Why Xbox is moving towards streaming

Last week I sat down with my brother and tried to calculate — through sheer analysis — what Microsoft would do at this E3.

I didn’t post any of it online, so I can’t claim any victory points for it, but after a few hours of discussing the state of the industry, along with Xbox’s past, present, and possible futures, I concluded that Microsoft was going to announce a new generation of Xbox consoles and push streaming as their next big move. Today Phil Spencer confirmed that Xbox is going to push a streaming service, and new hardware. Turns out my prediction was 100% correct.

Here’s how I reached my conclusion.


Dead Console Walking

The Xbox One is at the end of its rope. It’s been a complete disaster and everyone knows it. Somehow, they managed to throw away all the goodwill and market share generated by the Xbox 360 within a week of their initial announcement, and it hasn’t gotten better since.¬†Microsoft desperately wants to get away from the Xbox One and kick off a new generation to get a head start on Sony, but that would be an even bigger public relations nightmare right now. They can’t afford to abandon it quite yet. That will happen next year.

Since they know they’re not going to sell more consoles, their strategy is to maintain a holding pattern this year with a pathetic strategy of confusing people with Windows 10 announcements and misleading exclusivity rhetoric. Their goal is to keep the dumbass Xbox players subscribed to another year of Xbox Live Gold, which is the only way they can possibly make money with the Xbox One going forward. In this sense Sony is pretty much the same with PlayStation Plus, only with better games, a way bigger online community to play with, and some genuine exclusives up their sleeve. They both miscalculated and thought that VR and 4K would be the future, but they were wrong, so now they just want to milk their fans with subscription costs for as long as possible, raising prices and knowing that console owners can’t even do basic things without them.

 

The Real Change

VR and 4K are both as good as dead. Even though they’re viable from a tech perspective, nobody is impressed by them. We’ve heard about them for so long they feel like old technology already; which is funny, because they haven’t launched properly yet. People are buying 4K displays naturally as they replace old stuff, but there’s no “revolution” happening. There’s no sea change where people show off their new displays to their friends and family and make them jealous. VR is a joke, and normal people would laugh at you if you told them you spent hundreds of dollars (or thousands, if you needed to upgrade your hardware) on it.

There was a time when gamers (ie. the prime spending demographic) purchased things because companies made big promises. We liked big promises, and believed in the shiny and powerful future. We believed in progress. We thought that companies were going to compete for our dollar the old-fashioned way, by making better products and services. But that has changed.¬†We’re living in a post-GamerGate world where gamers are spending their dollars on companies they respect, not the ones that making the biggest promises. Respect is the new innovation. The new selling point. If you don’t have respect, your company will fail. Companies are only just starting to realize this.

Think about it: why have none of the big tech innovations won the day? 4K and VR are “better”, and the Xbox One X is the most powerful console ever. The PS4 was an extremely mediocre console using off-the-shelf PC parts when it was announced, and the PS4 Pro is nothing special either, but it has sold like crazy. Why? Certainly not because of big third party exclusives, the way Metal Gear Solid and Grand Theft Auto once were. Everything is multiplatform now. Rather, it is because Sony earned the respect of gamers, and have managed to keep that intact. Xbox can’t do anything about that: they already have the most powerful console, and it has proven inconsequential.

 

No Place To Go But The Cloud

We already know that Microsoft has no shame about abandoning their consoles early, and Sony isn’t much better. By advertising they were switching to a “smartphone model” of “constantly upgrading” both Sony and Microsoft admitted that they were never going to innovate in hardware again, but continue to release budget PC hardware, and then make up for the money they lose on hardware with ridiculous subscription fees for basic online services and multiplayer.

In other words: the profit is all in the “cloud”.

This E3 would have been too early to properly announce the next console for either platform, but they are both going to prod each other into making the first move. Unlike the old days, they aren’t afraid of a “new generation” starting, since there won’t be a real generation divide anymore. Just grab some PC parts off the shelf and slam it together… voila! They can create the “next gen” within 3 weeks, with no Research & Development costs at all. Don’t like it? You’re not allowed to complain, because you upgraded your smartphone, hypocrite!

So where does that leave these companies? Not only are gamers buying things based on respect instead of power, but the hardware is guaranteed to be mediocre from now on as a way of avoiding research costs and selling basic online functionality instead. The only logical answer is more online integration. In the case of Xbox, who are the losers of this generation that need to push things first, it only made sense to me that they would create their own streaming service. Sony already purchased Gaikai years ago and create the failed PlayStation Now service, but they are in a position to compete along this axis in the future.

There’s endless room for innovation in online “cloud services” but very little hope for a revolution in physical hardware. Microsoft has the upper hand in the online department, which means they could beat Sony if that’s the way the next generation goes. The Nintendo Switch has proven that hardware innovation can be extremely effective, but Nintendo is willing to innovate in ways that the others aren’t. The Switch has no competition in the current generation; the PS4 and Xbox One are previous gen, and neither will dare to copy Nintendo’s strategy, since they could never beat Nintendo at handheld hardware or keep up their power-oriented brands. That is, unless they use cloud streaming on a hybrid device…

 

Staying Afloat

We know by now that the entire point of the PlayStation brand was to push Sony’s other media, such as CD’s originally, DVD’s with the PS2, and BluRays and HD TV’s with the PS3, but those days are over. We live in the age of smartphones and streaming, and Sony is in no condition to compete in those arenas. That’s why Kaz Hirai is the chairman of Sony, and why Sony has been pushing more focus towards PlayStation instead of their traditional stereos, laptops, etc. They can’t afford to push 4K and VR, but they can still dominate the console market and sell those PlayStation Plus subscriptions. But with the Switch off to an even stronger start than even the PS4 had in its first year of sales, and Microsoft gearing up to abandon the Xbox One quickly, the pressure is on for Sony to retain subscribers and be prepared for anything.

Tomorrow is Sony’s E3 press conference, and you’re probably reading this after they’ve shown everything. But I expect that they will not mention anything about new hardware, since they want to keep this generation going another few years. But they are watching the competition closely and will continue to dance the lazy tango with Microsoft, watching what the other one does and finding boring little ways to differentiate themselves. If Xbox goes full digital and streaming, PlayStation will gladly brag about their traditional offline media options while having PlayStation Now in their back pocket, ready to go. If Xbox releases another Windows 10 console for your TV, PlayStation can just undercut their price and show off their exclusives again. If somebody tries to copy the Switch’s hybrid console model (which would be crazy) Sony has more experience with quality handheld devices than Xbox. So it’s all looking very predictable to me.

Cloud streaming is the ultimate solution for Microsoft’s predicament because it requires minimal R&D/manufacturing cost to Microsoft, and give their cloud services a jolt of energy as well. They can integrate it into the Windows 10 ecosystem and create much more cross-compatibility. Since the real goal is to keep people hooked on online subscriptions, they get can even bring back the DRM machine they planned for the Xbox One. Cloud streaming makes DRM look sexy and convenient, and once again Microsoft can mislead the consumer by comparing themselves to Steam, which is now developing the amazing Steam Link App (for free) to allow PC gamers to stream games they own on their PCs through the internet to their mobile devices and everywhere.

The funny thing is, in the cloud streaming paradigm it suddenly becomes a lot more likely that Amazon steps into the ring. They’ve got Twitch Prime integration, constant game giveaways (which you should be taking advantage of), and their own game platform. Don’t forget that, as Peter Thiel correctly points out, both Microsoft and Amazon are only in the games business because they want to avoid federal regulation, because they are effectively monopolies in the worlds of Operating Systems and online shopping, respectively. By becoming umbrella “tech companies” that are losing money all over the place in weird ventures, they can argue that they have extremely strong competition from each other, and avoid being broken up by regulation. That’s why they keep announcing dumb products that are doomed, while only paying lipservice to the markets they serve.

Anyway, that’s why cloud streaming is the next logical step for Microsoft.


Here’s Jeff from GiantBomb talking to Phil Spencer about these topics. I’m glad to see he picked up on the importance of it. Most of the interview is about the future of Xbox as a platform, including “Game Pass” and streaming as a gameplay option. There’s a lot of troubling prospects that Jeff points out, and Phil basically assures him that he doesn’t want to abandon the physical, owned, traditional games, not only because the internet infrastructure is not ready yet, but — if you can read between the lines at all — they want to present themselves as the “good guys” who are just trying to make gaming more available to people around the world. It’s a complete 180 degree shift from the Xbox One’s launch attitude, as you would expect, but it fits perfectly into my analysis. They don’t discuss the importance of Xbox Live subscribers or the end of unique consoles, per se, but he does repeatedly acknowledge that PC hardware is showing where they’ll need to go.

So… yeah. Windows 10 mid-range PC machine with subscriptions. I’ll take it as confirmation.

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