In hindsight, the traditional video game console cycle has been a lousy business.
With each new console generation, companies like Microsoft, Sony, and Nintendo would spend years pouring money into exclusive games, and in some cases selling hardware at a loss. Their investments eventually paid off, as consumers picked sides and bought more games for their console of choice, but only for a limited time. New hardware would inevitably reset the cycle, and all that work went down the drain.
Apparently, Microsoft has had enough. At last week’s E3 gaming conference, the company announced two new game consoles: The Xbox One S, a slimmer, less-power-hungry version of 2013’s Xbox One, is coming in August, while "Project Scorpio," a more powerful console with 4K gaming and virtual reality support, will follow in 2017. Microsoft also announced "Play Anywhere," which will make Xbox game purchases playable on Windows 10 PCs, and vice versa. The plan is to have all three consoles and the PC running the same games, just at varying degrees of quality.
This is how the company aims to become the dominant force in gaming, bigger than Sony’s PlayStation, bigger than Nintendo, and bigger than Valve’s Steam platform on PC. By bringing together Xbox and Windows, and allowing them to live in perpetuity, your game library will grow for as long as you remain in Microsoft’s ecosystem. The hope is that you’ll never want to leave, even when future generational shifts happen.
Vendor lock-in is hardly a new concept. Microsoft's Windows, with its massive business software ecosystem, was a notorious example during the PC’s heyday, and anyone who owns an iPhone knows how hard it is to switch away once you’ve invested in apps, iTunes purchases, and accessories.
Yet console makers have never bothered to attempt this strategy. Unlike on mobile platforms such as iOS, and PC gaming platforms such as Steam, the ability to play old console games on new hardware is the exception, not the rule.
By contrast, Microsoft is making compatibility a cornerstone of its new consoles. Many Xbox 360 games from years ago are already compatible with the Xbox One, and the Xbox One will supposedly work with new games long after future consoles arrive. "The idea is that wherever we are from the 360 generation on, we’re investing in Xbox Live and content so that as you upgrade the experience moves with you," Microsoft’s head of Xbox Phil Spencer recently told The Verge.
The reasons for this new approach are partly technical. Both the Xbox One and Sony’s PlayStation 4 are based on x86 architecture, just like Windows PCs. The switch to x86 streamlines the game development process, which happens on the PC to begin with, and it allows console makers to more easily work with PC chip makers such as AMD.
While x86 wasn’t always feasible for consoles due to its power requirements, recent advances in processor technology have allowed consoles to become more PC-like. Provided x86 remains the standard console architecture going forward, it’ll be very easy to maintain forwards- and backwards-compatibility.
At the same time, the never-ending hardware cycle makes business sense, as it allows the user base to grow independently of each hardware release. The strategy borrows heavily from PC and mobile gaming, which have both seen greater revenue growth than consoles in recent years, says IDC analyst Lewis Ward.
"In terms of the amount of spending on games in the past several years, the approach that PCs and mobile devices have taken is clearly working," Ward says. "So I think on one level, they’re looking at the alternative gaming ecosystems and saying, ‘Well maybe it’s time to take a page out of that playbook.’"
Microsoft isn’t the only one looking to shake up the traditional seven- to 10-year console cycle. Sony says it’s working on its own 4K-capable gaming system for 2017, which will run the same games as the existing PlayStation 4. Nintendo has also hinted at console cycle divergence with the still-mysterious NX platform, which is coming in 2017 but according to the company is not exactly a replacement for the four-year-old Wii U.
Still, Microsoft has an ace up its sleeve with Windows 10 and "Play Anywhere." Later this year, users will be able to buy certain Microsoft-produced Xbox games and get a free copy to play on PC, or vice versa. All purchases and save progress will carry over between screens, and some games will support cross-platform multiplayer.
Third-party publishers will be able to participate as well, and while they’ve been skittish about cross-buy schemes in the past, IDC’s Ward believes they’ll warm up as games become more service-like, with a steady flow of add-on packs that expand on the base game. (Activision’s hit shooter Destiny, for instance, is now heading into its third year of major expansion packs.)
"The case to be made for third parties is, by opting in, you’re opening up future digital revenue sales to a larger group of gamers, because the size of the community matters," Ward says.
Ward expects that this is just the start of a full-scale assault on Steam, the massively popular PC game distribution platform run by Valve. From his own surveys, he estimates that well over half of PC gamers also play on consoles; the ability to easily access the same game library and community on any screen could be a major selling point for Microsoft.
"Windows has the potential to reinvigorate their digital PC gaming business, and either blunt Steam in the living room through the Xbox One … or compete with them on their home turf, just in the general PC Windows 10 environment," he says.
Clever as this plan seems, there are a handful of potential hitches.
On the PC side, gamers might be skittish about investing in Microsoft’s gaming services. The company hasn’t been a great steward for PC gaming in the past, with failed initiatives such as Games for Windows Live. And as Microsoft gets more aggressive about pushing Windows 10—and, by extension, the Universal Windows Platform—some industry observers have wondered if the endgame involves cutting off competing services like Steam. Microsoft says the PC will remain an open platform, but those claims may not matter if users don’t trust the company enough to get on board.
And with consoles, Microsoft has a tendency to turn its back on unfruitful initiatives with haste. The Xbox One’s capabilities as a general-purpose entertainment hub have been largely de-emphasized since launch, and the Kinect 2 motion controller, once envisioned as a vital part of the system, is now just an optional peripheral with barely any game support. Who’s to say that future technological shifts won’t cause Microsoft to retreat from its perpetual console cycle, leaving an entire ecosystem behind?
Having said all that, gamers have proven that they're not averse to lock-in as a concept. Just look at Valve’s Steam, which by some estimates accounts for 50% to 70% of the PC games market, and has 125 million active accounts—more than double the user base of Microsoft’s Xbox Live. PC owners are free to buy and play their games on other platforms, but in many cases they don’t, because Valve has created a perpetual platform that keeps them coming back.
For the first time in the history of game consoles, someone else is going to give that a try.