Think Strategy: Microsoft’s chance to enter mobile!
Being a technologist at heart and a Product Manager by profession, strategy is very close to me. My usual news feeds consist of articles from Stratechery, The Verge, WSJ Tech News etc. and this forces me to ask questions like “What if XYZ happened”, “Why did A acquire B”, and “How does P impact Q” etc. The following article is part of the “Think Strategy” series where I express my opinions on some technological long-term strategies. All of the following content is my personal opinions based on my knowledge and understanding of the business.
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According to a recent survey by windowscentral.com, around 25% of the users surveyed would prefer playing games streamed via the cloud, on mobile, especially on Android, as compared to 20% of users who voted for PCs. The reason, I suspect, is the ease of carrying a mobile on a subway than a PC/laptop.
If we take a step back and understand the target customers for the gaming industry, it ranges from teenagers who spend time gaming to working professionals who use Xbox as a way to de-stress or play nostalgic games. You would argue that there are folks out there with CPUs/GPUs customised with the high-end graphics card that supports heavy games but out of the $25 million game pass subscribers that Xbox has, I would say these folks would constitute only 3–4% of the market.
The market for expert gamers is pretty niche and already saturated with Xbox, Nintendo and Play Station. This blog is about how can Microsoft leverage Keystone (Xbox’s streaming console) to enter the mobile industry and find synergies amongst their current suite of applications.
Why move into mobile now?
There are 2 primary reasons:
Acquisition of Activision Blizzard
With Microsoft announcing a deal of acquiring Activision Blizzard for around $70Bn, it became the 3rd largest gaming company by revenue behind Tencent and Sony. An expensive deal like this is definitely a strategic decision taken by Microsoft implying the focus they want to have on its gaming division. Here are a few of the advantages I can see with this acquisition:
- Xbox Game Pass
In a recent interview, Xbox CEO Phil Spencer spoke Xbox having more than 25 million subscribers currently and their goal of reaching 3 billion number for the Game Pass. Acquiring Activision gave Xbox access to games like Call of Duty, Starcraft, World of Warcraft and many more; Xbox certainly won’t make these cross-platform games exclusive as they still would want to continue getting revenue from Activision’s subscription-based model on other platforms like Sony but adding these games to the Game Pass will definitely make Xbox more enticing.
Imagine Xbox’s Game Pass for $15/month offering you access to all suite of games by Activision Blizzard while in Playstation, you need to pay separately for each game owned by Activision — I bet you would go with Xbox.
2. Addition of 7 more gaming studios
Acquiring Activision meant adding 7 more gaming studios making a total of 30 gaming studios that Xbox now owns. This enables Xbox to capture both the values: Being an Aggregator and Being a content provider. Being an aggregator is basically like being a marketplace or a platform where the publishers can post content and users can access those content by visiting the marketplace or the platform. For example, Xbox is an aggregator where it houses multiple games published by indie game developers or gaming studios and users can play those games on Xbox by purchasing them on the platform. Once the game is purchased, the majority of the revenue goes to the indie developer or the gaming studio for developing the game but a certain % of the revenue goes to Xbox for providing the hardware and access to the customer base. By being both, the aggregator and the content creator, Xbox has a good opportunity to capture both the values.
3. Activision Blizzard owns King
This gives Microsoft an opportunity to enter the mobile gaming business. King owns the Candy Crush franchise which is the cash cow for King’s business but Activision hasn’t been successful to leverage King for its mobile gaming business. It would be interesting to see how much focus would be on Xbox’s mobile gaming strategy with the inclusion of King.
Keystone
A work-in-progress new Xbox console that focuses on streaming and cloud services, over native gameplay and powerful local hardware. Users with an Xbox Game Pass subscription will be able to play games on Xbox over the internet and the price for this console will be way cheaper than the current Xbox Series X or S or a gaming PC.
Users with decent network quality will be able to play games from anywhere, be it cafes, malls, offices etc. by leveraging Xbox’s cloud streaming service. This is a great product which enables Xbox to be present on all and any type of devices (mobiles, PCs, laptops, Smart TVs etc.) It gives developers the freedom to develop games on the platform of their choice — Xbox is making it easy for their users to play games wherever and on whichever type of screen they prefer.
How can Microsoft enter mobile!
As of Q1 2022, 50% of the mobile market share is owned by Apple followed by Samsung at 24%. With two companies owning 3/4th of the market share, the mobile industry is too saturated to get into — not to mention the cost associated with building the hardware for phones.
When Apple created its first Mac under the guidance of Steve Jobs, it was a closed system that would only be opened using special tools designed by Apple and had only two ports: modem and printer which would work with only Apple devices. To this date, if you look at the lightning cable, they are ONLY compatible with Apple devices. This is what I call the theory of exclusivity. The more you make your product exclusive, the faster and longer you retain your customer as the switching cost becomes expensive for the customer once they are a user of your product.
Microsoft can leverage the same principles of exclusivity and get into the mobile space by creating, something I call, Gaming OS — an OS that truly leverages the capabilities provided by “Keystone”
Companies like Facebook and Meta have already started working on XR OS, an OS developed to support virtual reality and augmented reality apps and make it easy for indie developers to contribute to the marketplace by developing games and apps for the metaverse.
Microsoft is already in talks with Samsung to integrate Xbox’s Keystone with Samsung’s Smart TV system. Leveraging the same partnership, Microsoft can work with Samsung to develop Game OS that will make Xbox games run smoothly on Samsung phones — the hardware(mobile phones) will be provided by Samsung while the Game OS by Microsoft. Similar to Dell’s Alienware which is a gaming laptop by Dell, Microsoft can think about launching a gaming phone by Samsung.
This is a true win for both as it helps Microsoft in:
- Validating their assumptions about investing in the mobile industry
- Getting users signed up for the Xbox Game Pass
and helps Samsung in:
- Acquiring gamers who aren’t currently Samsung phone users
- Generating revenue from transactions occurring via Game OS (Game Pass subscriptions etc.)
This is it for today’s article, don’t forget to comment on what YOU think about Microsoft’s Activision acquisition.
