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The Xbox Ecosystem - How Microsoft pivoted its strategy to compete with Sony PlayStation

First and foremost, what is an “ecosystem”?

“An ecosystem is defined as a biological community of interacting organisms. In tech terms, this means a group of devices with software to create one collaborative network.”


A great example would the range of Apple products. If you've ever used an iPhone, you'll know that also having an Apple Watch, Airpods, and a MacBook would allow seamlessly connectivity between devices and unmatched convenience.


If you're wondering what is an Apple ecosystem, this is a good place to get started.


Xbox wants to replicate Apple's success, but in the gaming stratosphere.

 

The Xbox - Microsoft's 20-year journey to challenge Sony Playstation's dominance

There are podcasts and websites that explain the origins of the Xbox, but I'm going to give a bitesized summary of how it all started.


  • It is 1999 - Microsoft experienced success publishing PC games for Windows PC, but Sony PlayStation (PS) dominated the console video gaming market.

  • Sony was going to release PS2 as a gateway for all types of entertainment.

  • Microsoft CEO Bill Gates was worried Sony eventually builds an all-encompassing system. That leads to consumers losing interest in PCs, Microsoft cedes market share to competitors.

  • Considering the video gaming industry was on the ascendency, Gates deemed it necessary to compete with the PS.

  • The Xbox was officially announced in March 2000.

 

Two key decisions that became the bedrock of Xbox's ascendency

1) Xbox Live

Online gaming was the first element that Microsoft got right over Sony, and it established as a key pillar against competing with the PS. PS2 had the hardware ability to go online, but it didn't possess a proper platform to connect users together. Xbox allowed users to speak to communicate with one another, had downloadable content (DLC), and a "friends" list. If you look at all the gaming platforms today, each and every platform has a social media component where you can get connected and see what games you could play together. With the Xbox, Microsoft had a headstart over Playstation on the social aspect of gaming, and in hindsight, this was probably the first indication of Microsoft's product direction to differentiate from the PS. Microsoft had the advantage of leveraging on its knowledge of PC gaming landscape, replicating the online multiplayer experience of PC gamers to console, and understanding the technical requirements behind a seamless online experience. If they could introduce what is done with PC to console, that would be a game changer


2) Xbox Game Pass

Being in the PC business for three decades, Microsoft had unparalleled knowledge of PC Gaming. With the first generation of Xbox, Microsoft accurately predicted that broadband speed Internet was key to successful multiplay. PC was embracing broadband and PC games followed soon after. In 2000, Gates was determined to introduce the Xbox as a console to exclusively compete with the PS2. The Xbox Game Pass ushered the console wars into a new era: The Ecosystem Battle.


So what is the Xbox Game Pass? Just think Netflix, but for video games. And like Netflix, you occasionally watch it on your smartphone when you're on-to-go, on the computer/TV if you're just chilling at home. Similarly, with the Game Pass, you have access to a library of games (including games from other publishers) for just $10/month. (In typical price-war fashion, Microsoft introduced a Covid-19 promotion rate for just $1 for the first month, with a free 6 month Spotify subscription if you sign on f


From a user acquisition perspective, let's take the UK for example. With the increasing popularity of MacOS and the Apple ecosystem, Microsoft did cede a bit of market share to Apple. Nevertheless, Windows is still the primary operating system in most computers. That means, every Windows user is a potential user. Even within Mac users, gamers install a copy of Windows into their Macbooks to gain access to Windows-based games. What the Xbox Game Pass does is it mitigates the entire conundrum of having to buy multiple copies of a game just to play on different platforms. If I can access all my content on a single library via both PC and Xbox, I should just get the Xbox One and remain within the ecosystem.

Statista.com - 72% Windows market share
 

So this begets the question: What is the implication towards the console wars?

This GIF is a cheeky representation of the real numbers - but it's not an exaggeration.

  • 100M of PS4 consoles were sold, but only 2.2M users for Playstation Now (PS version of Xbox Game Pass) since its launch in 2014.

  • On the other hand, 50M of Xbox One consoles were sold, and 10M users for Xbox Game Pass since its launch in 2018.

  • Microsoft has shifted the focus from the hardware console to a game subscription service - it doesn't matter to Microsoft if you're playing on smartphone/console/PC as long as its on their platform!

 

So what's next? The Gaming Ecosystem Competition Heats Up (Hi Google, Amazon!)


What? These guys again? Yes these guys AGAIN. What makes these three synonymous?All three offer robust cloud infrastructure. However, between the three, two of them are big on STREAMING. Google has YouTube Gaming and Stadia, Amazon has Twitch and "An-unannounced project" (Keep in mind they have Amazon Prime Video - They already have the platform in place, just requiring pivoting).


Amazon and Google are seemingly moving towards the direction of Ecosystems, and in the next post, I'll delve into the topic of ecosystems from a business perspective, and how these ecosystems are being developed within the gaming industry!




Note: For the purpose of this article, I have drawn comparisons between the Xbox and PS as both consoles provide gamers a near identical in-game experience. Nintendo consoles (Wii, Switch) provide a varied in-game experience, and Esports has either used the Xbox, PS or PC as competitve platforms.

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