I fundamentally do not understand the direction of Xbox. Microsoft seems to lack the commitment to any strategy and seems unwilling to wait for investments to pay off before trying to cut perceived losses.
It's like the entire company is only satisfied with being #1.
The whole thing is very confused and lacks consistency. The latest rumours are they are going to break up its Game Pass subscription offering so there are different subscriptions for multiplayer, cloud, games, etc. Isn't that the opposite of an effective subscription strategy?
Steam just sits back and takes money, for the most part. The hardware/software/advertising spend is probably a drop in the bucket compared to MS.
You don't seem to understand the difference between the margins on a sale and the averaged margins once the studio development costs are included.
If the store takes 30% you are still left with 70% gross margins but if you have development costs, you maybe only have enough sales to break even or just barely be profitable. A 30% margin on the entire studio means the studio must produce guaranteed successes consistently.
It might also not be obvious but if Microsoft imposed 30% margins, those are a floor, whereas a fee reduces the ceiling. They are not the same even if we assume the target is met.
I think I understand why Microsoft costs are higher than others due to their a spending spree, so the break even is much higher.
Game revenues follow a power law type distribution so they're hurting indies and leaving money on the table.
Valve targeted the big releases / industry players specifically because the context in which Valve added that was where all the big players were making their own store fronts: EA Original/App Ubisoft launcher, Blizzard Battle.net. And Epic Game Store, where Ubisoft (or another big player I forget) was talking about abandoning their launcher for Epic which has a lower revenue cut like ~12%. So it seemed Valve made that change to shore up keeping the big industry players releasing on Steam.
Only Xbox, the games console, is having a bad time, the publishing part is doing great with movie licenses, and all the studios that belong to Microsoft, regardless where they sell their games.
The next failure was Xbox Live. The video game market is a hit-based market with big tent-pole franchises doing large launches. For a modern example, look at the hype around GTA6. Launches sold games and exclusives sold consoles. Microsoft put huge game launches on Xbox Live for their relatively low monthly cost and lost millions on those launches.
They also bought a bunch of game studios which is a terrible strategy for a console maker. Meta made the same mistake with the Quest.
It's was never the lack of commitment to a strategy -- it was just having the wrong strategy to begin with.
Do you meam potential upcomimg game that may be vaporware for a decade or two?
In the XBox One gen they bet big on an ill-advised (but then-trendy) strategy to 'own the living room', devoting hardware CoGS to add TV / DVR features. It was a great strategy - for MSFT - but not so much for gamers. By 2018-19 it was clear they'd lost the hardware platform battle. The only bright spot was Game Pass which was working pretty well thanks to PC / XBox + web synergy. So, they went for a BIG strategic bet. An all-or-nothing, high-risk, high-reward gamble to move 'up the stack' from hardware by turning Game Pass into the "Netflix of Games". Forever being Pepsi to Sony's Coke wouldn't matter because content was where all the margin and sweet recurring revenue was anyway.
So MSFT spent over $100B acquiring game studios and... it didn't work. While it seemed like a reasonable bet in 2018-19, it's now clear no one can be the Netflix of games. The unit economics don't work because people watch a lot more new movies and shows in a year than they buy new games (the top ten console games capture over half the revenue). MSFT bet that a large number of gamers would keep paying >$20 - $30 / mo but after the COVID shutdowns ended, ASP growth stalled below $20 and the higher the ASP got, the more the churn went vertical. Oops!
Without that context, nothing makes much sense. But when you understand they're now dealing with the aftermath of that all-or-nothing gamble, it does. XBox isn't going away but MSFT is also done "investing big to win" in gaming. Now Sharma's job is to recoup as much of that $100B as possible by 1) Selling the shit out of all the evergreen hits they own like CoD, and 2) Milking their large library of non-hit titles to harvest as much revenue as she can while spending as little as possible.
The other subtext here is that if you manage to build a dominant multi-platform subscription business with a tens of millions of gamers paying $25-$30/mo and low churn. That's a high-margin business with flywheel effects that smell like Office365 and throw off enough cash to easily service that $100B in debt. But without that high, sticky ARR, gaming is a much lower margin business than any of MSFT's stable of winners like Azure. It's not that XBox is a bad business, it's that it's competing against much higher margin business units for each incremental dollar of investment.
so they switch course midway to focus at AI