Microsoft’s exit strategy
Posted at 21:49 on 14th June 2006 - permalink

I have a vague theory about what Microsoft are planning to do in the gaming ‘space’ in the next few years. I’ve not seen a similar conjecture put forward anywhere, so I’m not ruling out the possibility that this is either so obvious that it’s not worth mentioning, or I’m missing something important in my reasoning.

One of Microsoft’s big initiatives at the moment is aimed at revitalising PC gaming, with the focus on DirectX 10, Windows Vista and a new TWIMTBP/Seal of Quality-style cobranding programme for publishers releasing high profile games for Windows.

This sudden about-face could be viewed as nothing more than a cynical ploy to give people a reason to upgrade to Vista, but regardless of the scheme’s origins, there seems to be genuine enthusiasm from all sides for more interesting things to be done on the PC platform, which has been overlooked by large parts of the Western development community for the last few years in favour of the more lucrative (and not desperately underpowered) Xbox, PS2 and GameCube. In a way, Microsoft could be seen as going back to finish the job that was started with DirectX, with the lessons learned and technology developed for the Xboxen crossing back over to the PC. (I imagine Apple’s switch to Intel CPUs has not been ignored either.) After all, there’s no reason PC games shouldn’t be easy enough for mainstream users to install and play.

Another project Microsoft unveiled at E3 was “Live Anywhere”, which aims to add interoperability between Xbox 360s, PCs and mobile devices (including, commendably, non-Windows Mobile-powered phones) for online gaming and social networking. The upshot of this is that Xbox Live functionality is creeping into Windows Vista.

Thirdly, Microsoft (along with just about everyone else) have been singing the praises of electronic distribution, having pioneered in this market with Xbox Live Arcade. (Don’t say I never give them credit for anything.)

(Fourthly, there has to be a reason Xbox 360 pads work on the PC. That’s completely out of character.)

All these developments seem to be pointing to a situation within the next five years where Microsoft dissolve the distinction between PC and Xbox 360 games and services, or more specifically, absorb the console business back into the Windows business.

Building a single gaming platform that would allow them to get out of the hardware market must look like a very attractive prospect right now. Microsoft have burnt up something like four billion dollars developing and subsidising Xbox and Xbox 360 hardware. Indeed, ownership of their own closed, proprietary hardware platform has only been pursued as a necessary evil to allow Microsoft access to the traditional console industry (razors and blades) business model. If they could wash their hands of the expensive and difficult business of building consoles, their entertainment division would stand to benefit, but only if they were able to offer a functionally equivalent platform in software.

Electronic distribution (and the raft of subsidiary business models that it makes possible) would go a long way to fulfilling that requirement. The thorny question of whether PCs could be made cheap and/or powerful enough to directly fill the role of dedicated games consoles is still unresolved, but if the original Xbox was anything to go by, the average gaming PC will have comfortably matched the polygon-pusing abilities of the Xbox 360 within a year or so. The reaction to the conservative spec of the Wii has put a big dent in the traditional belief that console gamers demand bleeding edge graphics, anyway.

Such a move would not be a defeat in the mould of Sega’s departure from the hardware market – Microsoft’s motives would be entirely different to Sega’s. They’d still have a platform under their control (though whether they’d be so bold/foolish to use Vista as an excuse to start charging PC game developers licensing fees remains to be seen), and would still have lots of closely-guarded ways to make money from games.

If any of the above bears a remote resemblance to the contents of a flipchart in some subterranean Redmond bunker: firstly, it was a lucky guess, please don’t sic Peter Moore on me; secondly, they’re probably not spelling it out this frankly just yet because they’re still committed to hawking the Xbox 360 for the foreseeable future.

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