Microsoft’s gaming leadership explains why Xbox Game Pass was introduced, and why the company chose to disrupt its own business model of game and software sales.
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In 2017, Xbox changed the games industry by releasing Xbox Game Pass. It was the first multi-game subscription service, allowing subscribers to pay a low monthly fee to access hundreds of games. Since then, both Nintendo and PlayStation have released their own variants, with Nintendo option for its Virtual Console replacement with Switch Online, and Sony going with its three-tiered PlayStation Plus offering.
Here at TweakTown, we’ve talked in length about Xbox Game Pass and how the service has evolved the industry while also helping Microsoft shake-up the fundamental market space. We’ve also discussed why we think Microsoft chose to do this–a potential hail Mary move in a bid to introduce a new subscription segment to the billion-dollar games market, and get ahead of the competition while innovating with new monetization methods–but now we have somewhat of an answer from Microsoft themselves.
In a recent interview with Bloomberg, Xbox president Sarah Bond had some interesting things to say about Game Pass. In the article, Bond indicates that Microsoft chose to disrupt its own business model on its own terms rather than having a competitor like Nintendo or Sony do it first.
“If we don’t do it, someone else is going to,” Bond told Bloomberg, referring to Microsoft taking the risk of undermining its traditional business plans.
“There’s a difference between managing a network effect and maximizing the value of a single game,” Bond continued, referring to how Game Pass has a potentially compounding positive effect because of the pooled value of games across the service, which can grow over time…versus the implied set lifetime value of a given product in a retail environment.
And indeed this has been true for Microsoft; Game Pass is a billion-dollar subscription service where users do not actually own content, but lease it for a period of time.
It’s said to be a profitable venture, and it’s helped grow Microsoft’s games business. Microsoft hopes that Game Pass could achieve $8 billion in revenue by 2030, driven in part by cloud expansion.
While there are undermining effects–that is, “cannibalization,” or the effect when users choose to subscribe to Game Pass versus buying a game–overall, Game Pass is seen as a positive for Microsoft.
Which is only rightly so, considering the trillion-dollar tech giant is a service-first company.
At 34 million subscribers as of February 2024, the sky seems to be the limit for Game Pass expansion, but Microsoft did just make the unpopular decision to raise prices across its subscription plans.
There is limited updates on data and optics for Xbox as a whole, so it’s hard to say where the company as it right now, but the recent Bloomberg article did reinforce that Xbox now has challenging revenue and profit targets to meet.
Following the $70 billion buyout of Activision Blizzard King, Microsoft’s board of directors, CFO Amy Hood, and CEO Satya Nadella are closely watching Xbox. But, as Phil Spencer says, Xbox is a growing and profitable business.