Living room with a Microsoft Xbox Series X home video game console alongside a television and soundbar, taken on October 9, 2020.
Future Publishing via Getty Images
It is certainly a time of transition for Xbox, as Microsoft attempts to reverse about 10 years of policies that put the brand in a very bad spot. That involves small changes, better Xbox branding and ad campaigns, and huge ones, attracting new players and getting old ones to return. And getting both groups to spend a lot of money.
There are many challenges facing Xbox: Game Pass, exclusives, customer loyalty. It’s a long list. But they are all rooted in one central issue: Hardware, which will be the biggest challenge for the new administration.
All of Xbox’s current issues can be traced back to hardware, even as this is supposed to be an age where plastic boxes are being left behind. They are not.
- The idea that potential Xbox customers will ditch the need for a box and pay to play games across various devices via cloud streaming has not panned out. Microsoft itself admitted in its Activision Blizzard court case that cloud was a small, nascent market, and as we can see, it has proven to be more of a side benefit than a primary way almost anyone in the Xbox ecosystem plays games.
- What Microsoft has clearly wanted to do above all else is grow Xbox Game Pass, and that rests almost entirely on the back of consoles. The only way to meaningfully expand Game Pass when cloud-only gamers barely exist and PC gamers are often married to their own ecosystems, is to expand the console base. One cannot thrive without the other, which is why we have seen Game Pass sales hit a ceiling. Plus, the hill is even steeper now after loads of cancellations in the wake of a stunning 50% price hike (which new leadership has reversed).
- This is about the exclusives issue, too. There is a reason exclusive games across all hardware are called “system sellers,” titles so good you feel like you have to own the console to play them. But in recent years, Xbox has struggled to A) produce those kinds of games and B) it slowly slid into third-party territory, sometimes because it acquired almost exclusively third-party developers (Activision Blizzard), but then because of this ill-fated idea that Xbox wanted people to play Xbox games everywhere, even on PlayStation. And that meant there was little, if any, need to buy an Xbox, which deepened that sales crash.
An attorney carrying an XBox Series X video game console box leaves court in San Francisco, California, US, on Thursday, June 22, 2023.
© 2023 Bloomberg Finance LP
This is all happening at the worst possible moment. The cost of hardware has skyrocketed, both in what players are being charged ($800 for a 2TB Xbox Series X right now) and in how much it costs Microsoft itself. In a recent blog post, Xbox CEO Asha Sharma shared the brutal facts, revealing that this “crisis” meant that console storage components had doubled in barely half a year, and were 5x more expensive than two years ago, meaning these recent consumer-facing price hikes may not even be high enough. And this comes ahead of the fact that Microsoft’s next console, codename Helix, is some sort of PC and console hybrid. That kind of functionality may be a great idea, but during this current shortage, which shows little sign of abating, the cost of such a thing may be eye-watering and create a niche market that Xbox cannot afford to focus on right now.
It all ties back to hardware, especially the other two pillar issues, Game Pass and exclusives. It’s the base of both of them, but this comes at a time when you can just make the new, most powerful console and win the day. There are still reputational problems to deal with after two generations of underperformance, but the awful timing of these sky-high costs will only complicate things. Solutions will be tough to find.
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