Microsoft’s cross-network play

A fairly big piece of news for gaming today: Microsoft has announced support for cross-network play on Xbox, including potentially other consoles. This is something console gamers have always naturally wanted, but to my limited knowledge never widely done (except in a few games?) in previous console generations.

First of all, as a gamer this is obviously a good development. A larger network of players to play with means better network effects, possibly longer lifecycle of games (because the population is larger), shorter matchmaking queues, less anxiety about which platform to adopt (and the herd mentality of following your friends), and probably a wider choice of games. So to be completely clear, as a gamer (and owner of a PS4) I’m happy for this and hope it becomes something material and not just a marketing bullet point.

From a strategy perspective though, there are some intriguing questions, with the obvious one being why.

First, it’s important to acknowledge the macro-context that Microsoft is in – it has lost its dominance in computing, and is dangerously close to becoming another legacy tech company that will live on for decades but is completely irrelevant to most consumers1. And in this context there’s been a big turn-about at Microsoft at embracing other people’s platforms, from the new love shown to Linux to a bigger focus of Office on iOS. This Xbox announcement follows this pattern 2

Second, there’s also the macro-context of the smartphone revolution and the future implications for games. Consider this data-point3:

Supercell had 180 full-time employees in 2015. In comparison, and per Wikipedia, Activision-Blizzard, had 6,690 employees in 2015; EA, 8,400. This sharp contrast speaks not only to product strategy but also market characteristics: the power of mobile scale and the app store. A casual prediction: the first game with a billion monthly active players4 is not going to be a PC or console game – that number is reserved for mobile because of the install base involved.

The point is, in this context of a broader shift-to-mobile for the entire tech ecosystem, being the market leader in console actually amounts to very little, and it’s arguable that for consoles to have an independent future (and not just be subsumed into the mobile ecosystem entirely), perhaps it’s not a bad idea to ditch the barrier to entry that is compatibility. Again, being in 2nd place this gen, Microsoft has less to lose and more to gain with moving in this direction first; though Sony should think hard about whether it really wants to turn down the friend-request.

Third, and extrapolating from the second point, if the major console platforms became buddies, and also had full cross-play with PC, this “circle-the-wagons” move is likely to the benefit of most parties in the “traditional” game development space. And with both Microsoft and Apple wanting to make Windows / Mac more like mobile (the “walled garden” app stores), PC could look very similar to console from an user-experience perspective anyways.

Interesting times:)

  1. BTW, this is a perfectly valid business strategy, it’s just a far-cry from Microsoft’s lofty ambitions in the past.
  2. One of my favorite business school professors, who specializes in teaching strategy in the TMT space, had a very snappy summary about platform compatibility/interoperability – the market leader generally has little incentive in offering compatibility with a competing platform, whereas the followers have a ton of incentives to offer compatibility. This can be broadly observed across tech sectors, and Microsoft’s recent moves certainly exemplify this point.
  3. The financial metrics may not be apples-to-apples comparable, but it is still good reference. Alternatively can also compare top-line revenue.
  4. See this reference on the 12 pieces of software that have 1B users.
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Consoles in China

Recently the Chinese game site Gamecores did a couple of podcast interviews with the respective China heads of Xbox & Playstation. These podcasts are well worth a listen (if you speak Mandarin) not only because of the topic (how are the console platforms doing in China?), but also because of the insight into the people driving these businesses.

First, the two podcasts (btw, I thought this site is really well made):

After listening to both of these talks, I think the bull case for consoles in China can be summarized as follows:

  • The analogy that consoles in China are like the domestic films market 10 years ago. Back then it was plagued by piracy and entry barriers – now the China film market is rapidly becoming a close rival to the US film market, and Hollywood has found many ways to achieve success in China
  • The government stance towards consoles have shifted (and more importantly) been clarified, clearing the way for some amount of free enterprise in China by foreign console platform owners
  • Both Microsoft & Sony have deep roots in the China market, they are committed to the opportunity, and they are throwing respectable talent at the console problem. Having not really looked at this space before, I gained a lot of respect for both companies and I think their China console heads are decently speaking the gamer language 1

Meanwhile, the bear case for consoles in China, as usual, is focused on content:

  • A substantial amount of the top tier AAA games will not get through the regulatory process to publish in China. Just this year, it’s hard for me to see The Witcher 3Bloodborne or Metal Gear Solid V come through for either ideological or sex/violence reasons, and these are the 3 best games of the year so far IMO
  • The “chicken & egg” problem of Chinese gamers’ willingness to pay upfront for gaming content. Soeda touched on this in his interview – to get high quality localization done, there needs to be confidence in sales; if sales are weak there will be fewer quality localized titles, which leads to lower supply and certainly lower sales
  • Chinese family acceptance of gaming in the living-room. For years Chinese kids convinced their parents to buy them PCs, in the excuse of studying and learning the computer. There’s no such pretense with the console (although I remember Xbox tried to build a case for that with some of its demo videos at Chinajoy last year?)

Personally I’m rather bullish on consoles’ prospects in China. I think console gaming still represents an integral part of the core gamers’ experience and there will probably continue to be a fair amount of console exclusives that really define AAA single-player experiences (think The Last of Us). And with the advent of streaming platforms there is going to be higher awareness with the non-console gamers in China of the type of experiences that they are missing out on. 2

Lastly, I’m also reminded not only of the China film analogy, but also Apple in China. Going back 6 years, I lamented at the time that Apple’s app services are woefully inadequately localized and I mocked them for not “getting China”. Fast-forward to now and they’ve certainly solved many of the implementation problems. I see quite some similarities in the types of challenges that Microsoft / Sony faces compared to Apple, and thus I think those are solvable problems that just need time and consistent drive.

  1. Comparing the two interviewees, surprisingly it’s the Japanese representative Takehito Soeda who comes across as more native, with a fluent Beijinger accent, whereas the Microsoft veteran Xie Weien sounds a bit like an ABC with the amount of English he’s slipping in. The Sony veteran also won the popularity vote from the comments section of the podcasts it seemed.
  2. For example, GTAV is now a staple on Chinese streaming sites, despite never officially launching in China.
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