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Is the console war over for Xbox?

Xbox E3
Xbox E3 (Image credit: Windows Central)

Xbox on Stage

Xbox on Stage (Image credit: Windows Central)

In a lot of ways, it often looks like the console war is over for Microsoft, particularly when you look at contemporary metrics. Microsoft doesn't share Xbox console sales figures anymore, instead opting to focus on sharing engagement figures with its shareholders, but best estimates put Xbox console sales at around the 35 to 40 million units mark. Conversely, the Nintendo Switch is also poised to surpass the Xbox One if it hasn't already, despite only being on sale for a fraction of the time. This holiday season, it seems all but inevitable the Nintendo Switch will outpace Xbox too. And of course, PlayStation 4 is around the 100 million mark, totally dwarfing the Xbox One install base.

The transition to "next-gen" is coming, with Xbox Scarlett and the PlayStation 5 gearing up for a big reveal next year, most likely. And by all accounts, at first glance, it looks like Sony is poised to come sprinting out of the gate capitalizing on the success they've found throughout this generation. An IGN poll of 40,000 readers showed that the majority of gamers are most interested in Sony's next-gen system, beating out Microsoft and Nintendo. There's no reason to think that isn't the case with the wider market too.

Or is it?

Let's take a look at how Microsoft is looking to change the rules of engagement for the next-gen console war, and ultimately, why Microsoft is pushing hard to take Xbox beyond the box.

The market for console hardware

Video game industry spending breakdown, via

Video game industry spending breakdown, via

Console warriors on Twitter, YouTube, and beyond often cite console sales as gospel for the health of any company selling hardware, and obviously, that plays a part. No install base means no sales, but as we can see from the above chart, the vast majority of spending in this industry goes on content, rather than hardware.

Content sales are king, and the console itself is simply incidental.

On core consoles, mega games like Fortnite, Call of Duty, and FIFA drive huge amounts of revenue through recurrent in-game digital spending, doubled with increasing numbers of us switching to digital game purchases. Beyond games, subscription services like PlayStation Network, Xbox Live, and Xbox Game Pass are also big revenue streams. Content sales are king, in this business, and the console itself is simply incidental.

The console itself is expensive to produce, and the margins on sales aren't great. While the days of taking losses on console hardware are probably behind us, in terms of profit margins, there's an argument to be made that it's actually worse if someone purchases an Xbox One and never uses it, than if they hadn't purchased it at all. Talking profit margins and engagement is not as sexy, but it's the business reality that drives companies like Sony and Microsoft, and soon, Google, with its Stadia platform, and likely others.

Market share by platform, via Newzoo

Market share by platform, via Newzoo

If we look at the breakdown by platform, right now, Xbox represents just a fragment of the console portion of the pie chart. While the industry as a whole is growing, the speed of growth has trended towards mobile, largely attributable to preferences and business realities in Asia-Pacific markets.

In interviews, Microsoft is pretty transparent about its ambitions. Xbox head Phil Spencer broke down Microsoft's thought process in an interview with The Verge a little while back.

I don't need to sell any specific version of the console in order for us to reach our business goals. The business isn't how many consoles you sell. The business is how many players are playing the games that they buy, how they play. So if somebody bought an original Xbox One from us on launch day, and they're buying and playing games, I don't need to sell them an S. I don't need to sell them an X. If they want to stay on the Xbox One they have and stay as a great member of our community or subscribe to Game Pass, that's a great business for us.I think it's easy from the outside to judge the health of our business around how many consoles any company sells. In the end, how many subscribers you have to something like Game Pass, how many games people are buying, those are much better metrics on the health of the business.

The global market is 2.5 billion gamers strong, and Microsoft wants to break out of the piece of the pie it incorporates now. Not only because it wants to, but because it has to for Xbox's future.

On the coming disruption

From time to time, I'll see detractors abuse Spencer's quote to claim that Microsoft isn't ambitious with its plans to grow the Xbox install base, but that couldn't be further from reality if it tried. There just has to be a level-headed acceptance of the business realities faced by Microsoft and other companies.

RankCompanyQ1 ($M)Q2 ($M)Q3 ($M)Q4 ($M)2018 ($M)YoY Growth
5ACTIVISION BLIZZARD1,8721,5371,3522,1316,8926%
10BANDAI NAMCO8075676936742,74113%

The biggest game companies in the world via Newzoo

Tencent is by and large the biggest games company in the world, and the only metric the megacorp is interested in is engagement above all other things. Tencent has dabbled in consoles, but particularly when it comes to Western audiences, the firm is virtually all-in on service type game investments, picking up controlling stakes in companies like Grinding Gear Games and Riot who run huge free-to-play titles like Path of Exile and League of Legends. Nobody thinks of Apple and Google as gaming companies, yet there they are in the top six, owing to iOS and Android's app stores.

Despite having a far smaller console share than Sony, that fact isn't reflected in Microsoft's gaming revenue, which is extremely healthy owing to subscription services and content sales. Every time someone attempts to claim "Xbox is dead" I can't help but roll my eyes, knowing the facts. That being said, there's no room for complacency, as major disruption is a perpetual reality in the tech business, and cloud services are poised to shake up the gaming business in much the same way it has for music and media.

Digital lock-in and going horizontal

The transition to next-gen is arguably a little different than previous generations. Roughly fifty percent of us are buying games digitally rather than physically, making switching platforms across generations a little less simple than it was previously. If you have hundreds of digital games on your PlayStation 4, and the PlayStation 5 has full backward compatibility (which it will), why would you switch your main console to Xbox Scarlett even if it is a little more powerful? Why would you switch at all if it was less powerful?

Cloud services are poised to shake up the gaming business.

Most people end up with multiple consoles towards the end of the generation, particularly when you consider the portability of the Nintendo Switch as a unique selling point. Typically, though, whoever takes the head start next-gen will generate that networking effect purchase argument "my friend has it so I must have it too," when it comes to living room stuff. Cross-play restrictions are gradually being broken down, but it'll be a long time before the perception shifts away from the idea that you need to have the same console as your friends in order to play together.

If we presume that Microsoft totally nails its content plan and hardware for Xbox Scarlett, the market for Xbox consoles in the home has arguably hit its limit. This is why Microsoft has been pushing Xbox beyond the console, horizontally, putting its games on Windows PC via Steam and Xbox Game Pass for PC (opens in new tab), and soon, Project xCloud via streaming to the billions of smartphones already out there. In xCloud, Microsoft has a significant advantage too, which will benefit the home console userbase as well.

It's important to note that Project xCloud is powered from the ground up by Xbox One development environment. Unlike Google Stadia, which requires developers to port their games to its systems, game developers already have xCloud versions made, since it just works, much like Xbox Backward Compatibility with Xbox 360. I went hands-on with xCloud at E3 2019, and came away wondering if it was some form of black magic. Every Project xCloud user that comes in sideways technically also becomes an Xbox One console owner, growing the market share of the Xbox One development environment. This growth should improve Xbox's clout with developers across the board, particularly with those who have often ignored the platform out of fear for low sales — a frequent reality for popular titles from Japan. With Asia-Pacific markets driving global growth, particularly in mobile, this is another area where xCloud could find some unique success that could lead to more games coming to the platform.

Microsoft is not finished

PowerA Stand

PowerA Stand (Image credit: Windows Central)

Microsoft might be well-positioned with its massive data centers and control of Windows as a platform, but its horizontal expanse to PC and mobile phones isn't necessarily a guaranteed success story. It depends on how well Project xCloud works at scale, with millions, rather than dozens, accessing the service. It depends if Microsoft can convince enough developers to license its content for cloud streaming. It depends if Microsoft's revenue model for xCloud is consumer-friendly. More than anything, it depends whether or not consumers — particularly in the West — actually have an appetite for core games on their phones, tablets, and low-end PCs.

There are a lot of unknowns here, but this strategy was effectively locked-in as soon as Microsoft failed to achieve the networking effect from its rough Xbox One launch back in 2013. The market reality is evolving, and so too must Microsoft if it wants to grow and improve the experience for its customers. Offering gamers a bigger, better platform with more features and more cash flow to invest in games, and offering developers a bigger, broader userbase across multiple form factors and consumer behaviors. There's a massive opportunity for Redmond, owing to its early investments in the Azure cloud, where a future majority of Xbox users may live.

For Xbox, the console war is far from over.

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Jez Corden is a Senior Editor for Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by caffeine. Follow on Twitter @JezCorden and listen to his Xbox Two podcast, all about, you guessed it, Xbox!

  • The Switch is outselling PS4 as well. Beating PS4 with launches aligned. Did anyone count Nintendo out because N64, GameCube and Wii U all came in last place? They still had Nes, Snes, Wii and now Switch outselling the competition. Did anyone expect Xbox 360 to match world wide sales of PS3?
  • Aye, yet YouTubers would often have you believe Xbox is going to be shut down any day now. Hopefully, the facts prevail in the wider consumer consciousness.
  • It's great that the switch is doing so well.
  • Most that want a ps4 have one by now, that's not true of the switch. It still has a long way to go to match the total # of ps4's out there.
  • True, but with a starting price of 200.00 dollars for the base model and bumping up the battery size in the current model. They can easily take a chunk out of the competition. I know of one family that bought 3 switches (one per kid). My kids are currently saving to own their own game system. Brian
  • Xbox was never in a war unless you are some hardcore pitchforking fanboy living in a numbers world. There is no shame in enjoying games on the platform you like, No fool can/should prevent u from doing that. Microsoft wants to be everywhere with Xbox, and that is dominating the industry if they manage to succeed. But Next-gen comes down to who is offering the best Cloud experience in low latency Netflix like service for games, that is where the "battle" will be, not between Consoles.
  • Indeedy. I do hope it takes off with users who aren't typically Xbox fans, if for no reason other than increasing the likelihood of more investment in the ecosystem.
  • the real battle is with googles stadia or whatever. what microsoft is doing is uniting the big 3 vg industry. theyre doing great with nintendo. sony is also working with microsoft with cloud.
  • I’ve just ordered a Switch Lite, will be my first Switch, will bolster the Nintendo console number and yet will have absolutely zero effect on my Xbox/PC gaming. Have an Ultimate pass, will likely join xcloud so can carry on with xbox games on work laptop when away on business. Point is that Switch fills a gap Microsoft seems unwilling to address and gives me some exclusives they don’t have too but will have zero effect on all the cash Microsoft gets from me. I’d love to play a few of the Playstation exclusives but too much backlog on xbox I want to play (especially now gamepass is getting good stuff) to make it worthwhile buying a PS4.
  • You're back logged on your x-box one? With what? I got ultimate game pass on live and I really dont see much worth playing. Most if not all games on there are over 4 years old.
  • Could you give the numbers by region? I think the biggest issue for Xbox is out of US and all these strategies don't help those markets.
  • I did try to find them. I addressed the regional breakdown in the article though, especially re: xCloud in Asian markets. You'll notice Minecraft Earth's beta launched in Tokyo.
  • I still think Microsoft's biggest gaming mistake is putting their games on Steam. The biggest impediment to gamers getting into the Xbox ecosystem is that they literally don't have to. Exclusive content drives adoption. We've known this for decades now. You'll never see Sony or Nintendo gift away their exclusive content to competitors, and it was foolish for Microsoft to do the same, especially when they didn't need to--they have their own distribution method on PC. They were in the perfect position to unify Xbox across console and computers, pulling in customers who finally were going to get a chance to play franchises like Gears of War, Forza, and Halo, and they shot themselves in the foot by announcing that gamers could get access to those franchises without ever needing to step foot in the Xbox arena, inexplicably at a time when Epic Games was paving the way for Windows Store adoption by shaking things up and getting PC gamers used to using multiple stores. (It's already a short-sighted move on PC, but gifting away Minecraft Dungeons to Switch and PS4 too absolutely makes no sense). This myopia could backfire big time, as more of their consumers start consuming their games on their competitor's ecosystems rather than their own, and suddenly the Xbox coffers shrivel up as they begin losing out on the highly profitable 30% cut of every one else's work. There's a reason why Google and Apple are listed above Nintendo in the article above, and Microsoft's current strategy risks them losing out on that and turning into Sega.
  • For me, the gaming experience on my PC easily beats the experience on any console, particularly since I'm not stuck with the stupid limitations of a console.
  • What GPU does your PC have?
  • Yet with a PC you have the astronomically high prices for hardware to achieve the same thing as a console. You have to remember that with consoles they don't use "off the shelf" hardware as most of it is based on PC hardware and then heavily customised and optimised for gaming. Take the GPU in Project Scarlett, Navi AFAIK has no support for real time Ray-Tracing so that is just one of the areas where Microsoft had to customise the graphics hardware in order to add that functionality.
  • Scubatroll in full effect. Saying a console has limitations versus a PC is like say a car has limitations against a truck. Different vehicles for different things. Also, you can own both (many do) it’s not an a/b choice - it’s not mutually exclusive.
  • The only person I see trolling here is you.
    Starting with childish name calling. The guy gave talked about his preference.
    And yes, there are clear limitations that a console has when it comes to gaming.
    Limitation in customisation (hardware and software), in modding, in using 3rd party software, in choice of input devices, in choice of online stores, in not having generations meaning almost all games can be played on a more powerful machine, on having a much bigger library of games, and ofc the ability to play online for free... Yes there may be advantages that console has over PC like more physical games, the used market and possibly how it's easier to use, but trying to ignore obvious limitations by giving the excuse "they are different" is wrong for me. Both are used for gaming and the guy was obviously talking about gaming limitations. And in that sense they are basically doing the same thing.
  • @ScubaDog I've a PC as well. I primarily game on that. I also have two nVIDIA Shields that I push my PC to on two TV's. They work amazingly.. nVIDIA'S online service GeFoce Now is also pretty good...and as of now still free. I also have a XBOX that admittedly has taken a backseat to my PC. I still play it though. It is great, I have hundreds of games on it. Primarily my daughter plays it now. She hasn't graduated to the PC experience yet but she loves the Xbox. I will be picking up a XBOX Scarlett. 2080Ti's are ridiculously expensive...I'm sure the 3080's are going to be as well. XBOC should be around $400. Almost a third of the price. Then there is the Switch. I love that thing my daughter loves it, heck my wife even enjoys it. Undocked though. Docked only for Zelda. Admittedly going from 1080p Ultra at 120fps to that is really tough. Undocked and hand-held? Love it. It's my favorite gaming device at that point There there are phones and tablets...I personally don't play games on my phone or tablets....I need to shutoff sometimes. TL:DR PC's are great...but they are not the end all be all of gaming.
  • Yeah, lack of fragmentation is such a stupid limitation. You really are a total goon. Consoles sit where a majority of pc players sit as far as power is concerned. There just needs to be a drive to integrate "cross platform". Even though an Xbox and a ps4 are just pcs with a different name.
  • I stopped believing in "exclusives drive sales" a long time. It just works for Nintendo, whose almost every switch owner has Zelda BOTW or Mario Odyssey. But when we look at God of War Sales it was around 10 million units. There is 100 million PS4 on the market, so only 10% bought God of War, that according to Sony was the best selling PS4 exclusive. So PS4 owners on their majority don't buy the console for exclusive games. They buy for FIFA and GTA that is what is on Top 2 on Sony every year. Exclusive games only drive nintendo sales.
  • @Eduardo
    That's because the reason people will choose one console over another are the differences not what they do in common.
    Multiplats like COD, FIFA, BF, NFL boost PS4 and XB1 sales.
    God of war or Spiderman or Horizon: Zero Dawn don't boost on XB1 sales because they aren't on XB1. The only way a player (who doesn't already own a PS4) can play Horizon is by buying a PS4.
    Image is important. A console providing more games to their customers is a positive thing. I think a positive image can provides a lot of indirect sales as well.
    Also historically, the console with greater number of exclusives and game library always finised on top of a generation.
    Look at the massive gap between XB1 and PS4 sales.
  • I went PS4 because the XB1 was a buggy mess o release, and they put too much into Kinect and STB functionality. They also nerfed some things, like how you could no longer load your music library onto the XBO, as you could with the 360, and Sony made the HDD in their PS4 laughably easy to upgrade. I had my HDD upgraded to 1TB before I even turned the thing on, since I had one in the closet sitting there. The DS4 controller is also more compact, and comfortable for me to hold. Games on Windows is a nice incentive, but my system SSD is 250GB and Windows 10 is clunky when it comes to installing games to my game drive. It doesn't separate apps from games in that setting, so I could never use that. Sony also has a PS4 Remote Play app for macOS, which Microsoft lacks. In any case, after buying the XBO, I couldn't put it in Rest mode without the entire console locking up. It was super buggy, and I could reproduce this on every store display model. Games often looked worse because they were lower resolution than the PS4 ports. The power brick was huge compared to the PS4's plug. The console was louder, as well. Microsoft designed this console like they were competing more with Plex and Roku than with Sony, and PS4 has better exclusives and exclusivity deals for some titles. It wasn't worth it So, I returned the XBO for a PS4 within 2 days, and haven't looked back.
  • What issues have you had with installing games on a separate drive? The new Xbox app uses a more traditional installation model.
  • That's right. Fifa, GTA, COD, RDR etc. They purchase lots of content on Fortnite as well. But Nintendo always seems to be the exception. It's typically Sony fanboys who stick their chest out and brag about exclusives that most don't play after a week or two as they don't have very much replay value. Multiplayer is what keeps people coming back week after week month after month.
  • Don't need fanboys to stick their chest out. History and numbers can do that. Name some console that sold the best in it's generation and had the lowest number of exclusive or smaller library.
    Let's look at PS4 v XB1 numbers. Enough sad.
    I would say it's only crazy fanboys who say that exclusives and single player games don't matter. I'm guessing it'll change for them when the company they worship starts making more "exclusives" and more single player games. But that's typical...
  • Sega is a small company these days. Do you really think the owner of Minecraft would be a small company as a publisher?
  • Relative to their previous position, yes. They could still have great success as a third-party publisher, but their revenue and industry clout would be a fraction of what it is was as a platform holder, like Sega. Overall, it would be a weakened position if their market share of the platform user base keeps shrinking because customers realize they can have their cake and eat it too by simply buying XGS games on other platforms.
  • I disagree putting their games on Steam helps them as it is a larger platform with a bigger audience than all 3 consoles combined. Steam has about a billion accounts and over 90 million monthly active users(MAU). As regarding exclusivity, Xbox games all require Xbox live accounts which is basically a platform of it's own. As Xbox live is a metric that Xbox uses they are able to gain more users on Xbox live and then you have Gamepass that they can market off Xbox live. I do see your point of loosing the platform and loosing that 30percent cut . I however think GAMEPASS is the future for Xbox , I think it is right now their key to winning as the windows store was dead and was just a waste, it seemed more like Xbox was paying to have devs use it rather than the other way and it was just not successful also windows is not under Xbox so there is a limit to what they can do to improving it. The PC GAMEPASS is about the best thing for Xbox on windows also a huge chunk of those that enjoy those Xbox games could end up signing up for GAMEPASS when they see it's cheaper than buying a full fledged game. The last thing , I heard a developer say some people after playing a game on Xcloud might want to have the definitive experience and buy a console. This he said complements and I agree. Xbox hasn't had a ton of great games but the few they have had has done well, people for example bought the 1X to play Red dead and people might go out to get a 1X again to play GEARS 5.
  • I agree, and Ironically one of the best things Microsoft could do is actually the polar opposite...Convince Valve into putting Steam on Xbox. That could fill in the role of Valve's failed Steambox's, push a more seamless big picture mode, and give a lot of value to both the conso