Is Xbox a piece of hardware, or is Xbox a software platform? The obvious answer is “both.” After all, the Xbox Series X and Xbox Series S are game consoles, while Xbox Game Pass is a game subscription service. The better question, then, might be, “What will Xbox be in the future?” After its monumental acquisition of Activision Blizzard, Microsoft is now one of the most powerful software publishers in the gaming business.
Furthermore, Microsoft’s goal over the last few years has been to make Xbox an entire gaming ecosystem, rather than just a family of consoles. Xbox hardware has been around for 20 years; how likely is it to stick around for another 20?
The short answer is that Xbox fans can rest easy, for now. The Xbox Series X was wildly popular in 2021, and it seems like 2022 could be an even bigger year for the console. But as Microsoft focuses more on subscriptions, cloud gaming and cross-platform compatibility, its need to produce dedicated gaming systems might not last forever. And one analyst we spoke with believes that this acquisition could tip the balance of power with Sony in the console war.
Xbox consoles, Xbox services
"This is a huge development," said George Jijiashvili, a principal analyst for games at London-based Omdia during an interview with Tom’s Guide. "It underlines Microsoft’s commitment to gaming and it will no doubt impact the dynamics of the broader games industry. [Microsoft CEO] Satya Nadella has yet again underscored Microsoft’s big ambitions in gaming, which it hopes will grow in tandem with Microsoft’s array of capabilities, ranging from hardware, consuming-facing services, development tools and cloud services.”
Of course, Microsoft’s acquisition needs to actually take place before it can shake up the whole industry. On that count, Jijiashvili expects it to "turn heads" in the realm of antitrust laws. However, he thinks the deal will ultimately go through as planned. Imagine, then, what Microsoft will look like on July 1, 2023, right after the ink dries on the official paperwork. (Activision Blizzard has until June 30, 2023 before Microsoft officially engulfs it; it could happen sooner, but it won’t happen later without some kind of costly delay.)
The company will own publishing rights for games from Double Fine, Inxile, Mojang, Ninja Theory, Obsidian, Rare, Bethesda and Activision Blizzard. That includes, among other series, Minecraft, The Elder Scrolls, Doom, Call of Duty, Diablo and Warcraft. Each one of them is at least a minor pillar of the gaming industry; taken together, they include some of the most popular series of all time. Heck, Blizzard has already announced a new survival game IP, one that's likely to become and Xbox and PC exclusive.
In other words, Microsoft will soon have an almost unrivaled software selection, whether you measure its success by units sold, money earned or popularity among gamers. Between its roster of publishers and its increased focus on Xbox Game Pass, Microsoft may not need to produce Xbox consoles forever.
However, Xbox consoles are still a vital part of Microsoft’s strategy in the here and now, according to Matthew Bailey, principal analyst for media and entertainment at Omdia.
"Despite strong demand for its Xbox Series [X/S] consoles, Microsoft still currently sits in third place in the global console market, behind Nintendo and Sony," Bailey said. "Crucially, the proposed date of completion for the [Activision] acquisition will coincide with when more casual gamers will be looking to pick up a new console. Making Call of Duty exclusive to Xbox — or even just included as part of Game Pass — could be a major benefit."
Still, Bailey and Jijiashvili both agree that Microsoft’s continued investment in Xbox Game Pass — and Xbox Cloud Gaming, in particular — will make the service more and more indispensable as time goes on.
"Microsoft’s huge investment in cloud gaming is accelerating the whole industry’s shift to cloud gaming," Jijiashvili explained. "As more publishers, game makers and device manufacturers make moves in this space, Microsoft will be well positioned to offer solutions across the whole value chain to aspiring cloud gaming providers."
"While Xbox will remain committed to its console business as its main focus for at least the first half of this decade, we will likely see higher prioritization of cloud and subscriptions toward the second half," Baily added.
To be clear, a next-gen Xbox console is at least five years away, if the last two console generations are any indication. Microsoft is selling a ton of Xbox Series X systems, and will likely sell even more once the supply chain stabilizes a bit. Xbox consoles and Xbox Game Pass go hand-in-hand, and will complement each other even better once the Activision Blizzard deal goes through. But "Xbox, the ecosystem" seems to be advancing much faster than "Xbox, the console," and dedicated gaming hardware may not be a strict necessity for much longer.
What about the PS5?
Microsoft’s "every piece of software, everywhere" strategy stands in stark contrast to Sony’s "handful of high-quality exclusives, only on PS5" approach. Right now, the PS5 is selling better than the Xbox Series X, even though the former is generally harder to find. But Sony doesn’t have a service to match Xbox Game Pass (yet — see Project Spartacus), and the company’s greatest hits don’t come to PC until years later.
Simply put, the next few years are going to pit Sony’s "gaming tied to consoles" and Microsoft’s "gaming as an ecosystem" philosophies against each other. Both strategies might ultimately work. But the Omdia analysts believe that Microsoft’s strategy will work better.
"On the back of Microsoft’s aggressive developer acquisition strategy and the resulting increasing value of its Game Pass subscription service, we are forecasting that sales of Xbox consoles will be more robust than that of PS5 later in this generation’s life cycle," Bailey said. "[The] long-term aim is to create an all-encompassing, cross-device games ecosystem that goes beyond ownership of an Xbox console."
Jijiashvili, on the other hand, mused whether Sony would — or even could — attempt a similarly audacious acquisition to compete with Microsoft. The primary problem, he argued, is that Sony simply doesn’t have as much money as the American tech giant.
"Sony is now under huge pressure to respond," he said. "Sony doesn’t have deep pockets like Microsoft, so its options are more limited … This Activision Blizzard acquisition may force Sony’s hand into making a bold move in relation to its subscriptions offering."
If Sony wants to better compete with Microsoft, and with Game Pass specifically, Jijiashvili argued that the company could commit to day-one first-party releases via subscription service. Sony could also play to its traditional strengths: high-end exclusives, a robust library of older games and PlayStation VR. At present, only about half of these ideas (exclusives and VR) seem to be running at full steam.
In short, Microsoft’s purchase of Activision Blizzard probably won’t obviate the need for Xbox hardware, nor will it definitively end the PS5/Xbox sales rivalry. But it’s a big step on Microsoft’s path to a subscription-based, platform-agnostic, cloud-gaming future. And if consoles really do become an optional part of the console gaming sphere, whichever publisher offers the best games will be in an enviable position.