Xbox Cloud Gaming just got its biggest upgrade yet — but will anyone pay for it?

Towards the end of the summer, Microsoft dropped a nuclear bomb on the Xbox Game Pass faithful, revealing a steep, 50% price gouging. The internet reacted quite poorly, as you might imagine.

Almost everything seems to be getting more expensive, whether it's electricity bills or basic groceries; the elites running the mega corps seem hellbent on vacuuming up every cent. After Xbox's recent financials, revealing a continued downward trajectory, it offers a hint as to why.

Xbox hasn't been doing that well as of late. Hardware sales have crumbled, and growth seems relatively anemic. As Microsoft focuses on everything except its home-grown Xbox console, CEO Satya Nadella has blamed short-form video like TikTok for eating into the game industry's ability to hold your attention — which is at least partially true.

Free, instant access coupled with addictive and interactive social feedback loops that come with things like TikTok and Instagram Reels doubtlessly hold some blame for the flat growth of the overall gaming industry. What if gaming platforms could deliver their content without expensive upfront costs like gaming PCs or consoles?

Well, that's at least one reason why Microsoft has been investing heavily in Xbox Cloud Gaming. It has steadily improved, but it has never really offered a 1:1 "console-quality" experience, especially on large-screen TVs. That is, until now.

Finally delivering the "console quality" promised for years ...

Wait, Xbox Cloud Gaming is ... AMAZING now?! - YouTube

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Yes, Xbox Game Pass Ultimate nabbed a 50% price hike, but the news overshadowed some positive benefits for the lower tiers. Essential and Premium plans now include Xbox Cloud Gaming for the first time, at no added cost, and Ultimate now includes 1440p resolution, 60 FPS, and boosted bitrates.

As of last week, it does seem as though the improvements have gone fully live now, although sources suggest to me that the delivery of the new streams will roll out on a per-game basis, based on usage. So far, the only games I could find that support the new delivery mechanism are Fallout 4, Cyberpunk 2077, and The Witcher 3.

As you can see in the video above, the new video encoding is immaculate. Previously, in 3D games, spinning the camera around would result in waves of pixelated artifacting and after-imaging, but now it's as crisp as it would be playing natively. The frame rate is also totally locked at 60 FPS, and the latency between controller and stream is almost imperceptible. When Microsoft releases its next-gen Xbox controllers, I'm told they will come with Wi-Fi Direct, bypassing the connection to the device hosting the stream, which should shave off that remaining bit of latency on top.

It's unclear which games have this new "next gen" cloud access right now, but I presume Microsoft's plan is to eventually roll it out to every 3D game. I tried playing Dying Light: The Beast on this service, and sadly, it fell back on the old system, running the Xbox Series S version at a painful 30 FPS with poor bitrate. It was playable from a latency perspective, but after experiencing the Witcher 3 and Fallout 4 on the new system, crisp as hell, it was genuinely difficult to go backward.

For the video component of this article, I wanted to present the "both sides" situation for cloud gaming. I have ideal conditions streaming to an Xbox Ally, with 1GB internet, 5GHz Wi-Fi 6E, and I was sitting right next to the router. I have good mesh extenders, too.

So, I decided to showcase how "poorly" it would run on 5G, which gives me 1-3 bars if I'm lucky on my phone. The nearest 5G mast is anywhere between 200 and 300 meters away, and has to penetrate thick British insulated walls to reach me in here. However, I was shocked to discover the new system still ran incredibly well, on a relatively unstable 50MB 5G data connection. No lag, good bitrate, and good frame rate.

This is the experience Microsoft has been promising for years, and it's finally here. But is the market for this actually viable?

... but is there actually a big market for this?

I don't think playing games like The Witcher 3 on a tiny phone screen is going to be a big, popular way to play Xbox games in the future, but direct-to-TV might be.

Microsoft doesn't give hard figures, but cites Xbox Cloud Gaming as a growth vector for the Xbox platform, even in an era where hardware sales continue to shrink. Samsung TVs have Xbox Cloud Gaming built into them, and more LG TVs are picking it up, too. The new Xbox controllers with direct Wi-Fi connectivity will eliminate more gaps that exist for cloud gaming today, both in terms of access and latency. Microsoft sources tell me the firm is also working on a free tier of Xbox Cloud Gaming, similar to NVIDIA GeForce Now, funded by ads.

But the cloud is expensive to run. Data centers aren't cheap, and Microsoft ends up paying the electricity costs for gaming that you would otherwise do via systems in your own home. I have no idea what the business model looks like there.

Xbox Game Pass' revenue funds things like content for native play on console and PC, but presumably, there's also a charge back for running all those cloud servers too. If more and more people play on cloud, does that reduce the fund for new content for Xbox Game Pass? I just wonder how much of a loss leader Xbox Cloud Gaming is today, and whether or not it's at risk of going the way of Google Stadia, and more than likely Amazon Luna in the future. Will this actually bring in truly new users, or just recycle existing Xbox users?

I think Xbox Cloud Gaming helps with the ease of access issues gaming has historically had, but it certainly doesn't solve them. It might take a "killer app" like Grand Theft Auto 6 to truly mainstream tech like this, but how much would a licensing deal for something like that cost even as a "stream your own game" outside of Xbox Game Pass?

Xbox Cloud Gaming has shed its beta tag finally after years of testing and improvements, and it certainly seems to be on an upwards trajectory. The upgrades are immense, but where it'll fit into the overall gaming business as a medium remains to be seen.

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