Monetizing gamers is still important to Microsoft

Microsoft's current service-oriented strategy isn't going anywhere, and gaming will continue being strongly engaged and monetized over time.

Xbox is no longer a console, but a service. Bound with Xbox LIVE, Xbox now has inter-connected features and services that span both Xbox One consoles and Windows 10 PCs--and soon even smartphones via streaming. Even as Xbox hardware ebbs and wanes, the company is able to stabilize with a strong and multifaceted monetization strategy, whether it be game sales on Xbox LIVE, in-game purchases in first-party games, or advertising via Mixer. And of course there's Game Pass, a new evolution in how gamers consumer and pay for video game subscriptions.

This business model is working quite well for Microsoft and shows no signs of stopping. Company CFO Amy Hood remarks that community and interaction is important to successfully engage users, and thus monetize them over a longer period.

"When other companies have great success in their games, we too can benefit as a platform that people come to purchase and interact with Xbox. So it is a business that we've transitioned quite a bit," Microsoft CFO Amy Hood said at Deutsche Bank's Technology Conference event. "Talk about that Xbox services KPI (key performance indicator) is a really important one for us. It's about our ability to continue to monetize users and build incredibly healthy platform."

Thanks to its approach, Microsoft has become much more adept at diversifying monetization than its competitors. The company has the arm of PC gaming thanks to Windows 10, providing many cross-platform and cross-buy opportunities to keep players invested into the Xbox service platform. Although Steam dominates Windows gaming, Microsoft isn't trying to compete outright with bullish force. Instead it tries to do unique things to attract gamers--and this has been its strongest asset.

Game Pass is one of the many results of this forward-thinking plan. And soon the cloud will be even more important to Microsoft's gaming segment than ever, likely driven by a new streaming service.

"There's an absolute recognition that the gaming enhances experiences for end users. The cloud enhances gaming experiences for end users. And so the more we can make that easy to use or easy to do for developers, the better off we are. We made some acquisitions in this phase with PlayFab which I think is a great and very interesting and strategically important transaction for us," the CFO said.

"But you're even starting to see it in the early success of Game Pass, our game subscription. This is an opportunity for us to, take not only our content, but others content, package it and make sure that people are able to play the games they love, but do so in a predictive way.

Streaming is a big disruptor that could change cross-platform gaming forever. Technical hurdles notwithstanding, Amy Hood goes on to highlight that online monetization is a strong trend in gaming and the centralized Xbox storefront will be opened up even more once accessible smartphone cloud gaming rolls out.

"It's why I really do think this is an interesting transitional moment in gaming that you're able to watch quite quickly. Both the types of games that are being played, but how they're making money. And the ability to have a commerce platform, have user-centric behavior, have a platform that has broad adoption, have content and have a cloud, I think, will be a strategic advantage for us. And I think you already see it in the KPIs that we exit on this year."

Microsoft is currently working on various next-gen Xbox hardware.

Reports indicate there will be at least two systems in the new family codenamed Scarlett: a fully-fledged console with beefier specs, as well as low-cost online-only box designed to be a receiver for Microsoft's upcoming game streaming service.