I wanted to put my thoughts on the record by saying that the downfall of Xbox (as we know it) has just gotten into 5th gear.
Will Microsoft just wrap up the Xbox division? No.
But I do think they will abandon their consoles very, very soon. After that, they will primarily become a game publisher. With the resources, studios, and IPs available to Xbox Game Studios, they can be a reasonably good multiplatform publisher, adding operating profit to Microsoft's balance sheet.
Here are a few of my logical reasons why I think Xbox would be abandoning its console in the next few years:
- Microsoft loses up to $200 per Xbox console sold. On the other hand, PS5 has been selling at a profit for nearly 2 years now.
- The idea of selling a console at a loss is not an uncommon one. Because console platform holders recover money by selling first- and third-party games on their platform. Unfortunately, the Xbox user base now does not buy as many first or third-party games.
- Third-party games.
- For example, Resident Evil 4 Remake sold 74% on PS5 and only 26% on Xbox Series S|X in the UK. However, the console sales split in the UK market is relatively equal: PS5 (56%) and Xbox (44%).
- First-party games.
- Digital Foundry mentioned that Xbox games have decreased in sales by up to 80%. Microsoft also has confirmed that Game Pass cannibalizes game sales. And since all first-party games launch on Game Pass day one, their game sales continue to decrease.
- Talking of Game Pass, it has been 464 dayssince Microsoft last shared the Game Pass subscriber count.
- Microsoft had earlier stopped sharing console sales numbers in Oct. 2015 because of poor console sales.
- Then the argument was that console sales do not matter, and Game Pass subscribers are all that matter. Now, Microsoft has stopped sharing that as well.
- Before Microsoft stopped sharing Game Pass numbers, Game Pass had "missed its subscription target" for 2 consecutive years. Then it all went quiet.
- Talking of console sales, Xbox is being outsold by PS5 by nearly 3:1 now. PS5 has started averaging 24 million consoles per year recently. Xbox Series X|S is averaging 8.5 million consoles per year. And this is after investing more than $10 billion dollars in the division, only for acquisition.
If Microsoft stops selling consoles, they will immediately increase its profitability. The only reason why Microsoft has kept Xbox alive is the hope that one day Xbox will capture the market share and contribute to Microsoft's profits. That's the reason Microsoft invested in Xbox. But the results did not improve.
Microsoft outright said that they needed Activision Blizzard King to compete. Now that the acquisition has been blocked,
how will they compete?
I believe Microsoft will soon realize that this is not working, and Xbox won't be able to capture the PS5 market share. Consequently, they will shift its business model to becoming a third-party publisher and put its games on Nintendo and PlayStation as their combined user base is ~200 million gamers who spend the most money on buying games.
This strategy will also enable Microsoft to acquire more companies and publishers without strict scrutiny.
Lastly, Microsoft's involvement with Cloud gaming and Game Pass will make it easier for Microsoft to shift to this new model.
April 2023 is the beginning of the end for the Xbox console hardware. We're witnessing history in the making.
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