The Unlikely Prospect of Game Pass on Rival Consoles

For decades, Microsoft held a unique position of power, synonymous with personal computers as they transitioned from rare, expensive items to ubiquitous devices in every home and office. Despite not manufacturing computers itself, Microsoft profited from each sale through Windows operating system licenses. This model, which built the company into the giant it is today, involved selling a dominant, high-margin operating system for computers built by other companies, while avoiding the risky, low-margin hardware business. The closest modern analogue is Google's Android operating system. Game Pass, as the central pillar of Microsoft's strategy to transform Xbox into a software and services offering, aims to replicate this success in the videogame market. Microsoft's CFO, Tim Stuart, recently reiterated the company's desire to make Game Pass available on all sorts of devices, including rival consoles like Sony and Nintendo. However, this idea faces significant obstacles, primarily due to the different business models of these companies. Unlike PC manufacturers, Sony, Nintendo, and Valve derive their profits from software sales, not hardware margins. Allowing Game Pass on their hardware could displace software sales, making it a bad deal for them. Even if Game Pass paid a 30% revenue cut, it would likely not be appealing to these companies, as it would commoditize their hardware and potentially destroy brand loyalty. The idea of Game Pass on rival consoles is also concerning for game developers, as it could erode sales on other platforms like Steam. The situation is reminiscent of the movie and TV industries, which have struggled with streaming services and unsustainable business models. Microsoft's ambition to make money from software and leave hardware to others is understandable, but it would be unrealistic to expect the rest of the industry to follow suit, especially when it may not be in their best interests.