In mid-2014, Satya Nadella, who had just become the CEO of Microsoft, introduced the heads of the company’s gaming division to its fifth-floor office in Redmond, Wash.
The managers wanted Mr. Nadella had to write a $ 2.5 billion check to buy Mojang, a Swedish company that produced a block-like, pixelated game called Minecraft. Mr. Nadella asked why Microsoft, which is constantly outwitted by Sony in the console business, continues to invest in video games. How did that say, does it fit his vision for a company with a friendlier face that appealed to more consumers?
Then Phil Spencer, the new head of Xbox, told Mr. Nadella about the great world of Minecraft where millions of people can socialize and where teens are encouraged to learn math and science skills. A deal is the first step in a “very bold vision” to transform Microsoft’s gaming business into a focus on a wider audience, rather than just console gamers, Spencer said.
Mr Nadella agreed and made the agreement happen. According to interviews with more than 20 Microsoft executives, game developers, industry analysts and gamers, it was a year-long shift. Instead of competing primarily with rival Sony to sell more consoles, Microsoft bought 15 other game studios and invested in new technologies, such as a Netflix-style game subscription service and a mobile tool known as cloud gaming .
As Microsoft prepares to showcase new offerings at the annual gaming convention E3 this weekend, its video game industry looks very different. The company is still known for the Xbox, a new version of which was released in November. Nevertheless, it has diversified further than boxing hardware to deliver a new range of services.
“Their strategy is very different from a traditional console approach,” said Piers Harding-Rolls, a games researcher at analytics firm Ampere Analysis.
With the changes, Microsoft is betting that the future of games will be a post-hardware world where people may not want to spend hundreds of dollars for a console, executives and analysts said. Eventually, they said, people may no longer be connected to specific devices to play games, and would rather care more about software and services.
While Xbox consoles are still generating a lot of revenue – in January, Microsoft first reported $ 5 billion in quarterly gaming revenue, boosted by the release of the Xbox Series X – the company stopped announcing its console sales in 2014. Most of the game revenue. Xbox chief financial officer Tim Stuart comes from content and services, rather than Xbox hardware sales.
Its gambling industry is still faced with hurdles, including the perception among players that it does not have their best interests at heart. The disgust stems from a failure of messaging in 2013, when Microsoft introduced its new Xbox One console as an entertainment device that allowed people to stream music and movies. In response, gamers revolted.
The Xbox One still sold about 50 million units, according to analysts. But it was far surpassed by Sony’s PlayStation 4, which was also launched in 2013 and sold 116 million units.
“We lost our step of what gamers wanted,” he said. Stuart said.
After the setback, Microsoft shifted gears. Mr. Nadella has just taken over and wants the business to focus on software for cloud computing and subscription services.
Mr. Spencer ensured that the evolution of the game division reflected the goals. He told Mr. Nadella persuaded to buy Mojang in September 2014, which was the first acquisition of the new CEO.
“Game today is much more central in Microsoft than in our history,” he said. Nadella said in an interview last week.
In 2017, Microsoft released Xbox Game Pass. For $ 10 or $ 15 a month, subscribers can play a specific set of games as long as they stay on the service. It raised the traditional model, where people paid $ 60 for games like Call of Duty and owned it forever.
To persuade game publishers to put their titles on Game Pass, Xbox executives flew around the world to meet developers and proselytize their vision of an industry where video games were cheap and easily accessible.
Initially, developers were “lazy” and worried that they would lose money on the service, said Sarah Bond, a vice president of Microsoft, which leads the organization of the ecosystems for games.
Therefore, she decides to study how Game Pass influences the behavior of players. Microsoft said Thursday that people who use the service spend 50 percent more money on games and play 40 percent more games than non-subscribers.
Mike Blank, a senior vice president of Electronic Arts who put his games, such as the Madden NFL and FIFA football franchises, on Game Pass in 2020, said there was initially a scare for entry services. But the company was pleased with the results and ‘players are responding favorably’, he said.
Microsoft has also spent heavily on game development to expand the Game Pass offerings, bought studios, including a $ 7.5 billion acquisition in ZeniMax Media in September and added hundreds of games to the service. This year, it also considered buying the messaging app Discord, which gamers use to chat while playing.
The diversification continued at the end of 2019 when Microsoft released a cloud gaming service in which games are offered in the data centers of an enterprise and broadcast to devices. The service, Xbox Cloud Gaming, or xCloud, means people do not have to install games or use expensive hardware.
The idea of a cloud game service earlier that year for Mr. Spencer came out when he was on a bus in Nairobi, Kenya, and connected to Wi-Fi. He found that he could stream a game from Microsoft’s data center in London to his phone.
“It was literally the same saved game I put in Redmond, Wash.,” He said. “It’s really just an impact on how you can make games worldwide.”
On Thursday, Microsoft said it was working with television makers to put their games on TV without the need for an Xbox. It added that it would soon also bring cloud power to the console.
For now, cloud games are still caught up in glitchy gameplay and require a strong internet connection. Xbox Cloud Gaming is still being tried and Apple has excluded the app from iPhones because it contains a catalog of games, and Apple requires separate apps for each game as part of the app review process.
At the same time, Xbox continues to track down Sony’s PlayStation. In April, Sony said it sold 7.8 million new PlayStation 5s between November and March, while analysts estimated that Microsoft sold more than four million new Xboxes in the same period. Sony declined to comment.
Some gamers have said that Microsoft could not succeed in winning it because it still keeps Sony in exclusive quality games.
“I’ve always been under the impression that PlayStation is better,” said Natalia Mogollon, a gamer known as Alinity streaming her games on the Twitch website to 1.3 million followers.
But if Microsoft devours exclusive content, it could catch fire again. In 2015, when game publisher Square Enix first released a popular game on the Xbox, gamers were angry that Microsoft would restrict access to the title. The reaction was similar when it was considered to buy Discord, and when it was announced last month that an upcoming ZeniMax game would be exclusive to Xbox.
“It may seem like a big business is coming in to revamp their favorite game developer,” said Rod Breslau, a video game consultant.
As Microsoft deviated from the console wars, Mr. Spencer’s own tone also softens. In an interview with The New York Times in 2014, he indicated that he would not back down against Sony. “I’m in here to win,” he said.
In an interview last month, he took a different approach. “We do not look at Nintendo and Sony and say that the company must lose to win,” he said.