Are Microsoft and Xbox going to pivot away from cloud gaming?
Cloud faces an uphill battle.
Perhaps unsurprisingly, even Microsoft doesn't think that demand for cloud gaming will materialize on mobile devices any time soon.
Microsoft is embroiled in a battle with regulators over its attempt to purchase Activision-Blizzard-King (ABK), a mega-publisher that owns games like World of Warcraft, Candy Crush Saga, and Call of Duty. Microsoft's attempts to purchase ABK (for a cool $69 billion) revolve around entering the mobile games business, but regulators have become increasingly focused on how Microsoft plans to leverage cloud gaming should it land rights to all of these highly relevant properties.
As such, the UK regulatory arm known as the CMA blocked the deal recently. Given the historical difficulty of overturning UK CMA decisions, many think the Xbox-ABK deal is now essentially dead. Microsoft and Activision are putting on a brave face in public, however, claiming to both the media and in internal comms to staff that it plans to contest and eventually get the acquisition through.
Microsoft needs the support of its three primary markets to see the deal completed, namely the EU, the United Kingdom, and the United States. It has won regulatory approval in many smaller markets, but the political appetite for massive tech mergers seems to have waned in the three biggest western markets, owing to abuses from companies like Google, Meta, and indeed Microsoft itself in the past.
Initially, the CMA focused on how the acquisition might impact PlayStation, although it was forced to abandon that argument owing to the fact it barely made any sense. PlayStation is the market leader, and Microsoft largely sought to preserve the status quo for console gaming, pledging to offer Call of Duty to Sony and even Nintendo. In what might have been a tactical blunder, Microsoft put the emphasis on growing its cloud services in some of its earlier arguments, giving the CMA an angle to block the deal without having to argue in favor of PlayStation, in spite of its market leadership position.
Microsoft has also argued its plans to break the Apple-Google duopoly over mobile payments, something Epic Games' with Fortnite is attempting to do via the courts in the United States and European Union. Microsoft has expressed plans to build an Xbox store for mobile games of sorts. How it seeks to circumvent Apple and Google's rules about monetization, and indeed the very existence of third-party app stores, remains wholly to be seen — which is perhaps why it didn't espouse this strategic aim too heavily.
In any case, Microsoft finds itself on the back foot with the CMA and other regulators. Despite winning the support of cloud competitors like NVIDIA GeForce Now by promising blanket access to ABK games, the CMA still blocked the deal, saying it didn't want to have to create and oversee a regulatory framework for the nascent market.
In Microsoft's CMA responses highlighted by TweakTown Editor Derek Strickland, the firm painted a bleak picture for its own cloud gaming business.
According to Microsoft, Xbox Cloud Gaming on mobile devices has been "unsuccessful," using Fortnite access as an example. Fortnite has been available on Xbox Cloud Gaming for quite a while. When it launched, it was among the first and only times I've experienced queues to access Xbox Cloud Gaming, although I've not seen such server capacity issues since. Microsoft acknowledged that the quality of native mobile games has increased alongside the power of mobile devices.
Coupled with the requirement for an always-online connection, Microsoft indicated that there's "unlikely" to be a "material demand" for cloud gaming any time soon. Furthermore, Microsoft noted that consumer spending on cloud devices accounted for a "de minimis" proportion of the overall pie — a Latin term often used in legal text to describe something too trivial to be even worthy of consideration. The redacted figures pertained to both mobile and PC cloud gaming.
Xbox Cloud Gaming is bundled with Xbox Game Pass Ultimate. The full games list for Xbox Game Pass comprises hundreds of great titles, many of which come with touch controls for cloud gaming. However, the usability of Xbox Cloud Gaming is a struggle for various reasons, and Microsoft's comments to the CMA could be more than just regulatory pandering.
Is Microsoft being coy to reduce the concerns of regulators, or does the frank admission here signal an imminent broader change in thinking?
These days, it's rare Microsoft sticks it out with technology too long when it doesn't seem to be working. Microsoft pulled the plug on its streaming service Mixer at the first sign of waning demand. When Twitch exploded during the pandemic, but Mixer didn't, it essentially put the writing on the wall. Following the same thought process, if Fortnite failed to have a meaningful long-term impact on Xbox Cloud Gaming as Microsoft claims, that could also put similar writing on a similar, cloud-based wall.
I used to be fairly bullish on Xbox Cloud Gaming. I've had plenty of fun with it, but only playing specific types of games in specific conditions. I realized recently, while on vacation, that every kid on the train wasn't playing on Xbox Cloud Gaming; they weren't even playing mobile games — they were on Nintendo Switch. The "console quality" mobile gaming Microsoft envisioned cloud would provide when it demonstrated cloud gaming tech internally back in 2012 has already arrived, and it's in devices like the Nintendo Switch, the Steam Deck, and soon the ASUS ROG Ally.
I recently put Xbox's PC Game Pass on my Steam Deck will full Windows 11, and it made me realize that there's absolutely no universe where cloud gaming would ever provide a better experience. For the longest time, it seemed like console-quality graphics for full-blown PC games on a handheld device seemed like the vaguest of dreams, but the latest low-voltage chips from AMD and NVIDIA are bringing those dreams further and further into reality. In that world, there's absolutely no place for Xbox Cloud Gaming.
To be fair to Microsoft, they've always claimed that cloud gaming would be supplementary, but the admissions in the CMA filings go a little further. Xbox Cloud Gaming is restricted by various constraints, including 5 GHz home Wi-Fi with optimal conditions, Apple and Google's limitations on monetization and access, and costs of running servers 24/7 within Azure data centers. Given that regulators don't want Microsoft to acquire culturally-significant titles like Call of Duty, which could help the cloud gaming market grow, Microsoft is probably weighing its options.
Microsoft's own Roanne Sones, who is in charge of Xbox hardware, is going to be live with ASUS at the ROG Ally reveal event, likely to discuss how Microsoft plans to upgrade the Windows 11 experience for handheld PC gaming devices. If that isn't a hint at how Xbox sees its future in mobility, I don't know what is.
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Jez Corden a Managing Editor at 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 other issue here is it was always a crutch of sorts to expand Xbox’s reach. Cloud gaming enables older consoles and weaker devices to play the latest games, but by the time you’ve invested the money for the right routing equipment and internet plan (if you even can where you live) you were likely better off just buying a device that could play the games natively.
Here’s hoping Microsoft pushing devices like the ROG Ally means they’re serious about pivoting priorities… let someone else build the hardware, then remind everyone what that hardware can give them access to