Meet Klaviyo, the only CRM built for B2C. Join 167,000 companies like Paul Smith, Castor, MixTiles, who choose Klaviyo for better customer relationships and faster growth. Grow with Klaviyo B2C CRM at klaviyo.com forward slash UK. It's 2025, so stop struggling to get your job post seen on other job sites. Indeed's sponsored jobs can help you stand out and hire the right people fast. There's no need to wait any longer. Speed up your hiring right now with Indeed.
And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash Vox Business. Just go to Indeed.com slash Vox Business right now and support our show by saying you heard about Indeed. on this podcast. Indeed.com slash Vox Business. Terms and conditions apply. Hiring? Indeed is all you need.
Support for this podcast comes from Shopify. Your business can't reach its true potential if you can't keep customers coming back and that's where Shopify can help. Shopify is an all-in-one digital commerce platform that wants to help your business convert customers like never before, whether you sell entirely online or in brick and mortar storefronts across America. You can upgrade your business and get the same checkout Allbirds uses with Shopify.
You can sign up for your $1 per month trial period at shopify.com slash voxbusiness, all lowercase. Just go to shopify.com slash voxbusiness to upgrade your selling today. Hello, and welcome to Decoder. I'm David Pierce, the editor-at-large at The Verge. Neelai is off this week for a much-deserved break from what honestly I can only describe as a...
deeply bleak news cycle. So I'm filling in for him, and the Decoder team thought this would be a good opportunity to switch gears a little bit, get away from the political apocalypse beat for a minute, and talk about something completely different. So today we're diving into the video game industry, and we're talking about a particular set of very thorny problems facing Microsoft and particularly its Xbox division.
Microsoft is celebrating its 50th anniversary this year. And for nearly half of that history, Xbox has been a central pillar of the company's consumer hardware and software businesses. The first Xbox launched all the way back in 2001. and has sat next to Sony's PlayStation and whatever Nintendo is making at any given time as really the big three of gaming for basically the last quarter century. But things in Xbox land have not been great lately. In fact, Xbox has been struggling for...
quite some time now. And a lot of the issues it's facing can be traced back to core problems, I think, at the heart of software distribution in general. As video games get more expensive to make, and the demands for the size and scope and quality of those games become ever greater, how do you... How do you finance those hits? And then when they launch, how do you get those hits into the hands of more customers? Customers who may not want to buy an Xbox anymore.
and frankly balk at the idea of shelling out $70 for a new game altogether. Nintendo and Sony have figured this out, mostly for reasons like Zelda and Mario and Fortnite, and those companies have been reaping the benefits of dominating the console market in different ways, but... really since 2017, they've been the winners. That's when the first Switch launched and when it became clear that Sony's PS4 had dominated the Xbox and had cemented PlayStation as the clear winner of the 2010s.
But 2017 is also when Microsoft launched Xbox Game Pass, a subscription service that was designed to be a little bit like Netflix for gaming. Phil Spencer, who's the head of Xbox at Microsoft, developed this sort of master plan to shift the Xbox business model entirely. After the better part of 20 years having proprietary hardware at the center of the strategy, Microsoft pivoted.
The idea was that it would lean on its expertise in cloud computing and this huge war chest of software profits from Windows to try something totally new. It was a mix of subscription gaming and cloud streaming and just a win. to put its software on competing platforms, all to try and break free from a losing race against its rivals. Well, it's been eight years and that hasn't quite worked out like we might have thought.
Certainly not like Phil Spencer thought. Xbox is still very much in a distant third place in the console race. Some estimates put Xbox hardware sales at less than half of the number of PS5s that Sony has sold. That's despite some record... breaking, hugely controversial, hugely litigious game studio acquisitions that have together cost Microsoft almost $100 billion.
Meanwhile, Nintendo is just kind of off in a league of its own. It sold more than 150 million Switch units since that console launched again in 2017. And the eventual Switch 2, which is coming, we think, later this year, is also expected to be a smash hit. Game Pass is reasonably successful for what it is, and we'll get into what that looks like. But it definitely hasn't changed the world the way that Netflix did to Hollywood. There's no before and after moment that we've had yet.
People are still mostly buying new games, sometimes even still on a disc, sometimes from Best Buy and Walmart. Streaming a game to your phone or TV from the cloud remains a pretty niche activity. So what exactly happened here? Why did Microsoft's master plan not pan out? And can it still succeed if the right combination of factors comes together over the next several years?
To break all this down, I invited Ash Parrish, The Verge's video game reporter, on the show to talk about all the struggles of Xbox and Game Pass and where she sees the future of the gaming industry headed in the next few years. Okay, Xbox Game Pass and the elusive quest to build a Netflix for gaming. Here we go.
Ash Parish, welcome to Decoder. Hey, thanks for having me. I think before we get into kind of what's happening now and where we go from here, let's just lay the land a little bit. It seems safe to say that it's been...
kind of a rough few years for Microsoft in the gaming world. Can you just sort of... position microsoft in the universe of gaming for me right now it's like one of the biggest names it is it is playstation and xbox it's like it's right in there but it also kind of feels like it's losing like what's going on here it's
Kind of hard to position Xbox within the sentiment of gamers themselves because there are still quite a few people that cling to that lingering tribalness of like the console wars. I feel like there are always going to be Xbox diehards.
up with the 360 in the house or even maybe a big fatty uh the original xbox and you know they have love for those entrenched franchises like halo and now elder scrolls and things like that so there's always going to be that element that props up the brand somewhat, but it is not enough when you are competing against PlayStation 5, which has
thoroughly dominated the in-home console market. And then there's Nintendo, which has dominated PlayStation even harder, which is in its own stratosphere. So Microsoft is holding on, but like... at its fingertips at this point, and it just can't keep up. It might be weird to think about Microsoft, a company with a market cap that last month broke $3 trillion, trillion with a T, as barely holding on and failing to keep up.
But what Ash just said is the genuine sentiment in the gaming industry. And it's been that way for some time now. If we had to trace Xbox's struggles to a single point... I think you could argue that it started back in 2013 when the Xbox One was announced. The Xbox One was the successor to the best-selling console in Microsoft's history, the Xbox 360. It had dominated the early era of online gaming.
and became the go-to platform for huge first-person shooters like Halo, Call of Duty, and Gears of War. Those were big games, and the 360 was a big console. Inasmuch as the console wars were a thing at that time, Microsoft handily won that generation. Sony's PS3 had struggled out of the gate, mostly because it cost $500 back in 2006 money. The Xbox 360 had launched a year earlier. It launched for $100 less. It had Xbox Live. It managed to define a whole...
era of gaming for a generation of players and really cemented the Xbox brand as we know it today. I think people who still love the Xbox... Love the Xbox 360. Ask any millennial gamer about that time, and they'll probably agree that the 360, especially combined with Xbox Live, was the king. Though Sony did end up eventually selling roughly the same number of consoles. Sure, the 360 was the winner. But fast forward to 2013, and everything turned.
The Xbox One launched with a weird focus on non-gaming entertainment, including a mandatory second-gen Kinect motion sensor, the thing that sat on top of the box and saw you moving around. It also had the ability to plug in your cable box for some reason. And it had this always-on connection requirement that Microsoft pitched as a way to let players share and even resell digital games.
But right away, Microsoft was just pummeled by the press and, more importantly, the broader gaming community for poor messaging and, frankly, confusing marketing. What was this thing that Microsoft was making? Sony, meanwhile, took the opportunity... to just twist the knife, and it promoted the PlayStation 4 that same year as a device purpose-built for gamers. It was a game console that just played games, and it turned out that's what people wanted.
Microsoft ended up dropping a lot of its restrictions and weird entertainment ideas before launch, but the damage was done. The Xbox One would go on to sell fewer than 60 million units, while the PS4 sold close to 120 million. It seems like PlayStation's messaging has been so games focused and that's why it is across all boards like the biggest console, not barring Nintendo, remember.
completely different conversation. You have to shift gears if you want to talk about Nintendo, at least, you know, within America. That's why PlayStation is always dominated. So yeah, I would agree, honestly. Microsoft still hasn't ever really bounced back from that whole episode, though not for lack of trying.
In the aftermath of the Xbox One launch, Phil Spencer was promoted to head of the Xbox division, and he set out to try and reverse the company's fortune in the gaming market, to bring it back to gamers in a real way, even if that would take years and an awful lot of money. We'll get into some of the details on Microsoft's evolving distribution strategy in a minute but let's take a second to look at a few of those big swings.
Like we mentioned, Microsoft launched Game Pass in 2017. But before that, Spencer started writing some really big checks to bring more studios under the Xbox umbrella. The big idea was that exclusive games, like what Sony had with The Last of Us and Uncharted, could turn the tide back to Xbox.
Mojang, the Minecraft maker, was an early one back in 2014. And the pace picked up over the years. It bought Bethesda, the publisher of Fallout and Elder Scrolls, for $7.5 billion in 2020, which seemed huge, until Microsoft dropped nearly... $70 billion to purchase Activision Blizzard, the maker of Call of Duty, in 2022. What did Microsoft hope would happen here by spending all of this money? Here's Ash.
So it kind of goes back to the conversation we were just having about PlayStation deciding like we're just... This is a console that plays games. Here are all the games. It's getting back to that. They bought Bethesda thinking that, you know, the Elder Scrolls games and their Fallout games and their new IP would give them the hits that they need. But then Starfield came out and it was a...
Redfall came out and it was a bit of a dud. We haven't seen hide no hair of either the next Elder Scrolls. And we know Fallout's not coming anytime soon, despite the fact that it's blowing up on Amazon Prime. You've got these one, two punches of like, we spent all this money on games and the games aren't doing what we need them to do. And then our own catalog is also suffering. The trend line is going down. So I think.
The strategy then became, OK, what can we buy that is going to be a surefire hit? And they turned their heads and saw Activision Blizzard with, you know, Call of Duty and was like there. Which is, I mean. Yeah. truly probably the safest bet in the universe of gaming it would be to just spend whatever it costs to get call of duty right like
The theory there, if you build all the way to that, what you just described would absolutely lead you to Call of Duty. It makes total sense. It does make sense. And then there's the fact that those games are multi-platform. Like people who want to play them can still play them. on PC. They can still play them on...
PlayStation, which is where they play it. I mean, if you look at the Serkana charts, Call of Duty is at the top or very near the top of the most played games list on Xbox and PlayStation. So like there's no incentive to switch.
It does seem like Microsoft put itself in kind of an impossible position, which is either we've spent... all the money in the known universe on call of duty and now we're going to make it so that many fewer people can buy call of duty just in order to make people excited about xbox which is
In a very sort of long-term bet on the Xbox thing, you could kind of squint and see it, but that's an objectively stupid business decision. And like you said, all kinds of issues with... the government and regulars and like that deal probably wouldn't have gone through buying Activision Blizzard if Microsoft had intended to make it an Xbox exclusive so you can't do that but then by not doing that
you kind of kill the Xbox brand even more. And so I feel like Microsoft has been trying to do this back and forth thing where it's like, oh, okay, the Xbox is not important, but also we are... wildly over invested in making the xbox important and i have never been able to figure out if this is like two teams that need to have more meetings and figure out who's right or if this company has actually thought it could do both of those things simultaneously.
It's very damned if you do damned if you don't, but that actually segues quite nicely into like the next like arm of this strategy is the fact that now, okay, the Xbox hardware is not important. So what are we going to do? We're going to turn everything into an Xbox. We're going to make sure that you can play these games no matter what, wherever and on whatever. So they're pushing their cloud streaming. They're pushing their Game Pass subscriptions.
That's why I get advertisements on my Samsung TV for playing Indiana Jones and The Great Circle because they want... at least if you're not buying an Xbox console, at least play our games because maybe we can get you that way. So that's the plan. I don't think that plan is working out that great for them either.
What Ash just mentioned is a really important piece of this puzzle. Multi-platform gaming is a thing we need to talk about. For the last 10 years or so, Microsoft has been pushing the Xbox platform in two separate, maybe even contradictory, directions. On one hand, it's been buying massive game publishers and their very expensive catalogs.
all to try and get people to buy an Xbox or sign up for Game Pass and just spend more time with their Xbox turned on. Every minute a player does that is a minute not spent playing Fortnite on PlayStation or deciding that they'd rather play some new... game on their Nintendo Switch instead. This is the old-school tried-and-true business model of console gaming. Big exclusive games sell hardware, and without those, most people don't want your hardware. It's pretty simple. For Xbox...
That whole plan hasn't really worked out, as you just heard Ashley out. It also had a lot of really disastrous second-order effects for Xbox because it meant that PlayStation became the place that players began to flock to play big live service games with their friends, particularly Fortnite and then... Fortnite copycats like Call of Duty Warzone and Apex Legends. And players started spending money on those games. An awful lot of money.
And Sony got to collect 30% of every transaction. That was a hugely winning formula for everybody except Microsoft. At the same exact time as all of that, Microsoft has been trying to think beyond the Xbox to a world where it lets players buy a game once and play it on their Xbox and on their PC as it started doing way back in 2016. That was one of the things that Microsoft could do.
No one else could was combine Xbox and PC gaming, or you could subscribe to game pass and have a whole bunch of games that you can play on whatever device you like. And in some extreme cases, as we've seen recently, Microsoft is even taking all of these once-exclusive games and re-releasing them for PlayStation and Switch.
This has all gotten really messy for Microsoft, and Xbox fans who bought the hardware to play the games have understandably grown pretty frustrated with all of these conflicting strategies. So we're going to dive into Game Pass and multi-platform gaming and... try to make sense of what went wrong here and whether Microsoft can actually manage to untangle this knot. But first, we need to take a quick break. We'll be right back.
Meet Klaviyo, the only CRM built for B2C. If you're running a business, it's about revenue, right? And keeping a store, steakhouse, or even a stadium filled with happy repeat customers can be hard. But with Klaviyo B2C CRM, you can bring your customer data, marketing, service and analytics together to build lasting customer relationships that keep them coming back. Visit klaviyo.com forward slash UK to join more than 167,000 brands using Klaviyo to grow.
It's demanded. Whether you're a startup founder navigating your first audit or a seasoned security professional scaling your GRC program, proving your commitment to security has never been more critical or more complex. That's where Vanta comes in. Businesses use Vanta to establish trust by automating compliance needs across over 35 frameworks like SOC 2 and ISO 27001.
centralized security workflows, complete questionnaires up to five times faster, and proactively manage vendor risk. Vanta not only saves you time, it can also save you money. A new IDC white paper found that Vanta customers achieve $535,000 per year in benefits, and the platform pays for itself in just three months. You can join over 9,000 global companies like Atlassian, Quora, and Factory who use Vanta to manage risk and prove security in real time.
For a limited time, our audience gets $1,000 off Vanta at Vanta.com slash Vox. That's V-A-N-T-A dot com slash Vox for $1,000 off. Okay, business leaders, are you playing defense or are you on the offense? Are you just, excuse me, hey, I'm trying to talk business here. As I was saying, are you here just to play or are you playing to win? If you're in it to win, meet your next MVP. NetSuite by Oracle.
NetSuite is your full business management system in one suite. With NetSuite, you're running your accounting, your financials, HR, e-commerce, and more, all from your online dashboard. One source of truth means every department's working from the same numbers with no data delay.
And with AI embedded throughout, you're automating manual tasks, plus getting fast insights for your next move. Whether you're competing on your home turf or looking to conquer international markets, NetSuite helps you get the W. Right now, get the CFO's guide to AI and machine learning at netsuite.com slash vox. Get this free guide at netsuite.com slash vox. Okay, guys.
We're back. I'm David Pierce, and I'm here with Verge gaming reporter Ash Parrish talking about the uphill battle that Microsoft has been waging with Xbox for more than a decade. Before the break, we were discussing how many of Microsoft's particularly costly attempts at course correction here, like buying Bethesda and Activision Blizzard, haven't actually had what many might think of as the desired outcome.
which is more Xbox sales. In fact, Xbox sales were down in Microsoft's most recent quarter, and the latest estimates say Microsoft has probably sold fewer than 30 million Xbox Series X and Series S units as of last November. while Sony just publicly confirmed the PS5 has crossed 75 million units. If that's the metric you care about, Sony is winning. Microsoft has lost this generation of consoles just like the last one. But what if that doesn't matter?
Ash and I were just talking about Microsoft's multi-platform push and how combined with Game Pass, it might mean a world where the Xbox is no longer a device that sits under your TV. And instead, it's a software platform that lives on any screen.
becomes less like a computer and more like a social network in that sense. You could play Call of Duty on your PlayStation, Sea of Thieves on your Nintendo Switch, and stream Elder Scrolls on your iPad or Fallout on your Android phone. It's just Xbox everywhere. Xbox all the... way down.
That is, at the very least, exactly how Microsoft would like you to think about it. So much so that the company launched a new ad campaign last fall called This is an Xbox, promoting the idea that virtually any piece of hardware with access to a screen could conceivably...
be part of the Xbox ecosystem. But making that work involves a lot of moving parts coming together in ways that simply just don't work very well today. It involves a lot of things that Microsoft and Xbox aren't actually in charge of, like internet speeds. And a lot of diehard Xbox fans have begun to feel pretty disillusioned with the direction of the platform. So I have to know what you think about the, this is an Xbox.
ad campaign, which I think came out last fall. And I would say made a lot of gamers feel a lot of feelings. Big feelings, buddy. And most of them were not positive one towards the Xbox team. What did you think? It annoys. Some people that I know because of like the literalness of it, like this is not an Xbox. I can't return this Xbox to GameStop and get $4 to purchase like, you know, their subscription. Nope, not that anymore. Rip Game Informer. Yeah.
It's a marketing strategy. I feel nothing about it. It's... probably going to work in their favor more than like the gaming press believes it is because we're dealing with not i hate to use the word normies but you know the average consumer not terminally online freaks like the kinds that follow
video game industry news. So I think it'll work for them in that way where, you know, kids be on them phones and they like, oh, I can play, you know, whatever game from my phone or my tablet. I'm in my Microsoft Azure Surface. Whatever. I'm in. That's fine. That's cool. That's how I play games most of the time. So, yeah, I think that'll work. I don't know, though, if it'll be enough to pull them to make to bring parody between, you know, at least with PlayStation.
Well, yeah, there's been this push from the Xbox team in general over the last few years, it seems like, to take a lot of those games and put them both on game pass but also on other platforms like the indiana jones game that everybody seems to like very much is is coming to playstation and sea of thieves is out on lots of places and more and more games are coming to game pass it's actually a pretty
solid library at this point so maybe microsoft is just happy being out of the xbox hardware business like that microsoft would like you to believe that the console era is over i don't think most gamers believe the console era is over but microsoft sure wants to convince you that it is there will always be consoles end of like we're not gonna
Please, God, I hope that's not the trend in the next 10 years, because that would make it really hard to own anything. Which I think is also what Microsoft would like. to be the case and all of these companies would the like live service game seems to be what everybody would like to believe is the future
that they can revoke at any time, get their money out of you, and not have to support it at all whatsoever. Yeah, no, I understand. So there's always going to be a console, but I think the shift away from... You know, console probably might be better for their bottom line, if not their whole ethos as a brand. I think what they're trying to do is shift. the identity of xbox away from like this plastic box and make it more on the software because you know
Maybe they're trying to be on their Sega tip and, you know, not rise from the ashes, at least, or, you know, rise from the ashes, kind of the way Sega did when it got out of the console business. So maybe this is like that, you know. the old world is dying, new ones struggling to be born, and this is Xbox's time for monsters, where we try all these things until we find what sticks. So the big component here that would in theory solve all of Microsoft's problems kind of all at once...
is, of course, Game Pass. If there truly was a Netflix for gaming that could get hundreds of millions of subscribers like Netflix has, it wouldn't matter as much how many Xboxes are sold. And it wouldn't even really matter whether Microsoft had big... exclusive, successful games like Sony and Nintendo do. You'd just have a huge, evolving catalog of great stuff on whatever screen you wanted for about $20 a month, and that would be popular enough to be a booming, profitable business.
We've been throwing around numbers like 120 and 150 million for game consoles as the upper reaches of success. But Netflix has over 300 million paid subscribers now. And, by the way, Netflix also has games as part of its subscription now. And a game subscription model that big would blow the console business out of the water.
But that is not the world we live in. A few years ago, Phil Spencer even admitted that after a half decade on the market, it was pretty clear that Game Pass was never going to represent the primary way that people experience Xbox games, at least not for a long time. The quotes here are actually very telling.
On console, I've seen growth slow down on Game Pass, mainly because at some point you've just reached everybody on console who wants to subscribe. And we don't see subscription, unlike some other forms of media that have really moved. almost solely to a subscription business. Today, Game Pass is an overall part of our content and service revenue is probably 15%. I don't think it gets bigger than that. I think the overall revenue grows. So 15% of a bigger number is a bigger number.
The last public metric we have from Microsoft puts Game Pass at 34 million subscribers a year ago. But that was before a really tough 12 months for Microsoft that involved high-profile studio closures, a bunch of layoffs in its gaming division, and price hikes to Game Pass. It's not at all inconceivable to imagine Game Pass growth being minimal or maybe even flat.
But why exactly has it been so tough to launch a profitable, sustainable subscription model for gaming that continues to grow across all platforms, like Netflix? Game Pass on its face sounds like a really attractive value proposition. You pay a flat fee, you get all these games, pay a little bit more, and you can get Call of Duty or something like that. I pay for a subscription, but do you want to know how often I've used Game Pass and maybe the list? I do. I really do. Yeah.
Not at all. My husband will go on there and maybe look for it, look for something to do or something to play that's come to Game Pass, but neither of us use it. Why? What for? It's like, you know, Netflix analysis paralysis. Like you get on this big streaming service and you have all these things at your fingertips and you can't decide what is interesting to you. So you just put it down and go back to playing Fortnite. And therein lies the rub.
You have all of these games that you have to pay money for. Meanwhile, the games that you are paying for, they're losing money by putting their stuff on your service, so they're not going to want to do that anyway. Meanwhile, you have to compete against the biggest time sync game on the planet, which is Fortnite and Roblox. Right.
you are consistently losing in that matchup. Let's take a step back here and actually talk through the Game Pass world a little bit, because I think there is something about the... basic value proposition here that makes perfect sense to me as a person like we should talk about the business side of this for developers and distributors and all these folks but just as like a person who likes to play video games
And it's the same reason that like Spotify is more compelling than buying albums, right? I have access to everything that has ever been made or like Netflix has many issues, but it also has lots of shows. And I go on Netflix a lot. Like I watch Netflix and I happily pay. for netflix but in gaming this idea has taken much longer to catch on uh and i think much longer for anyone to sort of figure out how to make it
Why has gaming been so much slower to go sort of all subscription everything than seemingly the rest of entertainment? The way we consume video games is much different than the way that we consume TV or music. Both of the latter are very passive things. You can have Netflix on in the background while you do something else. Same with music. Or you can take a little bit of time to like pay attention to like a TV show or something. But even then you're giving up, you know.
couple hours at a time gaming is something much different you have to invest an amount of time and an amount of attention and that that calculus is different when you put it up with game pass because unless you go to that for like a specific game that you always play you have these all these games, like so many games, which you would think is like, oh, this is awesome. I've got all these games. And to a certain subset of people, of players, that is good for them. Like it works and it's...
you know, Game Pass and PS Plus is like the best thing that's ever happened to them. But the majority of gamers want to play with their friends and they don't know what they like. And it's hard finding games on those. subscription services so if you've got someone who wants to play with their friends then they're going to play the game that they play with their friends and most often that's not on uh game pass fortnight ain't on game pass
Well, it also, there's a case to be made inside of what you just said that actually the Netflix for video games already does exist. It's just called Fortnite. Yes. That like what the actual behavior you're trying to replicate, which is I am, it's the end of the day. I want to sit on the couch.
and do something fun but relatively mindless for the next two hours that actually... the answer to that is not hundreds of games it's one game and it's called that can do hundreds of things yeah or maybe it's roblox or whatever but like maybe those things already exist and we solved that problem i've never heard it put like that but that's actually really smart um
Yeah. I mean, that's why it's at the top of the list every year, every month, day after day. And then other mobile, smaller, not passive, but, you know.
appointment gaming kind of games on mobile. So like your Candy Crushes and stuff like that. That's where people are playing. It's difficult because it feels like, you know, you've got all these gamers and they play all these different things, but the majority... population of like people who play video games only keep it to like a handful of titles game pass doesn't serve them it just doesn't and then those people are going to want to play with their friends and that's what fortnite is for
Right. Yeah, you've got me now thinking about... the sort of content mix of all of these games. And it feels like what Game Pass is full of is games that would love you to play them for like 20, 30, 40, 60, hundreds of hours. And what Game Pass actually needs is like sitcoms. like what can you just jump in and do for 30 minutes at a time right and I feel like casual gaming the stuff you're talking about the candy crushes on phones and whatever has
kind of eaten the bottom of that market. The like, I have a little bit of time to kill. I think people just like sit on their couch and leave the TV off and play those games on their phone. And then it's like, if I want to like really do something serious.
It's the equivalent of like going to the movie theater. There are lots of games for that, but the sort of middle ground of like just ways to kill a little bit of time and find something fun to do, especially with your friends, that actually a lot of the... big sexy games that these companies spend all this money on are not suited for that. No, not really. I wonder.
Along those lines, how big this market actually is. I mean, I think at the beginning, Game Pass is eight years old, which blew my mind to think about. It's been around a long time and it grew very fast and then kind of... stopped growing and we sort of stopped talking about it and it's just like around and people have it but it's not it is not the future of games that microsoft was hoping it would be kind of all at once eight years ago
But then you have people like Phil Spencer who are running around talking about console growth slowing down because basically everybody who wants a console has a console. And part of me wonders, like, is there just a... case to be made that that's true, that actually the problem with all of this is it's just a way of doing console gaming and console gaming is actually really well served already.
And the people who want to play games for hundreds of hours have lots of ways to do that, including provided by Microsoft. And so that this like huge new growth engine for video games that Microsoft thought might exist actually doesn't because they're just.
console gamers who have consoles yeah and the people that they're trying to reach like that newer market which is younger people they play on their phones so it's hard to like make that calculus if you've already got a phone that plays the games that you want to play with your friends or however you play them why do you need to spend a couple hundred dollars on the console and then you know 20 bucks a month on the online service so you can play online with your friends that
calculus doesn't make sense so yeah the entrenched gamers like you know gamers of our age we've got all three consoles probably in our house and we'll probably maintain them but that younger market they are sticking more strictly to mobile games. And that is serviced by a bunch of different games that are playable on mobile and Microsoft with its cloud streaming, which...
kind of informs the strategy that they're going for now. What about for the game developers? Like, is something like Game Pass even in theory a good idea? You mentioned it doesn't make economic sense. Tell me why that is. So at first, yeah, because I believe at first Microsoft was throwing tons and tons and tons of money at these developers to lock their games up on Game Pass. They've kind of like turned off that money hose for... various different reasons that I'm sure you can guess. And now...
As we get more and more data about it, we're hearing that if you put your game on Game Pass, you might lose up to 80% of sales you would have otherwise made if you had kept it on Steam or just... kept it as a standalone game not part of a subscription service and with the way that studios are hurting now you're not getting the kind of money you thought you were going to get that microsoft was handing out before on top of that you're putting all these potential sales
at risk and with the way that indie studios have been hurting with the whole like post pandemic retraction and having to lay off like hundreds of thousands of people at this point like Why would you take that risk? You need every dollar and every dime that you can scrape from people to keep yourself afloat so it doesn't make sense to potentially kneecap 80% of your sales by putting it on Game Pass.
There are still studios that are making that determination, but there are people that are increasingly deciding, no, this isn't worth it to us anymore. that attraction that the time when being on game pass was attractive has passed so we're gonna have to you know do this ourselves
Yeah, it makes me think of those brief moments where Meta would just throw money at anybody who wanted to make a game for Quest because they were so desperate to make it work. And then eventually it comes around to like, okay, there's an audience for this, but it's not... big enough and meta is eventually going to stop writing us these giant checks for no reason so we're just going to kind of walk away from this and yeah it feels like the same thing has kind of happened with game pass
Yeah, it makes sense. You can only brute force it for so long if you're one of these companies. Yeah, you can only be a loss leader for so long. Yeah. We need to take another quick break, but we will be right back. That's where you can invest in everything. Stocks, options, bonds, and more.
and even earn a 6% or higher yield than you can lock in with a bond account. Visit public.com slash podcast to get up to $10,000 when you transfer your old portfolio. That's public.com slash podcast. Paid for by Public Investing. All investing involved. Transcription by CastingWords Here's the truth about AI. AI is only as powerful as the platform it's built into. ServiceNow puts AI to work for people across your business, removing friction and frustration for your employees.
Supercharging productivity for your developers, providing intelligent tools for your service agents to make customers happier. All built into a single platform you can use right now. That's why the world works with ServiceNow. Visit servicenow.com slash UK slash AI for people. Vox Media podcasts are hitting the road and heading back to Austin, Texas for the South by Southwest Festival March 8th through 10th. Not only will...
Today Explained be there. I will be there. But there will also be special live episodes of hit shows, including Where Should We Begin? with Esther Perel. Pivot with Kara Swish. A touch more with Sue Bird and Megan Rapinoe. not just football with Cam Hayward and more presented by Smartsheet. Hello, the Vox Media podcast stage. at south by southwest is open to all south by southwest badge holders we hope to see you at the austin convention center soon you can visit voxmedia.com sx
S W to learn more. That's voxmedia.com slash S X S W. We're back. This is Decoder. I'm David Pierce. And we're here with Verge Gaming reporter Ash Parrish talking through Microsoft's gaming strategy and why the company has had such a tough time making its vision for an Xbox ecosystem that goes beyond consoles. actually turn into anything real. We've dived into...
two parts of what we could call the holy trinity for Microsoft. The first is Game Pass and making subscription gaming really work at scale, which for Xbox has been a mixed bag, let's say, just to be optimistic. Game Pass isn't growing as fast as it once did, in part because it's hard to sell people more subscriptions if they don't buy your consoles and if the games you put on the service aren't very good.
There is Game Pass for PC, which is still growing, but that doesn't get you all the way there because not everyone is a PC gamer. The second component here is multi-platform gaming, which is this idea that Microsoft games don't need to be locked to the Xbox. They can live on PC. They can live on rival platforms like PlayStation and Switch.
As we said earlier, that started way back in 2016 with an initiative that let you buy a game on Xbox and play it on PC without having to pay for it a second time. That is unequivocally a good thing if you're a gamer, and it's something that Sony still doesn't let you do with PlayStation 4.
PlayStation games, because it would mean losing out on revenue. A world with fewer console exclusives is a step in the right direction. 100%. Even if it makes Xbox diehards feel bummed out that they no longer have games only their Xbox can play. I think we'll all get over it. The third component, though, is the one that's supposed to tie all of this together into the forward-looking tech-focused package that, in theory, only accompany with the cloud computing chops of Microsoft.
could pull off. That is game streaming, where you don't download the game at all, and instead you stream the game live from a far away server. That is the whole centerpiece of Microsoft's This is an Xbox campaign. It's not that everything is an Xbox, it's that nothing is an Xbox.
and the Xbox is in a server and you stream it from somewhere. It's so unproven as a business that Google has already launched and killed an entire cloud gaming product in the time between when Game Pass first launched and Microsoft bought Activision Blizzard five years later. Do you remember Google Stadia? If you don't, it's fine. It wasn't very good. And it certainly wasn't a viable enough business model to continue existing inside of Google. I like this idea, but there's really no evidence.
that it's going to work. So I wanted to ask Ash, is cloud gaming going to get there? And if it does, if we do arrive at this perfect marriage between subscription gaming and game streaming that truly resembles Netflix or Spotify, all the things you want everywhere you are, then isn't Microsoft kind of the only one who might really make it happen? Is part of the problem here...
Just that cloud gaming isn't very good. Like I go and read our comments on The Verge every time we write about cloud gaming and someone or many someones always likes to bring up the point. that the main problem here is just that it's not as good as playing on a console the graphics aren't as good there's latency there are problems even if you're playing like a fully online game that requires a fast internet connection anyway it is going to be better on a console than it would be
on a cloud gaming system. If we could solve that problem and like the actual gameplay stops being a differentiator, does all of this change? Yeah, they're going to have to solve that problem and we'll find out. It's so hard to prognosticate where gaming is going because, you know.
If you and I were having this conversation about Game Pass four years ago, I bet we would have been all in on it just because four years ago was the pandemic. And we thought this number would keep going up forever. And it did not do that. We would have bet. that you know game pass would be everywhere like i was on the game pass hype train for a while because of the selection that they had for the price that they had it as and like i told you at the top of this i hardly used it
Well, you're the ideal customer, 20 bucks a month and you barely use it. That's the dream. Yeah, I know. I'm going to have to have a conversation with my accountant about this when we're done. But so it's so hard to determine. what will happen. I would like to see that technology improve and then we'll see.
Man, it's going to take a big generational turnover, I think, because, you know, the people who have the money to buy consoles still want to buy consoles. They're not going to do it on the cloud. And then the people that cloud ostensibly. will be for probably won't have the money for it or, you know, can't justify spending money on a subscription service or something like that. And I think the other piece of it that I find myself wondering about a lot is whether there is in fact.
some huge group of people who don't have or particularly use their home console for whatever reason, but would be more likely to pay 20 bucks a month to play games if they could do it. in a high-end way on their phone or their iPad that like, what if all of a sudden the promise of AAA games on your iPad with a...
external controller becomes a thing. Is there this giant untapped market of people who would suddenly get really into Call of Duty? I don't think so. Evidence so far suggests no. It's the big question to me, and I think to Microsoft. Yeah, because a lot of this too is tied up in like personal comfort, I think. And I think even if we did eliminate.
you know the technology issue i try to think of myself and maybe it's because i've like aged out and maybe like you know my 17 year old nephew will feel something different even if i knew that i could play call of duty or whatever game completely fine same as a console on an ipad i don't think i would do it because that's just not comfortable to me i don't want to play that kind of game on that kind of system like you have to have things that fit and i'm
more than okay with like trying new experiences on different platforms i played civ 7 on the steam deck so i and i you know enjoyed it so i don't have a problem with that it's just that i don't know there's just like a feeling there that you can kind of only get by playing you know on a console that i think might have an outsized influence on that particular question
I have no reporting to back this up. It's just anecdotal. But I think about myself. I think about my husband. I think about my other friends. I think about even younger people. How... What game do you think they will be to play Call of Duty on an iPad? Like, that just doesn't, that just does something that just like, this doesn't feel right. You know? Yeah, I think that's fair. And I think we do have some evidence that...
The idea of bringing higher end games to mobile devices in particular is not as earth shatteringly compelling as. We'd want it to be like Apple has been on this grind for years now. They're like, please, dear God, bring your last generation AAA game.
to the Mac and the iPhone. And overwhelmingly, it seems like the response from people is like, sure, fine. Like I have other games to play on my iPhone that actually make a lot more sense to play on my iPhone. And it doesn't seem like there is a huge...
market for that that no one is currently serving. But I kind of hope we solve the tech problems just because then we'll actually get to find out. And I think it's going to be interesting. Yes, that would be fun. But OK, let me let me just very briefly.
defend microsoft here and i would like to make the case to you very quickly that all of this is about to pay off and microsoft is going to be a huge success in the immediate future you ready for this okay i can almost i think i can almost do it almost i'm gonna try all right so okay there are a bunch of things going on simultaneously one sony has increasingly tried to do its own online stuff with ps plus and that has gone
badly, I would say. Sony is not great at cloud gaming, has pulled some of its games from its own service. There is just not a lot of particularly great game streaming competition out there right now. Like GeForce is... doing its thing because nvidia has so much money they can do whatever they want but like game pass if this thing is going to work it's probably going to be game pass it seems to be the case right now at the same time
Game Pass just set a new quarterly record in revenue for Microsoft. I would call that a small win, but a win nonetheless. It has a pretty good release slate this year of games.
Microsoft's multi-platform thing is kind of working, right? It's putting games on other platforms. It's selling stuff on PlayStations. It is becoming a hugely successful game publisher. I think it was... last year that it was the maybe in december i think it was that it was the leading game publisher worldwide and most of that is call of duty like again you launch a call of duty a lot of people buy and play call of duty that's the easiest win in gaming
But you put all of that together and it's like, okay, maybe this transition Microsoft is making away from being a company that sells you game consoles to being a company that... wins whenever you play games that it makes whether it's on game pass or on a playstation or whatever maybe that's working maybe that's what microsoft wants and i think there's a world in which that completely obliterates
what an Xbox means to people. But maybe that's what Microsoft is going for. And maybe it's headed in that direction. Is that possible? Oh, absolutely. I still think that, yes, Phil Spencer will continue to make Xbox for the foreseeable future. They're not going to go full Sega, but they're going to go like transition to mostly Sega. And Sega's been fine.
There are worse fates in the world, you know? There are, but I think if you told Phil Spencer that Sega was his fate, I think Phil Spencer would not have his job much longer. Well, because Sega never reached quite those heights that they had, you know, prior to... what they did but you want that number for microsoft and xbox to continually go up and up in big ways and
That's I think the main rub of all of this is that we have to temper our expectations just a little bit better. Can we please be content with like single digit growth or like. even holding steady like no growth like if we could do that then I think we would be in a much healthier position to you know accept when big swings fail and when you get minor wins because Despite the fact that, you know, Xbox shut down Arcane and got rid of Tango Gameworks, like...
Those games that they made right before they got jettisoned were decent games that weren't big sellers, but they were still good and they were still profitable. Still, it wasn't enough. So if we can just bring that ceiling down a little bit, if everybody across the board was like, OK, OK, all right, we'll calm down. We don't need to extract this much profit out of you. I think we'd be in a much better position and we wouldn't have.
to have these kinds of doom and gloom conversations is there also a part of this that is going to be the game makers and the game developers themselves adapting to new ways of thinking about this like i think we saw this run of huge live service games that were going to take over the world and be everything to everybody. And they mostly failed and they killed a lot of companies in the process because they were so expensive and such disasters.
Are we due for a swing the other way where it's like, OK, what we actually need is a run of like smaller, simpler, cheaper, shorter games that people can log on and play for 30 minutes at a time that feel. different can we get there it's already happening not necessarily within the big publishers but people are increasingly turning to indies and like smaller games
Astro Bot is a bad example because that was published by Sony and made by Team Asobi, but it's still an exemplary of the kind of game that are resonating with people right now. Like smaller, really tailored experiences that you can consume in like a couple of years. gaming sessions. I think Astro Bot was maybe 20 hours long. Then there's Bellatro. Good God. The game that has changed and ruined my life simultaneously. Exactly. People are kind of burnt out.
They are reaching for those smaller experiences, which, you know, indies are more than delightful to provide to like fill in the gap because, you know, the big companies fired everybody and now they're having a hard time putting out games a couple of years later. Who'd have thunk? Indies are positioned to have their moment right now. And by the time the big companies turn around and take notice and start pushing things out that are going to appeal to...
The audience that are looking for those games now, it might be too late and we're going to be on the next thing, whatever that is. But that strikes me as potentially a perfect formula for something like the Netflix of games, whether it's Game Pass or something else. Because what you say is instead of having, you know, a million indie games that are struggling to find people, we're going to...
have one price for all these games. We're going to work on discovery, which is obviously like the thing Netflix is so good at is it can just shove anything in front of its audience and make it a hit. And instead, I now as a user have access to a bunch of games I never even would have found before in one sort of manageable place. Like, is that, could we get there? I hope you're right.
because Steam has been struggling with that problem for far longer and they seem to be okay. But yeah, there are too many games, like it or not. And yes, there is a game for everybody and every game has an audience, but... Oh, Steam haven't figured that shit out. I don't know how Microsoft will. I'm sorry. I guess the thing that I would say is like, you know.
developers, people who make games, have an idea of who your audience is and where they are and go target them aggressively and hope word of mouth will be enough. All of this might lead you to believe that we're nearing the end of the Xbox as we know it, that Microsoft could really move fully beyond the console, and that that might be a good thing, at least for its business. But we're probably not there yet.
Last week, my colleague Tom Warren wrote a piece as part of his excellent notepad newsletter, subscribe on theverge.com, about the next-gen Xbox. It is already in the works. But it might look a lot different than what we're accustomed to. He reported that in many ways, this new device might bridge Xbox and Windows in ways that we've never seen before. A big part of this is also a handheld reportedly in the works. You can imagine that Microsoft...
has been watching and is very interested in the success of the Switch, but also the Steam Deck and its many Windows-powered handheld gaming clones. So maybe there isn't an all-new Xbox per se, but a whole new family of devices. They're all Xboxes. Remember, everything is an Xbox, as long as it has Game Pass. But even that still feels like it would be kind of a defeat for Microsoft, or at the very least, the end of an era for console gaming.
And it might be an era we miss when it's fully gone. Do you think if we hit the point where the end of the Xbox as a sort of mainstream home console... Would we mourn the end of that? Or has this been a long time coming? I think we'll mourn the end of that. I've never been an Xbox girly. I enjoy their games. Shout out to Halo. But it's still such a force. It still has a place. And it will still exist.
But yeah, it's worth mourning because, you know, this was one of the three major pillars in the gaming industry. Like, even if, you know, it had been under the decline for some time, when it goes away, it's still going to leave a massive, you know, hole that it will fill in different ways.
But, you know, what we knew ceases to be. And that's always, you know, a bittersweet thing. I will miss my Xbox more than I play my Xbox. And that might be the thing Microsoft has to solve here in the next couple of years. Ash, thank you for coming on Decoder. It was very fun to do this with you. Yeah, it was fun. Make sure you call me back whenever GTA 6 releases. Someday in the future.
Thank you again to Ash Parish for joining me on the show, and thank you for listening. I hope you enjoyed it. It is always fun. to be here on Decoder doing this with all of you. If you have thoughts about this episode or anything you'd like to hear more of from us, you can email us at decoderattheverge.com. We really do read every email. Or hit up Neel Eye directly on Threads or BlueSky. He's at Reckless1280. Hit him up while he's on vacation. He says he's not checking, but he's checking.
We also have a TikTok while TikTok still exists. And now we have an Instagram too. You can check them both out at decoder pod. They're a lot of fun, all kinds of good stuff there. If you like decoder, please share it with your friends and subscribe wherever you get your podcasts.
Decoder is a production of The Verge and is part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt, and our editor is Ursa Wright. The Decoder music is by Breakmaster Cylinder. See you next time. Meet Klaviyo, the only CRM built for B2C. Join 167,000 companies like Paul Smith, Castor, MixTiles, who choose Klaviyo for better customer relationships and faster growth. Grow with Klaviyo B2C CRM at klaviyo.com forward slash UK.