alongside the consumer-facing streaming proposition allowing Microsoft to offer an end-to-end solution to the games industry. Eventually this framework will be used to support cloud-native games experiences.  

While the consumer-facing product strategy understandably gains the most coverage, Microsoft’s B2B games industry offerings are also significant and important for the company’s long-term ambitions.