In mid-2014, Satya Nadella, the about to become CEO of Microsoft, led the company’s gaming heads to his fifth-floor office in Redmond, Washington.
The executives wanted Mr. Nadella to write a check for $ 2.5 billion to Mojang. to buy, a Swedish company that made a blocky, pixelated game called Minecraft. Mr Nadella asked why Microsoft, which is consistently being outwitted by Sony in the console business, should continue to invest in video games. How, he said, did that fit with his vision of a company with a friendlier face that appealed to more consumers?
Then Phil Spencer, the new head of Xbox, told Mr Nadella about it Minecraft’s huge world craft where millions have socialized and where teenagers have been encouraged to learn math and science skills. A deal would be the first step in a “pretty bold vision” to transform Microsoft’s gaming business into one that focuses on a wider audience, not just console gamers, Spencer said.
Mr Nadella agreed and carried out the deal. What followed was a year-long postponement, according to interviews with more than 20 Microsoft executives, game developers, industry analysts, and gamers. Instead of mainly competing with rival Sony to sell more consoles, Microsoft bought 15 more game studios and invested in new technologies like a Netflix-style game subscription service and a mobile tool known as cloud gaming.
Now that Microsoft is preparing to showcase new offerings at the annual E3 gaming convention this weekend, its video game business is looking very different. The company is still best known for the Xbox, a new version of which was released in November. Even so, it has diversified beyond boxy hardware to offer a new range of services.
“Your strategy has deviated significantly from a traditional console approach,” said Piers Harding-Rolls, gaming researcher at analytics firm Ampere Analysis.
With the changes, Microsoft is betting that the future of gaming will be a post-hardware world where people may not want to spend hundreds of dollars on a console, executives and analysts said. At some point, they said, people might no longer be tied to certain devices to play games and instead worry more about software and services.
While Xbox consoles are still generating a lot of revenue – in January Microsoft reported $ 5 billion in quarterly gaming revenue for the first time, supported by the publication of the Xbox Series X – The company stopped disclosing its console sales in 2014. Most of the gaming revenue comes from content and services, not from Xbox hardware sales, said Tim Stuart, Xbox chief financial officer.
The gaming business still faces hurdles including the perception among gamers that it is not up to their best. That dislike stems from a messaging bug in 2013 when Microsoft launched its new Xbox One console as an entertainment device that people can use to stream music and movies. In response, the players outraged.
According to analysts’ estimates, the Xbox One was still sold around 50 million times. But it was far exceeded by Sony’s PlayStation 4, which was also launched in 2013 and has sold 116 million times.
“We lost our step of what the players wanted,” said Stuart.
After the game, Microsoft changed gears. Mr. Nadella had just taken over the helm and wanted the company to move from focusing on software to cloud computing and subscription services.
Mr. Spencer made sure that the development of the games department reflected these goals. He persuaded Mr. Nadella to buy Mojang in September 2014, which was the new CEO’s first acquisition.
“Games are much more important for Microsoft today than ever before in our history,” said Nadella in an interview last week.
In 2017 Microsoft released the Xbox Game Pass. For $ 10 or $ 15 a month, subscribers could play a specific set of games for as long as they were using the service. That turned the traditional model on its head, where people paid $ 60 for games like Call of Duty and owned them forever.
To convince game publishers to put their titles on Game Pass, Xbox executives flew around the world to meet developers and proselytize their vision of an industry where video games are cheap and easily accessible.
Initially, developers were “unsure” because they feared they would lose money on the service, said Sarah Bond, a Microsoft vice president who leads the gaming ecosystem organization.
So she decided to investigate how Game Pass affected player behavior. Microsoft announced on Thursday that users of the service spent 50 percent more money on games and played 40 percent more games than non-subscribers.
Mike Blank, senior vice president at Electronic Arts, which put its games such as the Madden NFL and FIFA soccer franchises on Game Pass in 2020, said there were “initial concerns” about subscription services. But the company is happy with the results and “the players are responding positively,” he said.
Microsoft also spent a lot on game development to expand the Game Pass offering, buying studios, including a $ 7.5 billion acquisition of ZeniMax Media in September and adds hundreds of games to the service. This year too Consider buying the Discord messaging appwho have favourited gamers to chat while playing.
The diversification continued in late 2019 when Microsoft released a cloud gaming service where games are hosted in a company’s data centers and streamed to devices. The Xbox Cloud Gaming or xCloud service means users don’t have to install games or use expensive hardware.
The idea of a cloud gaming service emerged for Mr. Spencer earlier this year when he was sitting on a bus in Nairobi, Kenya, and was connected to Wi-Fi. He found out that he could stream a game from Microsoft’s London data center to his phone.
“It was literally the same saved game I had in Redmond, Washington,” he said. “It just drives how you can really make gaming global.”
On Thursday, Microsoft announced that it is working with television manufacturers to bring its games to televisions without the need for an Xbox. It added that it would soon bring cloud streaming to the console as well.
At the moment, cloud gaming is still hampered by faulty gameplay and requires a strong internet connection. Xbox Cloud Gaming is still in the testing phase and Apple has banned the app from iPhones because it contains a catalog of games and Apple requires separate apps for each game as part of the app review process.
At the same time, Xbox continues to lag behind Sony’s PlayStation. In April Sony said it had sold 7.8 million new ones PlayStation 5s between November and March, while analysts estimated that Microsoft had sold more than four million new Xboxes in the same period. Sony declined to comment.
Some gamers said Microsoft couldn’t win them over because it still lags Sony in exclusive, high quality games.
“I’ve always had the impression that PlayStation is better,” said Natalia Mogollon, a gamer who as. is known Alinity who streams their gameplay on the Twitch site to 1.3 million followers.
However, if Microsoft snaps exclusive content, it can backfire. When game publisher Square Enix first released a popular game on Xbox in 2015, gamers were upset that Microsoft was restricting access to the title. The reaction was similar when it was considered buying Discord and when it was reported last month that an upcoming ZeniMax game would be Xbox exclusive.
“It can seem like a big company is coming in to screw up its favorite game developer,” said Rod Breslau, a video game consultant.
As Microsoft moved away from the Console Wars, Mr. Spencer’s own tone also weakened. In one (n Interview with the New York Times in 2014he signaled that he would not give in to Sony. “I’m here to win,” he said.
In an interview last month, he took a different route. “We don’t look at Nintendo and Sony and say that the company has to lose to win,” he said.