The Xbox Series X and Series S consoles are launching this week, and interest in next-gen gaming has been quite strong, but what comes after those systems as the console cycle winds down 5-7 years from now? The “death of consoles” has been a favorite rumor in media circles for years now, and while the future is uncertain, Microsoft has plainly put its cards on the table: cloud gaming technology and subscriptions may be the next evolution.
As reported by Stevivor at the end of October, Xbox boss Phil Spencer remarked to Stratechery, “I think you’re going to see lower-priced hardware as part of our ecosystem when you think about streaming sticks and other things that somebody might want to just go plug into their TV and go play via xCloud. You could imagine us even having something that we just included in the Game Pass subscription that gave you an ability to stream xCloud games to your television and buying the controller.”
If that sounds like a familiar strategy, that’s because it’s precisely what we’re seeing from cloud gaming options like Google Stadia (which utilizes a Chromecast to stream on TVs) and Amazon’s newly unveiled Luna platform. It’s important to recognize that this does not necessarily signal the end of consoles, but it does clearly signal a shift in strategy for Microsoft’s gaming unit. It’s a strategy that’s working too – despite being at the tail end of the Xbox One’s lifecycle, the gaming business enjoyed a 22% spike in revenues recently, largely due to software and services like Xbox Live and Xbox Game Pass.
Hardware in the console business is typically a loss leader, so if Microsoft can drum up recurring revenues from millions of Xbox fans, the company isn’t concerned whether those people are playing on consoles, PCs, or streaming sticks. As for the latter, they’re far cheaper to manufacture, and the good news for Microsoft is that Xbox Owners already have a strong affinity for the technology. According to Interpret’s New Media Measure®, among Xbox One owners in the US, nearly 40% own a Fire TV device, 44% use a Roku, and more than a quarter own either a Chromecast or Apple TV.