Like Microsoft, Xbox is a service-first business. Everything serves the platform ecosystem that isn't locked to any one device. Console hardware is a gateway to game sales, Xbox LIVE, and most importantly Game Pass, the service that has transformed the Xbox business.
We've long known that Microsoft emphasizes engagement over all other things. Xbox's billion-dollar digital empire is built around careful sustained engagement across all facets of the ecosystem, whether it's Xbox LIVE multiplayer or Xbox Game Pass, all pieces are designed to complement/synergize with one another but also operate in parallel. It's a good strategy: Xbox has consistently earned record revenues for four years running, with $8.1 billion earned in FY21 already so far.
Now in a recent interview with IGN, Microsoft's Phil Spencer reiterates that Xbox is built on one thing above all others: Expansion. Spencer specifically mentions Game Pass, but his words can be applied on Xbox as a whole.
"Game Pass...It's pretty straightforward. We invest in our first-party games, we invest in specific third-party deals to bring games into Game Pass, Game Pass is obviously a revenue stream--we have subscribers and those subscribers are paying money every month. That creates a revenue pool for us in Game Pass and that's a fairly large number at this point.
"In addition, those games sell on our platform, they're in our stores whether it's on Windows or console or now with cloud.
"So when we look at the economics of Game Pass, it's not just 'how many games is this subscriber playing in the subscription, or if they'd purchase some number of those games. It's not the trade-off of the purchase vs subscriber revenue. We never really look at it that way.
"What we do is we say 'Are we growing the number of players on our platform and are they playing more often?' From that activity we see that the business grows.
"The number one metric that we can look at to see if our business is actually growing are people playing more on the platform."
There's nothing about review score, nothing about retail sales of console or retail sales of games. The number one sign that our platform is healthy and growing is actually engagement on the platform from players. That is what Game Pass is growing, and continues to grow and continues to be profitable at Xbox.
Microsoft has big plans for expansion. It will soon have an Xbox app natively built into smart TVs to allow game streaming via Project xCloud, as well as set top boxes that offer a low-cost alternative to console gaming.
And, of course, Microsoft wants to bring Game Pass to every gaming system known to man.
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