With the next Xbox, Microsoft has a 4-part strategy to end the console wars once and for all. Here's how it plans to do it.

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With the next Xbox, Microsoft has a 4-part strategy to end the console wars once and for all. Here's how it plans to do it.
Xbox vs Playstation

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  • This holiday season, both Microsoft and Sony are launching next-generation game consoles: The Xbox Series X and the PlayStation 5, respectively.
  • Though the two consoles compete directly, Microsoft is intentionally moving its Xbox business away from direct competition with Sony.
  • Instead of focusing on the new Xbox console as a replacement for the current one, like Microsoft and Sony have done in the past, Microsoft is making a different play: A digital game library that works across Xbox devices.
  • Visit Business Insider's homepage for more stories.

This holiday season, both Sony and Microsoft plan to launch new, so-called "next-generation" versions of the PlayStation and Xbox.

Goodbye, PlayStation 4 and Xbox One! Hello, PlayStation 5 and Xbox Series X!

It marks the fourth game console "generation" that Microsoft and Sony consoles have gone head-to-head, starting with the PlayStation 2 and the original Xbox around the turn of the century. Nintendo exited direct competition on hardware with both companies years ago, starting with the wildly successful launch of Nintendo Wii in 2006.

These days, the "console wars" are a head-to-head between Sony's PlayStation and Microsoft's Xbox. But in 2020, it looks like Microsoft is shifting its business strategy in a way that might end them for good.

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Here's how Microsoft plans to do it:

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1. Microsoft doesn't mind if you don't buy its new Xbox console, as long as you buy the game.

1. Microsoft doesn't mind if you don't buy its new Xbox console, as long as you buy the game.

Do you want to play games on an Xbox? A PC? Your phone? Microsoft wants to reach you there — ideally across all three.

To that end, Xbox has major initiatives across all three platforms: a new game console (Xbox Series X), a cloud gaming service (Project xCloud), and a Netflix-like gaming service (Game Pass).

"That remains core to what we're trying to do," Xbox leader Phil Spencer told Business Insider in an interview last June. "To allow creators to reach the customers that they want, allow players to play the games that they want with the people they want to play with, anywhere they want. And it fits right into the opportunity ahead,"

It's part of a broader effort at Microsoft to bring Xbox games to as many people as possible — even if those people don't buy a new Xbox console. To that end, all first-party Xbox games across the next two years will also head to Xbox One.

"As our content comes out over the next year, two years, all of our games, sort of like PC, will play up and down that family of devices," Xbox Game Studios director Matt Booty told MCV in a recent interview.

When the big new "Halo" game arrives alongside the Xbox Series X this holiday, it'll also arrive on Xbox One and PC.

2. The new Xbox is just the latest box, not a whole new ecosystem.

2. The new Xbox is just the latest box, not a whole new ecosystem.

The next Xbox console will play Xbox One games. It will also play all the original Xbox and Xbox 360 games that already work on the current Xbox One. It will also work with all the current Xbox One accessories, from gamepads to fight sticks.

"The original Xbox games and Xbox 360 games that are backward-compatible now on your Xbox One, those will play. Your Xbox One games will play, your accessories will play," Spencer said last June.

This is an important precedent that was set with the Xbox One, and it's continuing with the next generation of Xbox consoles: Your digital game library carries forward, like app purchases on smartphones or movie purchases on Amazon Prime. It establishes your Xbox library as a continuing digital platform, something no game console maker has done thus far.

The compatibility actually stretches further — games with large existing communities will continue to grow those communities on the next Xbox.

"I don't want to announce anything about what another game team is doing," Spencer said, "But I think what we would say at the highest level is if you talk about these games that have such massive communities today, a lot of those developers and studios are going to want to think about how they grow their community — not how they take it to zero and try to rebuild it."

It doesn't take a lot of hard thinking to imagine the games Spencer is talking about; games like "Fortnite" and "Minecraft" stand out, among many others with large, multiplatform audiences.

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3. Going forward, it's just "Xbox."

3. Going forward, it's just "Xbox."

The Xbox Series X is part of the fourth generation of Xbox consoles from Microsoft, following the original Xbox, the Xbox 360, and the Xbox One generations. It's a real murderer's row of bizarre names.

The Series X, however, isn't a whole new line of Xbox consoles — it's just the name of the latest in the Xbox console brand.

"The name we're carrying forward to the next generation is simply Xbox," a Microsoft representative told Business Insider in December.

It's a small branding change, but it clarifies Microsoft's position with its console line: You can expect your Xbox digital library to work on Xbox devices, similar to Apple's approach with the iPhone.

You might get an iPhone 11 Pro, or you might get an iPhone 8 — they all run the same stuff, albeit in varying degrees of fidelity. Such is the case with the Xbox brand going forward.

4. With Game Pass, Microsoft could win the race to create the first major "Netflix of gaming" service.

4. With Game Pass, Microsoft could win the race to create the first major "Netflix of gaming" service.

For a monthly fee, Netflix offers subscribers an instant library of content. Some of that content is produced by Netflix, and some isn't. You don't need to download any of the content — it just streams directly to your device.

Thus far, no company has had success with a comparable service for gaming. There are a few services that offer streamed video games, like Google Stadia and PlayStation Now, but neither has really taken off.

Microsoft, however, has had wild success with Game Pass — an instant library-type service where each game must be downloaded to your console before playing.

With Project xCloud, Microsoft may be the first to actually succeed with a subscription-based video game streaming service with an instant library, À la Netflix, that pairs Game Pass' vast library and existing subscriber base with an option to stream games as well.

"I want it to be about choice, but I do think the strength that we've already seen in the last two years with Game Pass is an important component of this," Spencer said when asked about the business model for xCloud.

"There's paying for access, and then there's paying for a library of games," he said. "And the Game Pass component is really critical, because you want to have access to hundreds of games that you can go play. That is more your Netflix-type example."

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