Analyzing Microsoft’s (Reported) Cloud Gaming System

This has struck a sensitive chord in the gaming community as Microsoft butchered the Xbox One reveal for this very reason. The Xbox One was initially planned to be an online-only device and acted very similarly to a PC. Many gamers flocked to the PlayStation camp as Sony promised a traditional console gaming expérience. The 2013 reveal seriously injured the image of the Xbox One for the first half of the console generation, which gave Sony a 3-year head start in the console race despite having an arguably weaker first-party lineup. What’s interesting about the controversy with Microsoft’s commitment to the cloud is that Sony preached the same thing in their February meeting. Sony acquired Gaikai in late 2012 for $380 million which gave them a sizable cloud footprint. The difference between the two companies is that Microsoft made the lofty idea of cloud gaming the selling point for the Xbox One, whereas Sony marketed it as a feature to accompany the core gaming experience.

So, why is Microsoft taking a swing at cloud gaming again? Well, they have very high-end technology to support it. The cloud system will reportedly have built-in processors that minimize input lag and improve latency to create smoother gaming. Microsoft also excels at quality UX (or user experience) for their services, so concerns about an unpleasant stream should be calmed down, right? Well, not necessarily. The United States is the most developed nation in the world, yet it has very inconsistent network connection. You would need at least 25-50mbps download and upload speeds to provide adequate game streaming, but even satellite networks struggle to achieve just that in rural areas. What’s even more problematic is that the US is Microsoft’s most fruitful market for Xbox. Imagine trying to sell a cloud-based Xbox to Europe, which is dominated by PlayStation, or Japan, where Xbox is nonexistent in that territory. In the next two or three years, I still can’t see Internet connectivity speeds improving.

Then again, a Roku-like Xbox console must be cheap to manufacture, even with that fancy tech inside of it. Say Microsoft sells their “Xbox Cloud” console for $149 and it comes packaged with a one-month free trial of Game Pass. In metropolitan areas, that’s a pretty easy sell. People would know Xbox and find that device to be remarkably cheap considering the visuals it can produce without requiring the necessary hardware. Once gamers get a hold of the responsiveness of the platform and find it to be equivalent to a traditional console, then they would be sold on the idea of cloud gaming. Microsoft needs to ask themselves this question: How do you make the market differentiate a cheaper console to a more powerful one? “Cloud-powered gaming” doesn’t roll off the tongue. What is this cloud? Why would I buy this system over the more powerful one because of its unique capabilities? If Microsoft markets this system properly, then they won’t have one system cannibalize the other. While both systems play the same games, the market needs to keep both of them relevant at the same time for different reasons. It’s a big challenge once you wrap your head around it.

If Microsoft successfully manages to sell both devices to different audiences, then they have two hits in their hands. If they botch either system, then they might have two flops that need to recover. This is a bold plan for any console manufacturer. Selling the Xbox One S and Xbox One X or PlayStation 4 and Pro at the same time is challenging enough as it is. One is more powerful than the other, but how do you let the lesser system equally attractive to consumers? While Sony and Microsoft have both done a fine job having multiple iterations of the same system on the market, how could either of them make cloud gaming console sellable? Sony’s having some trouble in that front as PlayStation Now hasn’t really taken off. Sure, more games are added each month and Sony amazingly built a massive library of over 650 games. Xbox Game Pass is similar except it doesn’t run on streaming and the subscription fee is at a lower price. As a trade-off, the licenses for many games last about a year long.

 

Unlike PlayStation Now, Xbox Game Pass is a resounding success, giving Microsoft reason to flaunt their numbers. With apparently superior software, Microsoft should have an easy time supporting their reported cloud service. With games costing more money to develop as the years go on, how could Microsoft financially sustain the same business model as Game Pass? I don’t think they could, so let’s say Microsoft adopts a Hulu-style subscription model. Certain publishers could come as a separate fee on the platform. EA would be $10/month, Take Two Interactive would be $5, Ubisoft would be $8, and Microsoft would be free with the service. What if you don’t want to juggle with subscriptions? Well, that’s where the traditional console option comes into play.

Microsoft wants to appeal to everyone, as all companies should. For those with a stable internet connection and a frugal personality, Microsoft’s cloud machine is available for them. For those with a weak internet connection or don’t want to wrestle with fees, then Microsoft’s traditional console is in store shelves for them. This is double-dipping in the market space at its finest. The only obstacles Microsoft needs to surmount is communication and their blue rivals. Speaking of which, what is Sony doing for next-gen and how could that benefit or hurt Microsoft’s strategy?

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If we take a gander on the evidence, it appears that Sony’s taking the same route as they’ve always have been taking since 1995. A normal game console with upgraded hardware and some gimmicks to spice things up. Rumor has it that Sony is working with AMD to create their own processors, presumably based on the same X86 architecture. Less potent rumors have stated that the next PlayStation will have integrated VR technology built-in the main system. None of that seems quite relevant until you take into account how Sony’ll market their console. As a leader in the marketplace, Sony will play their cards safely enough as to not alienate newcomers or deter PS4 owners from buying their new system. Given that Sony wants to bolster their first-party support and produce the most attractive games on the market, it is clear they want to put an emphasis on how cool their games look and play.

This strategy has seriously helped them grab the attention of the gaming industry. However, Microsoft’s current strategy is working for them on a financial level and a public relations level. For the first time, Microsoft made over $10 billion in revenue from their gaming division partially thanks to the launch of Xbox Game Pass. Obviously, Sony made far more, but considering what little market share Microsoft has in console gaming, that financial accumulation is quite impressive. What Microsoft does so well is have a back-up plan. If the Xbox One fails to top the charts, they’ll rely on their PC gaming division. If the cloud gaming console flops, then they can rely on the traditional console or their PC division. If their games fail to fly off the shelves, then they have Xbox Game Pass to boost their sales. That’s the biggest benefit Microsoft has over the competition. They have so many outlets of revenue in the gaming market, whereas Sony mainly relies on one outlet, which is their PlayStation consoles. Without their console sales, Sony’s pretty SOL until they have an alternative plan.

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Image Source: The Motley Fool

Thankfully, both corporations are succeeding and I can only see a fruitful future ahead of them, which means we’re gonna get Xbox and PlayStation goodness for years to come. They’re both large enough to pull themselves out of the hole and they both have competent plans. Microsoft has excellent software to handle cloud gaming and solid services that keep customers satisfied. Their hardware is also great and gives customers everything they need. I don’t doubt they’ll give it their all in introducing the Scarlet systems. If they make the Scarlet consoles voiced by Scarlett Johansson, I would buy three and make Her 2. Joking aside, communication is key and Microsoft now understands what sells a console. All we have to do is wait and see if they convince us.

What do you think about this cloud gaming situation? Will it work or will it flop so hard Phil Spencer will profusely apologize on the E3 stage and give everyone cookies? As always, leave your thoughts and opinions down in the comment section so we can discuss them!

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