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There's been some furor recently about comments Xbox CSO Matthew Ball made in a new interview about what roles "ads" can potentially have in future gaming business models.
Matthew Ball clarified his position on ads in gaming on X, stating that at no point did he mention ads actually appearing in-game. Ball was exploring how ads can be used to offer more affordable alternatives, in a similar vein to how Netflix, Disney+, and Amazon all have ad-based tiers in their premium subscription service offerings.
I know from speaking to people at Xbox and other major publishers about the role of ads in future business models, and I've written about it as well, as early as last year. Microsoft, at least, was actively exploring ad-based tiers for its subscription services, including Xbox Cloud Gaming under the previous leadership.
What might the current leadership do down the line? Let's explore the whys and speculate.
The memory crisis has put a spotlight on hyper-casual gamers who aren't monetizing at all on console
In our increasingly disappointing and painfully mismanaged Late Stage Capitalism universe, for most people, spending on luxuries is becoming an issue. If you remove artificial intelligence investment hype from the U.S. economy, some analysts paint it as growing at a measly 0.2% per annum. Consumer confidence is also at its lowest level since the start of the pandemic, and inflation is expected to increase owing to the United States ill-advised sojourn in Iran.
There are various other factors, but the common thread is that shit is getting too damn expensive — and for millions, that only increases the attractiveness of ongoing, free-to-play experiences like Fortnite. If you're choosing between paying your bills or dropping $70 on the latest Call of Duty, I'd imagine you'd probably pick paying your bills and sticking with Fortnite.
Platform holders like PlayStation, Xbox, Epic Games, and so on, look at trends and make decisions based on where things are going. Over time, a user spending more hours in Fortnite will eventually spend money, and, most likely, it will become profitable. But as the memory crisis deepens, the short-term economics are looking shaky.
Xbox and others are talking about how ads show up on the console because the traditional hardware-software business model has been destroyed by the memory rout.
With users being more thrifty than ever, and free-to-play experiences offering a higher-quality bar than ever in some cases, the ability for platform holders to effectively monetize the largest and most casual audiences is breaking down.
Previously, you sold consoles at wafer-thin margins and made the money on selling software and services. That's still the case. Xbox lifted the Xbox Live Gold paywall for free to play games for titles like Fortnite, joining PlayStation and Nintendo. But, as users spend less in-game, those same platform holders see fewer returns from opening up that access.
Furthermore, for consoles sold in 2025 onwards, a user who actively doesn't spend money on in-game purchases actually potentially represents a net loss. Microsoft, in particular, is losing not dozens, but in the hundreds of dollars on each Xbox Series X|S console sold.
This is one reason why you've seen Microsoft and PlayStation both intentionally reduce their stock levels and raise prices. It seems counterintuitive, but in the short term, "allowing" these consoles to end up in the hands of casual users who will take longer than ever to become profitable-per-user is a "problem" for the spreadsheets, and ultimately, the health of the business.
Ads in game? Maybe not, but then, where ... ?
It's not OK to boot up a console and see full screen ads. Any way to turn these off? from r/gaming
The memory crisis won't last forever. Microsoft is already laying the groundwork for a full-bore return to more sane consumer hardware pricing by signaling a return to Xbox exclusive content. You don't build exclusive content for your console ecosystem if you are taking the view of not actually selling console hardware in the future.
But in the short to medium term, Xbox has a margin crisis. How can you monetize those hyper-casual, smartphone-like audiences that, due to the cost of living, are also spending less than ever? Not to mention Gen-Z and Gen-A smartphone natives who are coming into console gaming perhaps for the first time.
Well, you ultimately do what the smartphone-first companies do: drop the ads.
Microsoft has experimented with full-screen "ads" for its own products and game releases when you load up your Xbox. Xbox Cloud Gaming has been developing an ad-based tier for some time. Hell, even my Samsung TV annoyingly has ads in the main menu, too.
Samsung, Apple, etc. don't sell their hardware at a loss, though ... but thanks to the memory crisis, right now, Xbox is.
I suspect that, despite protests to the contrary, Microsoft and other platform holders are thinking more and more about how to monetize users who are active, but aren't monetizing. Ads on console is already a controversial topic and for obvious and good reason.
When you buy a product, you quite rightfully expect it to be yours. But it's also true that Xbox is losing a ton of cash on every console sold right now (and probably others, too). Large portions of the user base are probably projected to become less spendy than ever, thanks to the state of things. It's not sustainable to basically spend money, to lose money. With consumer confidence cratering, even the whales increasingly aren't able to subsidize and offset the losses here.
I suspect Xbox, and even the free game makers themselves, will target the free-to-play titles for ad delivery in the future. Opening up Xbox Game Pass to price reductions in exchange for ad viewing and tracking seems clearly on the table, too, from Matthew Ball's comments.
Just how invasive it could get will ultimately depend on community sentiments ... but I'm not sure how Microsoft and other hardware makers can otherwise expect to even break even from this growing hyper-casual cohort in the current model.
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