Since the days of Atari, new gaming consoles have largely followed the same release strategy. The playbook went something like this:
Showcase “next-generation” graphics and computing power in a flashy presentation. Who cares if the actual games don’t really live up to the pre-rendered marketing!
Lock down a set of exclusive, hype friendly titles available at launch. Want to play the next Halo? You are going to have buy the new Xbox.
Set a just-attainable price point and an Early Q4 release date and hope to catch a wave of parents, significant others, and gaming die-hards looking for that special gift that proves their love once and for all.
For the forthcoming iterations of its Xbox console, however, Microsoft has taken a different approach. Sure, the last few months have seen the usual tech-spec chest thumping (if you care about Teraflops – here’s the rundown) and yes there was a healthy amount of “from actual gameplay” footage, but otherwise Microsoft’s next gen release strategy seems to have thrown out the script. No console exclusive launch titles, not one but two new hardware options (with the Xbox Series S potentially cannibalizing sales of the more premium Xbox Series X), and an extension of its hardware purchase program, Xbox All Access, to this new generation of consoles. While the first two pieces hint at their own set of interesting dynamics at play over at Microsoft, the last is an incredibly savvy strategic move that deserves spotlighting.
Xbox All Access bundles a 24-month, zero dollar down, hardware purchase plan with two years of Xbox Game Pass Ultimate, an all you can play subscription service with a library of 150+ titles (see Spotlit’s 8/9 article for a more in-depth look at Game Pass). All Access thus repositions Xbox as a “gaming-as-a-service” offering – one that transitions the segment’s purchase behavior from a series of distinct, and increasingly costly, hardware and software purchase decisions to a single, ongoing hardware/software solution. This strategy has a few important benefits:
A New Pricing Paradigm – With All Access, Microsoft has reframed the price of console gaming as $34.99 a month (or $24.99 or $22.99 a month depending on the console chosen). This effectively lowers consumer barrier to entry and broadens Microsoft’s total addressable market to include those gamers who can’t afford to lay out $300+ all at once for a new device. Admittedly, there isn’t much of a moat here – Sony and Nintendo can (and will) role out similar programs for their consoles. Our hunch is that we see those competitive programs by Q1 2021 at the latest.
Fueling the Future of Game Pass - That said, the bundle of Game Pass AND this purchase program is a powerful one that Microsoft’s competitors won’t be able to match out the gate. Nintendo hasn’t brought a subscription gaming service to market yet and while Sony has PlayStation Plus, that service has largely relied upon older titles to fill its library. Game Pass on the other hand, capitalizes upon Microsoft’s deep bench of in-house game developers, featuring some titles on the service day and date with their broader release. By combining the pricing advantages above with Game Pass, Microsoft is incentivizing adoption of the service that it sees as the future of the Xbox brand. First adopters in Q4 will likely be those gamers who already subscribe, but over the next 1-2 years, watch for this program to become a driving factor in the coming growth of the service.
Taking all of these factors into account, a broader vision of Microsoft’s future comes into focus. We at Spotlit believe that this will be the last generation of Xbox consoles manufactured. Between Microsoft’s investment in cloud infrastructure (Azure) and cloud gaming (xCloud), we just don’t see the firm spending billions on another piece of hardware that will rapidly become obsolete. All Access is thus designed to normalize monthly payments for video game entertainment, bridging the gap between today’s console gamer and tomorrow’s cloud business model. In other words, Xbox All Access isn’t about winning the console battle of 2020. It’s about winning the gaming war for good.