Microsoft is making the right moves to fix its past mistakes and topple the PlayStation with its next game console

Phil Spencer, Julia HardyMicrosoft/YouTubeMicrosoft's head of Xbox, Phil Spencer, and host Julia Hardy during a live broadcast from the company's X018 event in Mexico City.Microsoft/YouTube

  • When Microsoft introduced the Xbox One in 2013, it was still the industry standard-bearer in video game consoles with the Xbox 360.
  • In the course of a few months, Microsoft torpedoed its goodwill with its most dedicated fans, while Sony repeatedly dunked on Microsoft with the introduction of the PlayStation 4.
  • But Microsoft has been repositioning its Xbox business in smart ways, introducing programs that people love and paving the way for a future that sounds promising.
  • Meanwhile, Sony has made several easily avoidable mistakes.

 

Microsoft's Xbox One is losing to Sony's PlayStation 4 - badly.

With over 90 million PlayStation 4 consoles in the wild, Microsoft's Xbox One is getting trounced. Estimates put Xbox sales number somewhere in the range of 30 to 50 million - Microsoft stopped reporting hardware sales numbers some time ago.

But don't count Xbox out just yet.

Between its Netflix-like Game Pass service, the company's game streaming ambitions, its push into cross-play gaming, and the brilliant decision to add backwards compatibility, Microsoft is building a strong foundation for the future. 

Meanwhile, Sony is making easily avoidable mistakes.

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What happened with the Xbox One, anyway?

What happened with the Xbox One, anyway?

In early 2013, Microsoft's Xbox 360 was still more popular than the PlayStation 3. Not only was it competitive in sales, but the Xbox brand had gaming's evangelists — the so-called "core" gaming audience — on its side.

But in May 2013, Microsoft introduced the Xbox One in a press briefing at its Redmond, Washington headquarters. It did not go well.

"That Xbox One Reveal Sure Was A Disaster, Huh?" wrote Kotaku's Luke Plunkett at the time. An edited "supercut" version of the Xbox One reveal even went viral — it offers a stunning look into how Microsoft screwed up the launch of the Xbox One so very badly:

Here are some highlights of the disastrous introduction of the Xbox One:

-The Xbox One would require a persistent internet connection.
-The Xbox One wouldn't play used games — you'd put in a disc, install it to the console's hard drive, take out the disc and it would effectively be useless.
-Every Xbox One would come with a Kinect motion sensor.
-The Xbox One cost $500 at launch, $100 more than the PlayStation 4.

Between unclear messaging (Microsoft flip-flopped on the first two of those four bullets), a major push into non-gaming applications (the Xbox One has an HDMI-in port, so you can plug your cable box right into it), and an incredibly high price point ($500!), Xbox fans were angry.

Can you blame them? Microsoft introduced a video game console that wasn't focused on video games. The company demonstrated repeatedly that it wasn't listening to its most core consumers, and in doing so lost a lot of early momentum.

Soon after, Microsoft's then-Xbox leader Don Mattrick took to the company's Xbox blog to roll back major features of the Xbox One that people were upset about. One month later, Mattrick was out at Microsoft, quickly replaced by longtime Xbox exec Marc Whitten. Another nine months later, and Microsoft would replace Whitten with current Xbox leader Phil Spencer.

And in the years since, under Spencer, Microsoft's Xbox group has changed course.

As a result of a variety of initiatives, the Xbox One has become a more appealing platform. And as the current gaming generation draws to a close across the next few years, the changes reflect Microsoft smartly setting itself up for the next generation of gaming.

1. Microsoft's Xbox Game Pass, the Netflix-like subscription service for gaming, is a great reason to buy an Xbox One.

1. Microsoft's Xbox Game Pass, the Netflix-like subscription service for gaming, is a great reason to buy an Xbox One.

For $10/month, Xbox Game Pass offers access to over 100 games. That includes every first-party game that Microsoft makes, loads of indies, and even some heavy-hitters from third-party publishers like Bethesda Softworks.

Launched in 2017, the service is one of gaming's best deals.

Instead of streaming the games, a la Netflix, you download each game to your Xbox console. As long as you're paying for Game Pass, you keep all the games you download.

Best of all, any new games that Microsoft publishes are included with Game Pass.

When "Crackdown 3" arrives in February, you could drop $10 on a Game Pass subscription to download and play the game — a whopping $50 savings over the normal $60 price of a new game. Microsoft's betting that you'll like the arrangement so much that you'll keep paying for the service every month, like Netflix.

"We're finding people in Game Pass actually play more games," Xbox leader Phil Spencer told me in an interview last June at E3, the annual video game trade show in Los Angeles. "And they're trying some franchises where, if they had to buy the franchise — even if they're $30, $60, whatever the amount might be — it's way easier for them to be invested at $10/month."

Games like "Strange Brigade," "Ashen," and "Mutant Year Zero" are all standouts from Xbox Game Pass in the last six months — games that might've otherwise been missed by a lot of players, but had a chance to succeed through a very low barrier to entry. Not only does Game Pass offer a chance to showcase great games, but it offers an additional revenue stream to older games looking for a second chance.

2. Project XCloud, Microsoft's video game streaming service — what Microsoft CEO Satya Nadella recently referred to by the shorthand "Netflix for games" — is on the horizon.

2. Project XCloud, Microsoft's video game streaming service — what Microsoft CEO Satya Nadella recently referred to by the shorthand "Netflix for games" — is on the horizon.

With "Project xCloud," Microsoft is creating its own game streaming service. No downloads, and no waiting — high-quality, blockbuster video games streamed directly to whatever device you're using. Where Xbox Game Pass is similar to Netflix, XCloud is a direct analog: A subscription-based streaming service for an entertainment medium.

In 2019, Microsoft is planning public tests of Project XCloud.

The company demonstrated its service in a video released in October 2018:

"There are 2 billion people who play video games on the planet today. We're not gonna sell 2 billion consoles," Spencer told Business Insider in an interview following his stage presentation in June 2018. "Many of those people don't own a television, many have never owned a PC. For many people on the planet, the phone is their compute device," he said. "It's really about reaching a customer wherever they are, on the devices that they have."

Several companies have tried this type of service before, like Gaikai and OnLive. Neither succeeded, though Gaikai lives on in PlayStation Now — Sony's video game streaming service.

"We have as much a shot to build a subscription service as anybody else," Microsoft CEO Satya Nadella told journalists at an invitational editors' meeting at Microsoft's headquarters in late January.

Nadella says Microsoft has the upper hand with its Xbox gaming arm, which gives the company a strategic advantage that much of the competition is lacking.

"We have a huge back catalog, which is: We have our own games," he said, referring to the Microsoft-published back catalog of games on the Xbox that includes "Halo," "Forza," and much more.

That certainly helps, but Sony's arguably stronger back catalog hasn't made PlayStation Now into a massive hit.

3. Backwards compatibility sets an important precedent.

3. Backwards compatibility sets an important precedent.

First with Xbox 360 games, then original Xbox games, Microsoft added backwards compatibility to the Xbox One. No re-buying games, even — if you owned it digitally in the past on a previous console, now you own it on Xbox One. If you have it on disc, simply put the disc into your console.

It's an ambitious, precedent-setting statement about what Microsoft is trying to achieve with Xbox, and it directly ties into several other initiatives at Xbox. The concept of Xbox Play Anywhere, for instance — where you buy a game on either Xbox or Windows 10, and you own it both places. Or Microsoft's push into cross-platform gaming with "Minecraft," which was the first major game to offer players on competing game platforms the option to play together.

All of these initiatives are part of the same narrative Microsoft is telling about Xbox: Your digital account from Xbox is an access key to a game library that crosses platforms and generations. Games are games, period.

4. Microsoft started the movement toward cross-platform play with "Minecraft," while Sony refused to budge — until it couldn't refuse any more.

4. Microsoft started the movement toward cross-platform play with "Minecraft," while Sony refused to budge — until it couldn't refuse any more.

Microsoft's been banging the drum for interoperability between competing game consoles for a while now. Ever since announcing the "Better Together" update for "Minecraft," which allowed players on all "Minecraft" platforms to play the game together, the entire game industry has begun moving toward cross-platform multiplayer.

It makes a lot of logical sense if you think about it: Games like "Call of Duty," "Overwatch," and "Minecraft" are functionally identical across platforms. Why shouldn't I be able to play "Overwatch" on Xbox One with my friend on PlayStation 4?

The reason, of course, is business.

Sony's in the lead by a large margin, and has no real incentive — financially — to work with Microsoft on getting cross-platform play working between PlayStation 4 and Xbox One. But that all changed with "Fortnite," and Microsoft ended up looking like the good guys for leading the charge.

As of September 2018, after months of wishy-washy responses to players and game makers demanding cross-platform support, Sony now officially allows "Fortnite" players on PlayStation 4 to play with people on Android, iOS, Nintendo Switch, Xbox One, Microsoft Windows, and Mac. Moreover, if you buy stuff in "Fortnite" on PlayStation 4, it will now show up on other platforms (so-called "cross-commerce" support).

That's a really big deal — "Fortnite" is the first-ever game to allow players on all platforms to play together. As Sony put it: "This represents a major policy change for Sony Interactive Entertainment." Several games have since either enabled or announced upcoming support for cross-platform play.

But Sony's reluctance, and Microsoft's insistence, with cross-play was yet another instance of Microsoft positioning itself smartly for the future with Xbox. The core audience that pays attention to this stuff knows to trust Microsoft to support cross-play in the future.

5. Microsoft is being straightforward about the next generation of Xbox consoles, and speaking directly to gaming's most-dedicated fans.

5. Microsoft is being straightforward about the next generation of Xbox consoles, and speaking directly to gaming's most-dedicated fans.

"Everybody knows what's happening," Microsoft Xbox lead Phil Spencer told Giant Bomb in a June 2018 podcast interview, referring to Sony and Microsoft making new consoles. "It's this kind of unsaid thing of like, 'Well, they shipped Xbox One X. They didn't lay off their whole hardware team. What do you think they're doing?'"

It's that kind of direct, no-nonsense talk, in a candid interview with a respected member of the video game industry, that people like so much about Spencer. Rarely are video game executives quite so candid or as openly passionate as Spencer, which has helped Xbox regain some semblance of trust among gaming's most passionate fans.

"It's not tomorrow," he said, in reference to next-generation Xbox consoles, "But I didn't want people to think that we're walking away from that part of the brand and the business, because it's really important to us," Spencer said.

Rumors point to Microsoft creating two new consoles that coexist within the same generation: a smaller, less expensive Xbox potentially focused on streaming video games, and a larger, more traditional, more expensive Xbox that could power games locally (and stream them).

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