Xbox's new brand pivot hopes to capture Gen Z audience

Why is Xbox making radical changes? It's all part of a big strategy that hopes to capture a new generation of gamers.

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The games industry is changing, and Xbox is changing with it. Higher production costs have led to $70 games and microtransactions being included in practically every new release. The industry grew under COVID, but contracted due to economic pressures from inflation and reduced disposable income.

According to Xbox CEO Phil Spencer, the console market isn't growing, and global gaming revenues have been down for the past 2 years in a row. So that leaves Spencer and his team with an important question to answer: How does Xbox create growth if its core market isn't growing? Diversification is one option, and that's the current route Microsoft is trying to take.

Exclusivity is a big commanding force for console gaming, whether that be exclusive games, content, features, or system capabilities. But it appears that these tactics have reached their peak, and that the console market might have hit a ceiling. This is due to a lot of different factors, including the current inflation-driven economy, but changes in consumer behavior is also affected by generational shifts.

The most significant console growth was mainly achieved during the Millennial and Gen Z generations, which ranges from 1981 - 2012. These timeframes were dictated by certain market forces, eg full game sales. It's also important to note what wasn't around during these gens, e.g. the rise of the smartphone as the dominant games platform.

So fast-forwarding to today, Microsoft says that Gen Z users have been conditioned to be able to access content and services in platform-agnostic ways. Xbox's current pivot (breaking exclusivity for first-party games, being open to have competing stores offered on Xbox) is an effort to tap the Gen Z audience and hopefully acquire these users now so they'll buy games now and when they're older.

"This notion that Xbox can only be this one device that plugs into a television...this isn't something we see in the Gen Z research, because nothing else is like that for them," Xbox gaming CEO Phil Spencer said in a recent interview with Polygon.

"Some of them will have an iPhone, some will have an Android, but all the games and everything is the same. I can still get to TikTok on both of them, at least for now. All of their stuff is available wherever they want.

"So for Xbox, our brand pivot - as we attract and maintain relevance with a younger audience - is 'Xbox is a place where I can find the great games I want to.'"

These are more theoretical musings, though, and there have been no specifics on how this will affect the larger video games industry and what exactly is going to happen with Xbox consoles. Ideally, Microsoft would want to bring forward all existing Xbox console owners because it's these consumers who are the bulk of spending within the Xbox ecosystem.