How Long Can Microsoft Rely on Goodwill?

The gaming industry is expected to experience a challenging year in terms of financial reports, as the pandemic-induced boom of 2020 and 2021 has come to an end. It is essential to have realistic expectations and not read too much into minor declines in revenue. Instead, it would be more informative to compare the current numbers to the 2019 baseline, as the pandemic has created a distorted market landscape. The platform holders, including Microsoft, have faced significant supply chain issues, which have affected their performance. The easy availability of previous-generation consoles has extended the transition period, and the competitive landscape has become increasingly distorted. Microsoft has benefited from this distortion, thanks to its impressive Xbox Series X hardware, competitive pricing, and acquisition of well-respected developers. However, as the pandemic has lifted, the extent to which Microsoft is relying on goodwill is becoming increasingly apparent. The company's financial results have been solid, but the comparisons to the pandemic years are tough. The Xbox hardware has held up well, and the Game Pass offering continues to be impressive, but the software pipeline is a concern. After a significant spending spree, Microsoft has yet to deliver a substantial software pipeline to rival Sony's studio system. The planned purchase of Activision Blizzard is a significant announcement, but it is unclear whether it will be enough to turn the tide. Bethesda's Starfield is one of the few notable games in the pipeline, but it is unclear when it will be released. The lack of concrete information about system-selling exclusives is a concern, and the window for Microsoft to make a competitive impact is closing. As supply chain issues are resolved, and mid-generation hardware refreshes are released, availability will no longer be a key metric for success. Microsoft needs to deliver a compelling software pipeline to stay competitive, and the company's large round of layoffs has raised questions about the future direction of its gaming division. The need for Microsoft to demonstrate its ability to effectively utilize its existing acquisitions to create a competitive software pipeline is urgent. If the company fails to deliver, it may be throwing $70 billion of good money after bad. The question of whether Microsoft can buy Activision at all will loom large this year, but the bigger question is whether the company can create a competitive software pipeline to stay relevant in the gaming industry.