Since its release in June 2017, Xbox Game Pass has radically transformed Microsoft's gaming business model. Now it's boosted Xbox revenues to an all-time high of $11.57 billion.
Xbox is no longer a console, but a vast webwork of cross-platform services, subscriptions, game sales, and monetization. Microsoft's digital empire orbits services, and so too does its Xbox division. Before, Xbox LIVE was at the epicenter of the Xbox ecosystem. Now Xbox Game Pass has taken over, redefining the brand's scope with game streaming to mobiles, instant-access on-demand gaming, and access to all first-party Xbox games. There's just no competition for Game Pass, and Microsoft's recent earnings reflect that.
Game Pass has consistently raised Xbox revenues every year since it was released and has tremendously boosted Xbox services earnings. We took a look at Microsoft's historical 10-K earnings reports to show how the brand has grown since the Xbox One's original launch in FY2014 to Game Pass' launch in FY2017, all the way to the present day of FY2020.
In FY2020 alone, Xbox content and services revenue increased $943 million (+11% YoY) driven by Minecraft, subscriptions, and COVID-19 lockdown engagement/spending. Microsoft had previously announced Game Pass had 10 million subscribers.
We've long detailed Microsoft's business model in our coverage at TweakTown. We've chronicled how Xbox LIVE and Windows 10 was the original glue that linked consoles and PC. That was foundation of the new Xbox. Now with Game Pass, we're seeing the finishing touches being applied on that structure. The Xbox evolution is nearly complete.
In today's market where consumers are inundated with more choice than ever, Game Pass' play-as-you-go model makes more sense than ever.
Instead of buying games for full price every time, they lease the games through Game Pass subscription, forfeiting access once their subscriptions lapse. It's basically the Netflix model for games consumption with the added bonus of being able to download the games as well as stream them.
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Game Pass is used in many ways. Consumers can sample games and then buy the ones they like. They can use it as their main access point to Xbox games without any intent of buying the games--or an Xbox console. And most importantly, they can play games on platforms they already own and on-the-go. Game Pass can be enjoyed on PC, laptops, consoles, desktops, and mobile devices. This level of access ensures Game Pass is absolutely everywhere at any given point in time.
Remember, Microsoft no longer cares if you buy Xbox hardware.
The company cares most about digital earnings, and it's opened up the ecosystem in every way possible to welcome the masses into its gaming sphere. There's lots of nets cast to ensure consumers turn into players and then payers of their digital economy.
Games are built from the ground up with monetization and engagement-driven play in mind. Game Pass is so important that it's changing how Microsoft's biggest Xbox games are being developed.
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Halo: Infinite, for example, has RPG elements and open-world gaming to foster replayability and long-term play. Infinite goes even farther with tons of monetization potential and free-to-play access. The new Halo has been designed specifically to synergize with and continually feed the Game Pass model.
In many ways, Xbox Game Pass defines what Xbox has become.
Consoles are just access points. Game Pass is the center of everything, the core that pulls consumers in, keeps them playing, and more importantly, paying over time.
The most innovative part of this business model is that there's many entry and exit points in the cycle that all synergize with and feed one another. Even if you exit Game Pass, you're likely to buy the games you actually enjoyed on the service. Even if you just buy full games, you're more likely to try Game Pass to sample a new game out of curiosity without having to pay full price upfront. It's a well-designed cycle that's making billions.
This kind of conjunction will serve Microsoft's Xbox division for the next decade and represents some of the most strategic forward-thinking in the entire games industry.