Having failed to keep up with PlayStation through two successive hardware generations, Microsoft is pivoting Xbox into something other than a conventional console platform. What exact shape that will take remains to be seen, but CEO Satya Nadella just outlined three of the core principles that will seemingly guide this new era of Microsoft gaming.
The executive, who’s currently on track to rake in almost $100 million in fresh equity awards, started by reminding daily business show TBPN that the biggest gaming business in the world remains the Windows business. Everything else, including Steam, is built on top of that. And following the acquisition of Activision Blizzard, Microsoft is one of the biggest gaming publishers in the world. In other words, the Xbox brand might be in shambles, but Microsoft Gaming is bigger than ever. From there, Nadella laid out the company’s evolving approach to exclusivity, interactive content, and hardware.
“We want to be a fantastic publisher, similar to the approach of what we did with Office,” he told TBPM (via Game File). “We’re going to be everywhere, on every platform. We want to make sure, whether it’s consoles, whether it’s the PC, whether it’s mobile, whether it’s cloud gaming, or the TV, so we just want to make sure the games are being enjoyed by gamers everywhere.”
Satya Nadella says he wants Xbox gaming to be like Microsoft Office: everywhere.
Says the best way to innovate is through strong profit margins that can support risk taking.
Calls for new forms of interactive entertainment to compete with short form video. pic.twitter.com/pRbIqncXCc
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He continued,
Second, we also want to do innovative work in the system side on the console and on the PC. And it’s kind of funny that people think about the console-PC as two different things. We built the console, because we wanted to build a better PC, which could then perform for gaming. And so I kind of want to revisit some of that conventional wisdom. But at the end of the day, console has an experience that is unparalleled. It delivers performance that’s unparalleled, that pushes I think, the system forward.
So I’m really looking forward to the next console, the next PC gaming, but most importantly the game business model has to be where we have to invent maybe some new interactive media as well. Because, after all, gaming’s competition is not other gaming. Gaming’s competition is short-form video. And so if we as an industry don’t continue to innovate both how we produce, what we produce, how we think about distribution, the economic model—best way to innovate is to have good margins. Because that’s the way you can fund.
For anyone who’s been paying attention to Xbox over the last 12 months, none of this should come as a shock, though seeing it come straight from Nadella shows there’s no question that these are the new marching orders for Xbox moving forward. While the idea of a next-gen Xbox that sports a more open PC gaming ecosystem offers a lot of promise, even if it’s priced at a premium, the talk of higher profit margins shows this new direction comes at a cost.
Bloomberg recently reported that Microsoft CFO Amy Hood has been mandating a 30 percent profit margin target across Xbox, a sprawling gaming division where not every project is a hit and hardware has traditionally been a lossl eader in the hunt for a future upside in the form of platform fees and reoccurring customer spending. While healthy profits might give Xbox room to experiment in the future, over the last 18 months it’s meant many canceled games and shuttered studios, and thousands of layoffs.
Treating Halo like Microsoft Office and shipping it everywhere might be exciting to investors but it’s not going to win much goodwill from existing fans who just saw Game Pass nearly double in price.
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