How Xbox Game Pass ended the console war

The range of Xbox Game Pass service offerings have implemented Microsoft (NASDAQ: MSFT) years ahead of the competition in video game streaming and cloud gaming services. Xbox Cloud Gaming allows gamers to use Game Pass on a variety of devices other than Xbox and is included with Game Pass Ultimate for just $ 14.99 / month, a step above the standard Game Pass streaming service for use with Xbox hardware. .

This development is important for the company because the sale of consoles is a notoriously unprofitable business, and it is important for entry-level game customers, as streaming can significantly reduce barriers to entry for games. when the prices of consoles, games and accessories are taken into account.

Make no mistake, consoles are not dead. But Microsoft is in an ideal competitive position to take advantage of the undeniable boom in game streaming and cloud gaming in a way that complements its position in the console market.

Image source: Xbox

Xbox ditched the console war and launched a bigger one

Many believe that the Xbox and Sony‘s (NYSE: SONY) PlayStation will be in direct competition, but companies are no longer playing the same game in many ways. PlayStation is generally thought to have a more robust lineup of exclusive and narrative game franchises than Xbox – for example, God of War, The Last of Us, and most Uncharted titles. Given this strength, the company is focusing more on promoting its games and consoles than promoting PS Now, its cloud gaming competitor Xbox Game Pass.

On the other hand, Xbox is strengthening its line of exclusive games to complement its relative strength in game streaming and cloud services. The company announced 27 new games for inclusion in Xbox Game Pass during this year’s E3 digital games showcase. This increased focus on exclusive content (in partnership with popular game studio recently acquired by Microsoft, Bethesda Games) is part of the plan to add value to Xbox Game Pass, thereby gaining subscribers who may or may not purchase a console. Xbox at all.

The two companies do not often report their number of subscribers. However, according to Forbes, Xbox Game Pass currently has around 23 million subscribers and is expected to reach 30 million by the holiday season of 2021 after the release of. Infinite haloThe gaming industry has long expected PlayStation to launch a more directly competitive game streaming service in response to Xbox Game Pass. However, PS Now is still the company’s only cloud-based game streaming subscription – with a subscriber base of just 3.2 million, as the company last reported in May 2021.

Why bet on cloud gaming

Cloud gaming and game streaming services have always been meant to become mainstream at some point. It’s happening now because companies with powerful, large-scale cloud networks are actually doing it. job. Streaming games from the cloud to hardware you already own usually makes more sense in terms of affordability and convenience than buying a $ 500 console and the accompanying games that you can only use on one. fixed device, especially for entry-level gamers who are hesitant. to make a significant initial financial commitment in the game.

While Sony hasn’t jumped on the cloud gaming bandwagon, companies that have launched their own cloud game streaming services include Google (Stadiums), NVIDIA (GeForce Now), and Amazon (Moon). However, each service has a different offering structure than Xbox Game Pass (for example, you will need to purchase your games individually on an existing platform to use GeForce Now).

More companies will follow this trend, and Xbox can easily use its leadership over the current competition in video game streaming to dominate the cloud gaming market as it grows. . We’re only at the start of this growth story, with Xbox planning to release non-console hardware like streaming devices and Game Pass-enabled smart TVs to make home cloud gaming even more widely adopted.

According to Fortune Business Insights, the global cloud gaming market is expected to grow from $ 169.2 million in 2021 to $ 1.9 billion in 2028, at a staggering compound annual growth rate (CAGR) of 40.9%. As Microsoft rolls out its aforementioned streaming hardware, capitalizes on strategic acquisitions like Bethesda for a more solid game lineup, and uses its huge Game Pass user base, it will become clear why console sales have never been the case. Xbox’s final goal.

Keep your head in the cloud

Stay tuned for Microsoft’s earnings report on July 21, in which the company will hopefully release more information on the performance of the Xbox and Game Pass in particular. Look for a Game Pass subscriber base of around 25 million (or more) and any additional details on plans for smart TVs and Game Pass compatible streaming devices.

However, I’m not yet expecting a lot of financial information specific to Xbox Game Pass. The company is likely playing the long game on its way to profitability while prioritizing strengthening its game lineup and continuing to grow subscribers rapidly. Given the company’s current position as one of the Big Three giants in the public cloud and as a trusted growth stock, this growth story is one to watch as a Microsoft shareholder, and not on the sidelines.