The Unlikely Expansion of Game Pass

For decades, Microsoft dominated the tech industry with its Windows operating system, collecting lucrative licensing fees from computer manufacturers without shouldering the risks and costs of hardware production. The company's current goal, as expressed by its CFO Tim Stuart, is to replicate this model in the gaming sector with Game Pass, making it available on various devices, including consoles from competitors like Sony and Nintendo. However, this vision is fraught with challenges, primarily because the gaming industry's business landscape is vastly different from the PC market of the past. Unlike PC manufacturers, companies like Sony, Nintendo, and Valve derive significant profits from software sales, not hardware margins. Allowing Game Pass on their platforms could displace software sales, reducing their revenue and undermining their business models. Furthermore, the commoditization of gaming hardware would erode brand loyalty, as consumers' choices would be less influenced by the console itself and more by the services offered. The potential cannibalization of game sales by Game Pass is also a concern for developers, who may see reduced revenue from sales on platforms like Steam if subscription services become the norm. The experiences of the movie, TV, and music industries, which have struggled with the transition to streaming services, serve as cautionary tales. While Microsoft's aspiration to focus on software and services is understandable, especially given the risks associated with hardware production, it is unlikely that the rest of the industry will align with a plan that may ultimately prove detrimental to their interests.