no, microsoft isn’t quitting hardware, lol
So, there I was, minding my own business, getting back from a lovely dinner while catching up with a friend, and twitter is on fire. I mean, look, it’s always on fire, but it was more on fire than usual. Basically, some rumors over the weekend hit that Microsoft was probably going to release some of its games on PlayStation.
The gamers immediately, because gamers can be very dumb at times (not always! I have seen the theorycrafting that goes into EVE online spreadsheets lmao), went “oh my god, if Microsoft puts their games on other hardware, it means they’re giving up the console war.”
First off, there is no console war. That’s literally just people who love one blu-ray player saying they have the best blu-ray player because it’s their brand of blu-ray player. It’s as silly as Ford vs Chevy (Ford vs Ferrari is a great movie, however).
Like, I rolled my eyes, and then, well, fuck it. I can talk about this, right? I mean, I have some unique insights here, due to the nature of having access to a few gaming execs and talking to them about their plans over the years. After all, I’m a dev, sure, but let’s not forget I used to be a journalist and I’m still a consultant on other people’s stuff! I know a lot about the business, and I’ve learned a lot from some amazing people. So I wanna try to talk you through what I’ve learned.
The Internet Is Not Real
First, and most importantly, you need to understand that the internet is not real. Most business happens outside the internet. Things that appear big online are often inconsequential offline — every wonder how a game you’ve never heard of goes huge? I mean, you never heard of it, so how could it be doing so astonishingly well? Who are all these mysterious people watching Two and a Half Men or Young Sheldon or Whatever? Yeah. It’s like that.
As my friend Phil (who gave me the phrase “the internet is not real”) puts it, only about two percent of any given population is on Twitter. It ain’t much.
On the internet, you may be hearing everyone in your gaming circles say things like “Microsoft is going to leave gaming,” but that’s just because fanboys online want to convince you to love one thing or hate another. Influencers make money talking shit about various games and trying to stir up trouble where there is none. I’ve worked on games or known people who worked on games and have to suffer from influencers — sometimes very trusted, very public ones — making up shit about companies and talking about drama that isn’t there.
“Microsoft is leaving hardware” has been internet gamer wishful thinking since Microsoft got into games.
There’s a lot of reasons for it, but a lot of it boiled down to “I love the PlayStation 2.” If you go read the books on the making of Xbox (Robbie Bach had a book that discussed this iirc, for instance), you know this sentiment wasn’t just at the gamer level, but industrywide too. “Oh, can’t have X in the name of the Xbox, because X means death in Japan. Never mind that we called this console the PSX. Sorry, a console can’t be black, that’s also dea — well, the PlayStation 2 is different…”
There’s always been a lot of resistance to new game consoles, and Microsoft, which released the genuine best piece of hardware of the sixth console gen, faced a lot of headwinds.
I’m a weirdo. I don’t really care about any one console manufacturer more than the other — I’m literally about to pay an obscene amount of money (for me. for the rest of you it’s probably not that bad) to get someone to resuscitate my PlayStation 3 from the dead because it died last week and I was unable to continue playing Ratchet & Clank like I wanted to.
However, I do get annoyed when people are disingenuous, and the wishful thinking of “now Microsoft will finally quit hardware” has been around since before Novemer 15, 2001, a date I had to look up because I couldn’t remember when the Xbox released.
Anyways, the internet isn’t real. People want this to be real because they are weird fuckin’ losers online! But it’s not.
Here’s why.
It Started With A Thread
I did a twitter thread, and by the time you read this, that thread will largely be deleted, with a link to this piece.
It wasn’t meant to be long, but hey, I am tired, I was letting dinner digest, I was on a voice call, so sure! I can do a fun little thread!
So, step 1: man, why is everyone saying that Microsoft is exiting hardware? Why am I seeing people say it’s because they’re scared of Sony? That doesn’t sound right. I mean… isn’t Microsoft like 25 times larger than Sony?
I immediately looked up those figures. Sony is apparently worth $121.5 billion dollars, and Microsoft… well, hey. Microsoft is worth $3,055.54 billion dollars, or, in other words, three trillion dollars.
Now, hey, I’m trying to be glib, so I refer to thinking that way as “gamer poisoned gamerbrain.” Like, I’m not sending my best here, but I mean, I’m not going up against gaming’s best, so I don’t really need to try here, right? Haha.
So!
A very helpful person named Tom pointed out that Microsoft is only one of two companies rated AAA in the entire world. The other is not Sony. It’s also not even Apple. It’s Johnson and Johnson.
“But, Doc, doesn’t AAA mean gaming things?” Well, according to Tom, “the ‘AAA’ term in gaming came from the securities rating world, and it’s basically an indicator of the most foolproof investment you can make. As of right now, there are only 2 AAA companies left. One of them is Microsoft.”
Huh.
Alright. What’s the other?
According to Tom here, Johnson & Johnson.
Apple is AA, and Sony is A-, apparently. I don’t know if there’s an A and A+ in between there, or if + or - is appended to the other rankings.
I realize I don’t have to post everything I say, but it’s 2 AM and I can’t sleep and like, I try to show people my entire process, right? That includes my mistakes, so I made a tweet where I said this:
The text:
“microsoft exiting hardware” is wishful thinking by fans. they’ve pushed for it since 2001. they pushed for it with the 360, which outsold the ps3 (they love to post that one firm that projected a disco stu-like sales claiming it WOULD outsell the 360, but it didn’t)
Now, hey, this was absolutely true until, I believe, after the gen had ended. Because of PlayStation Plus offering free games, Sony started pulling ahead near the end there, but Microsoft led the entire generation. What I was remembering was a chart by a firm — I want to say IPC Consulting — near the end of that generation that speculated that the PlayStation 3 had outsold the Xbox at a time when Sony was hiding their sales.
I do remember the chart looked like this.
And I believe it also suggested that the WiiU would hit like twice the number of consoles sold as the Wii or something silly.
In the end, based on the public numbers we have, Sony kept producing the PS3 about a year after Microsoft stopped doing it. Sony manufactured about three million more units than Microsoft. Microsoft, of course, absolutely annihilated Sony when it came to software sales. As I recall, at one point, the 360’s attach rate (number of games people buy per console) was an astonishing twelve games per console sold. I think the PlayStation was like 5–7 and the Wii was like 3 or something like that.
People might have bought more consoles, but they were usually “I buy a PlayStation and I play FIFA” types. People were buying a lot more games on the Xbox 360.
That generation on the whole was Microsoft’s, and it wasn’t even close. Achievements? Microsoft. Online profiles, parties, and friends? I don’t even think the PlayStation 3 shipped with that. The first two years of the PlayStation 3’s life was Sony playing as much catchup as they could, and the PS3 still lagged behind the 360 as a gaming device. It had weaker hardware, fewer features, and so on.
Don’t believe me? The PS3 was weaker, despite the alleged power of the Cell CPU, which was extremely good… at non-gaming tasks. It had two big weaknesses. First, there was the RSX GPU. There was a whole funny war on wikipedia where people kept trying to post some outdated Sony specs and kept getting mad at people who posted the official Nvidia specs for the RSX as it actually existed in the PlayStation because it made the PS3 look weaker. Yeah, it was about half a gen behind the 360’s GPU in tech, but so what? Who cares? My Switch is the console I’ve played most this year and it’s weak as shit.
I remember reading about how Alan Wake couldn’t work on the PS3 because the PS3 couldn’t handle simultaneous volumetric and dynamic lighting, it could only do one or the other. The 360 could, and for some reason, Remedy apparently didn’t have any culling going on, so the whole game’s open world was being rendered at all times. Wild for that era. But I am literally trying to remember this from nearly 14 years ago, so, sorry. I’m doing my best here.
I also recall that the reason that all Elder Scrolls and Fallout games were virtually unplayable on the PlayStation 3 was because of its other horrible design decision, which was a shared memory pool between the GPU and CPU, and for some stupid fuckin’ reason, Microsoft decided to copy that idea for the Xbox One.
Meanwhile, I’m sitting here just pissed that they also used shitty solder and bad capacitors so the original CECHA-01 PS3, the 60GB model that I have, tended to get the Yellow Light of Death and die. But that’s neither here nor there, I’m just fond of the trivia of that gen.
But Microsoft, historically, sucks at hardware compared to Sony.
Why Does Microsoft Make Hardware Anyways?
You seen the movie Ford vs Ferrari? Surprised I mentioned it twice in a single article? Well, look, Ford wanted to prove Ford was cool, so Ford tried to buy Ferrari. Enzo used that to drive the price up because he wanted to sell to a different company instead. But Ford really, really wanted to be cool, so they made the GT and defeated Ferrari at Le Mans. And then Christian Bale died in a car explosion and the movie ended.
Car companies make weird shit at car shows because they’re, like fashion designers, creating exaggerated versions of the future to show off to the rest of the world. They also make cars like the Ford GT, flaghship, real cars that show off what their brand is capable of.
Well, Valve does that too. They are trying to get Steam OS out there so that it’s the best software for handheld gaming devices, and then you’ll start buying games through Steam, which is how they’ll make a lot of money. It’s the toll booth idea that you see throughout tech. The goal is to get AYA and Lenovo and ASUS all using their operating system, which conveniently has one specific store preloaded, which most people will use to buy games.
The hardware, of course, is just a way to get people to buy games, which is where the money is. Remember what I said about attach rate earlier? The reason Valve is THE gaming company is because a bunch of us own like 100–3,500 games. They print money by running a store, hosting cloud saves, and serving games to us.
Wait, shit, I meant Microsoft.
Microsoft also does this.
It’s called Surface.
Now, there’s some core differences. Valve is a store first and foremost. Microsoft is a Word Processing Software and Cloud Services Provider first and foremost (Azure and Office). Those businesses are so successful that they repeatedly tried to give their operating system away for free, because if you get into the operating system, you’ll probably get into the products for that operating system.
(there’s issues with this relating to vertical integration that could be an entire essay. let’s not cover that in this piece)
So they’re a bit different, but both of them release premium hardware in an attempt to go “hey! you! This is how it’s done!” It gets people like the fine folks at, say, Compaq or Gateway computers (hehe) to go “we need our computers to compete with that. Let’s not make them the shittiest products imaginable.”
In other words, the hardware sets the bar for the experience that a big brand like Microsoft very, very much wants to have.
So, like, hey, man. It would be amazingly stupid for Microsoft to leave the hardware game entirely. You need to have some level of hardware, because you need to show people why they should be using your software. Build an ecosystem, then — if you’re running one of the most successful companies on the planet — give other people some access to that ecosystem (like AST Research, the company that Blizzard bought its headquarters from, fun fact), and now you’re making money on all the Microsoft products imaginable.
Instead of Gateway and Compaq and AST all having their own operating systems, Microsoft makes the operating system, and they get a cut of every computer sold, right?
But, hey. Lead by example. So make your own very sexy, very attractive hardware, go “this is the bar,” and “this is the brand. This is what Microsoft is.” It’s very old-school advertising. Also, I always thought this was weird, but remember when PlayStation switched from red branding in the early PS3 era to blue branding? Companies do that shit, and unless you’re in Silicon Valley, it’s usually a very awesome… how to put this. It’s… branding is cool. You’re basically trying to communicate to 8 billion human beings who you are with as few words as possible. You are creating a specific kind of iconography. That messaging is fascinating, in the same way the art of commercial-making is fascinating.
Capitalism sucks, but branding is neat.
Anyways, the important takeaway here is this: Microsoft is a software company first, and if eMachines didn’t force them to pull out of the computer market (yes, I’m being silly and writing about defunct computer manufacturers so the timing literally does not line up. it’s just something I think is funny) just because they sold way better, then you might consider that the reason they’re selling hardware isn’t about being the best hardware seller in the business. It’s about maintaining their overall strategic dominance over the global market.
Sony Is Not A Software Company First
At one point, though, I don’t think it is any more, Sony’s most profitable division was not, as you might expect, the electronics division. It was also not the music label, nor was it the movie studio (Columbia, bought for $8.9 billion in 1989, if I remember right). It definitely wasn’t PlayStation.
It was insurance.
Now, I believe that’s changed, and I believe PlayStation is now the big one.
PlayStation has always been about using exclusives to get people to buy the hardware, because Sony is a big conglomerate that mostly uses various things to sell hardware. Yeah, get this audio cassette, plug it into your Walkman. Buy this movie tape, put it into your Sony-manufactured Betamax player (they invented the format). Buy this PlayStation game, and put it in your PlayStation.
At first, they could rest easy. The people making the best software for PlayStation were the people making Final Fantasy and Resident Evil and Silent Hill, right? I’m talking about companies Sony doesn’t own. Third parties.
The first parties, like Japan Studio, led the way in amazing, imaginative, innovative stuff, like I.Q. Intelligent Qube and PaRappa the Rapper.
But then something happened. The way I heard it, around the time of the PlayStation 3, the least successful man in all of business, Phil Harrison (after the PlayStation 3, he went to Atari. Then he went to Gaikai. Then he went to Microsoft and worked on the Xbox One, which was in a very bad way until Phil Spencer took over. Then he went to Google… to launch Stadia. I’m telling you, everything he touches turns to shit, it’s kind of amazing) apparently mandated that Sony studios would need to show off the power of the RSX and Cell, so the studios would need to make ‘realistic’ looking series, as opposed to mascot platformers.
As a result, Insomniac went from Ratchet and Clank to making Resistance, Sucker Punch went from Sly Cooper to InFamous, and Naughty Dog made Uncharted. Yeah, as far as I can tell, Phil Harrison killed mascot platformers, but I could be mistaken.
Anyways, whatever the case was, Sony got it in their heads that they were gonna be Real Fuckin’ Artists. I recall, after the big Sony Pictures hack, that a bunch of the emails were basically execs snorting coke and going “why don’t people respect us for making The Emoji Movie?”
That eventually came to a head when that dumb motherfucker who said “nobody wants to play old Gran Turismo games” took over Sony and basically killed Japan Studio, pissing off Silent Hill/Siren/Gravity Rush’s creator, sending Fumito Ueda over to Epic so he could make his fourth video game ever (after The Last Guardian, one of the greatest games ever made), and, as I heard it, tried to redirect Sony’s studios to basically make shit you can earn Hollywood’s respect for making.
That’s right, I’m talking realistic graphics and prestige fuckin’ bullshit. So everybody’s moved to making things I like (like Ghost of Tsushima, despite the bullshit), to things I am ambivalent on (Spider-Man, which is probably the least interesting Insomniac game I’ve played, though the worst is Resistance 2), to things I think are bad for the industry and shit art, like The Last of Us.
Anyways, those games get a ton of press, but since the internet isn’t real, they don’t get the sales you might want if you’re spending $220m to make (and, as a general rule of thumb, double that for the budget, making it $440m).
The games that make the actual money are like Genshin Impact (revenue: four billion dollars by the end of 2022) or Palworld (12 million copies on Steam alone). These games are big online things that get tons of updates and is really easy to get into, basically. If you ever wondered why the industry is moving to service-based games, this is why:
Dumb motherfuckin’ gamers demand the best graphics ever and will literally threaten to kill you over perception that graphics may be downgraded in the marketing, but then only want to spend $60 on your game, just like they did in 2005, despite the cost of everything skyrocketing. You’re supposed to spend more money to make the game, but you have to sell tens of times more in order to make the same effective amount of profit to maintain the same standard of living as inflation rises.
Sony is trying to build prestige games to get people to come to the platform. That’s what exclusives are; it’s the company’s predominant way of getting people to check their shit out. You really think people wanted to spend money on UMDs, which were only useful in the PSP and nothing else? You really think that Mini-Disc was ever gonna catch on when the rest of us had CDs? Get real. But, hey, if you own a music label or a movie studio, you can release your products on your proprietary, anti-consumer formats, and then other people will follow suit.
Spend a fuckload of money on a game that might just be a loss leader, but that’s okay, because the theory goes, maybe people will buy your system now and maybe they’ll go ahead and buy other games on your system, and you take a cut of those games. This conventional wisdom is where the two companies diverge. Sony is basically just… doing the same thing they always do: make media to sell hardware.
Sony is a Hardware company.
But Microsoft? The Software company? What are they up to?
Microsoft gets weird
Here’s a statement that’ll make people on the internet, which isn’t real, really mad: Microsoft is, and always has been, the future of video games.
Seriously, Flight Simulator’s older than Zelda.
Okay, in actual seriousness, online gaming got popularized with Xbox Live. Yes, the MSN Gaming Zone predated it, and yes, lots of PC gamers had the internet, but when online gaming actually went mainstream was Halo 2. Games like Conker, Crimson Skies, MechAssault 2, and also that one sports game I forget the name of, dominated the Xbox Live leaderboards.
And now, hey, every console you pick up has accounts. You can talk to your friends in voice chat online (thanks to Microsoft including microphones). You can share your achievements — another thing Microsoft pushed.
Hell, indie games? Thank Microsoft for that one too. Sure, the Avernum guy was out there, but Xbox Live Arcade was huge in getting a bunch of Newgrounds guys (the ones who I am too sleepy to look up but made games like Binding of Isaac and Castle Crashers) and weird dudes who’ve said some very dumb things online who are pretty good at game design (Phil Fish and Jon Blow), out in the early discussions of indie games. Summer of Arcade launched a huge number of games, and really helped open up the lower $10–20 segment of the market in a big way.
That also helped make people comfortable with digital downloads, consoles with internal storage, game patching, and a billion other things, most of which you take for granted these days.
Anyways, when I figured this out, I started paying more attention to Microsoft, and wouldn’t you know, it’s a pretty reliable fuckin’ indicator of where the industry will go. Basically, if Microsoft does it, it’s probably the future. It’s a reliable, easy bet. And sometimes it’s wrong, like with the HD-DVD player, but it’s usually right.
What are they up to now?
As I recall, Microsoft’s software sales are really good, still better per-console than Sony’s. Sony, if you want to fix this, release Bloodborne, that Gravity Rush port you haven’t released yet, and the Team Ico games on PC. Free advice. If you want to dominate Microsoft in the software space, just do that. I guarantee it will work.
That makes sense: a software company is probably good at selling software. Microsoft’s approach is very different than Sony’s; while Sony basically gutted everything so they could make “it’s like a movie” (so that it can be adapted into other media like television and movies, which is honestly not a bad goal to have if you’re trying to make those things, but it is a bad goal when it kills the guys who made Wild Arms), Microsoft went… well, after the 360 era, which was a lot like how Sony does things, they went the Zynga route (there was a while in the early Xbox One days where multiple games released with the same basic user interface; Crimson Dragon was one of those games — they were all clearly trying to do a free to play business model).
Then they went “nah, fuck that” and they went the “systemic games where people fuck around” route, and you got things like Sea of Thieves and Grounded. As best I can tell, that could actually just be Microsoft going “yeah, studios, pitch whatever” and their studios went “please let us make variations on things like Rust and Day Z.” I don’t know for sure. I do know Microsoft is really hands off with a lot of projects, and that has good and bad aspects.
Instead of making a bunch of games with 400 million dollar budgets, Microsoft put out a bunch of stuff that was… not great for story-loving players like me. Fable turned into a now-dead “what if left 4 dead but with an evil dungeon master” and went poof. Games like Sea of Thieves sure aren’t what a Conker fan like me enjoys. At least we still got Gears, but even Halo diminished significantly during that era. We went from Gears, Halo, Fable, Alan Wake, and a bunch of other cool story-driven things to a lot of “oh yeah, this shit makes a billion dollars and when Doc reviewed Rust for IGN he gave it a 7/10.”
Basically, I didn’t play my Xbox all that much except for Forza, which fit well within the new paradigm, but is also single-player enough that I actually enjoy it.
Then Microsoft started acquiring like… a lot of studios. And the acquisitions are interesting. A lot of people thought “oh, this is because they want to have exclusives and it takes so long to take risks on building exclusives and then building them, that it’s just easier to buy up studios.”
Except… I told the story out of order. That’s how most people remember it, but they forget a few things.
For a while, Microsoft wanted to offload cloud processing to games, which was a way to help drive business to their other product, Azure (like how Sony puts their musicians on their cassette tapes! hey!), but the only game that did it well was Titanfall. Eventually, they gave up on it and decided to do what every tech company inevitably fucking does.
They decided to turn their software into a service.
But the thing is, not all games can be a service. Most games actually cannot, and most people will not play more than two service games at a time, which is why making new service games is a terrible idea in this day and age.
So they did the next best thing: the service would give people access to lots of games. They were gonna Netflixify games.
Now, Microsoft is a software company, right? If you’re a software company that really makes hardware to help sell the software (the way Sony does software to sell the hardware), because you know it’s far more lucrative to sell software on as many screens as possible than to just sell a fraction of the screens market, streaming is really good for you.
The thing is, the internet sucks, and in America, it double sucks, because most ISPs have data caps, which is the reason I don’t want to move from where I am right now without a very good gameplan.
So streaming games isn’t enough. Letting people rent games? That’s the ticket. So Xbox Game Pass does both. You can download a game to your device, or, if you’re one of the lucky 5% of Americans with internet good enough, you can stream it yourself. In countries with better internet but worse hardware, this is a dream. People who may live, in, say, a small city apartment but with amazing internet can stream their games, rather than having a whole dedicated PC setup, right?
Microsoft has done this before.
How Can You Predict The Future?
Gamers tend to just react to basic fanboy shit they hear. A company goes multiplatform, it must mean they’re killing the hardware, “because what’s the point otherwise?”
If you’re a journalist (like I was) or a consultant (like I am) or a guy who runs a game developer (which I also am), then you do not have the luxury of deluding yourself into thinking everything the company you likes is good and everything the company you dislikes is bad. If you want to survive and/or do a good job, you will need to understand what’s actually happening, not what makes you feel good to imagine is happening.
A lot of people like Sony a lot and don’t want Microsoft in the hardware business, so they proclaim, every year, as they’ve done since the Xbox was first announced, that this’ll be the year Microsoft quits.
But… look at Microsoft. What’s their modus operandi?
Well, they’re not copying Sony. They’re not making a shitload of games at Sony-tier budgets, and the ones that are (Starfield, notably) are expected to sell insanely well. They’re usually bigger games with reliable sales — instead of being a 35 hour misery porn slog like The Last of Us 2 that the consumers promptly forget to buy after a year or so, it’s stuff like Halo Infinite (which will get years of multiplayer gameplay) or Starfield (which is currently following Skyrim’s reception trajectory very closely, meaning it’ll take off when the mod tools release, just like Skyrim did). These are games that tend to sell way better than single-player games becuase they have very long lifespans.
Sony’s spending $300 million to make games that barely make that money back. Microsoft’s spending it a bit differently, not on games to sell the branded hardware, but on games that sell well. Makes sense, the software company knows what software sells, the big prestige games are designed to give prestige to the hardware being sold.
You might notice that it’s mostly just Sony or Ex-Sony devs complaining budgets are too damn high. People at other companies, not so much. Usually cause the budgets aren’t as high as Sony’s.
Sony’s trying to get into a spending war with Microsoft, but A) Microsoft is 25 times larger than Sony, and B) Microsoft isn’t as interested in building Xbox as a prestige brand as they are the platform from which they make shitloads of money selling software. The hardware is a way to make that happen, and software sales are way higher than the hardware to run them, because you only need one piece of hardware, and you can install tons of software on it, right?
Twenty companies made money on the games I bought last year. Only one company made money on the laptop, right?
The actual game sales of the Sony games aren’t really making the money to justify the budgets right now. The Microsoft ones seem to be doing better. Even Gran Turismo, which basically always breaks into eight-figure sales figures, couldn’t stop the PlayStation VR2 from being outsold or outearned or whatever by the Oculus Quest something like 35 to 1 this past holiday season.
We know that Square is not super happy with the results of Sony’s moneyhatting on Final Fantasy XVI, for instance. Capcom got paid something like $3m according to those leaks that were being reported on a while ago to keep Monster Hunter World off the PC for six months.
(It was really funny how, during the merger cases last year, everything Sony said Microsoft would do was something Sony had already done)
Sony spends money to keep content exclusive to their platform to try and drive those hardware sales. I think that’s kind of shitty. Microsoft doesn’t moneyhat like that.
I would know. I’ve seen a Microsoft contract firsthand. The terms are generous as fuck and very easy to want to sign. They are the best terms I have ever seen in this entire industry. And Microsoft only ever asks for timed exclusivity. For what they’re offering, and the fact they tend to offer it for games that would not exist otherwise (meaning they are literally bringing something into the world which they could reasonably call themselves the publisher for and just mandate is exclusive to their platform forever), I can definitely say that Sony attempting to prevent consumers from getting things is very different than Microsoft asking for a privileged amount of time considering what they offer.
Grand Theft Auto IV’s DLC didn’t exist without Microsoft. Fallout 3’s was the same way. Rise of the Tomb Raider, as I understand it, was also the same. Meanwhile, Monster Hunter World and Final Fantasy XVI were always coming to other platforms. Sony just paid to make sure most of us couldn’t access them without buying Sony hardware first.
Microsoft has always made some hardware — remember the intellimouse or sidewinders? — and it’s usually either high quality or extremely ubiquitous stuff, but it’s secondary to the software. Software has a way, way higher cap of total potential earnings than hardware does. Especially if it has a longer lifespan, like Half-Life, a game you can still buy now, even though you can’t buy a Dreamcast to play it on anymore. Sega, the hardware manufacturer, can’t keep making money off of Half-Life, but Valve, the software manufacturer, still can.
So, here’s Microsoft, and the people at Microsoft know this, so they put Office on the Mac. You ever heard of like, fuckin’, any of the Mac office stuff? No? That’s because Microsoft, the software company, could sell software better than Apple, the hardware company, could. You remember Pages? Nah, me neither.
Minecraft is on the PlayStation and Switch. Ori’s at least on the Switch. Heck, Microsoft’s so chummy with Nintendo that we got Banjo and Kazooie, Rare characters Microsoft had the rights to, back in Smash Bros.
Microsoft makes money putting their software on your hardware. They build the hardware to help set the standard for the entire Microsoft brand and ecosystem.
If you want to predict the future, the most helpful piece of advice I can give you is this: people will always act according to their nature. I think some old dipshit like Marcus Aurelius said that. Doesn’t matter. The point is, generally, if a person is kind, outgoing, and generous, you can expect them to be kind, outgoing, and generous in the future. If a person acts inconsistently from that — perhaps they’re outgoing sometimes and not outgoing at other times — it might be something like “this person doesn’t have a big social battery.” People are pretty consistent, which is very helpful if you’re trying to understand a business.
A culture is, basically, the shared practices among members of a group. Companies have cultures. At Mischief, for instance, we tend to put things we like in our games. I’ve seen other company cultures that try to make a design they think will sell first, then chase that, while others follow the whims of one person, while others just copy scenes from recent large movies to try to maintain artistic credibility. Lots of different possible cultures.
At Microsoft’s… well, they’re a software company. Even when an individual at the company may say “we’re doing the traditional game publisher model,” the company itself… well, they’ve been laying the groundwork to get games on as many screens as possible for years.
Our game Adios uses “Play Anywhere,” a thing that lets you buy the software on one piece of hardware and play it on any compatible hardware. Buy on Xbox, play on Windows. Sony used to call this Crossbuy. Personally, I want to see a world where we stop wondering if Game Box One or Two can run a game just because it’s an ‘exclusive.’
Personally, I believe the world is better the more hardware agnostic we can get, because hardware stops getting manufactured, and software can live basically forever. It sucks to think we can’t go play games like Etrian Odyssey, a Nintendo 3DS game (meaning it’s on a device that requires you to have two separate screens, one of which is a touch screen), without a 3DS or without significant remaking by the original developer. Easier to preserve software than hardware.
Generally, as you can see, I’m gonna be more sympathetic to someone going software first than hardware first, even though I fucking love hardware and I have the twenty PlayStation Vitas to prove it. You bet I might go to eBay and buy a fucking MiniDisc player for shits and giggles one day. Hell, I still want to get a Zune HD at some point, which is incredibly stupid.
Basically, “we are gonna put our games on PlayStation” was an easy bet to make because they already fuckin’ did it with Minecraft, dummy. Yes, during the acquisition stuff, there were discussions about making sure Xbox did the traditional exclusive games thing, but… Microsoft was always going to do this. Someone, somewhere, in the hierarchy, was gonna go “yeah, sorry, we can’t just sell games only on the Xbox hardware.” That’s too ingrained in the culture.
That said, hey, Phil Spencer, seriously, if you’re reading this, let’s schedule a meet. I have some thoughts about your strategy that I, as an expert consultant and all around cool dude, believe I could help you with to dramatically increase the Xbox division’s profitability, and before you ask me “is it Bloodborne 2,” I want to say “no, Sony owns that IP so obviously I wasn’t gonna suggest that you make Bloodborne 2.” Don’t look at me like that.
You Can’t Win If Your Opponent Is Playing A Different Game
Sony is still playing by old console war rules. Sony, and its fans, think they’re competing with everyone else in the industry. Thing is… they aren’t. Nintendo has always played by its own rules, but so has Microsoft.
There are two instances I can think of where Microsoft followed Sony’s lead. There may be more, but it’s not often: Sony bought Phil Harrison’s Gaikai at one point and turned it into the lamest streaming service this side of “we couldn’t actually run this game on the Switch so you’re streaming it custom rather than from a unified service” shit. It’s somehow worse than xcloud, and they’re all awful on my gigabit internet with great latency because the data center isn’t close enough to where I live for me not to experience impossibly bad latency. Look, I’m sleepy but can’t sleep due to chronic pain issues, so I’m gonna gripe about weird shit in an attempt to make this shit entertaining and informative.
Anyways, Microsoft got into streaming, but America isn’t really the intended audience for it. In America, you’re better off buying the hardware, given our shit internet. In other countries, streaming might actually be okay. Of course, Microsoft is also the premiere cloud service provider in the fucking world (except maybe after Amazon? not sure who’s on top right now), with a three trillion market cap, so like… yeah. Yeah, Sony isn’t winning that one. No one in the world can compete with Azure except literally AWS.
If you want to know why Sony does what it does, and you haven’t read the data in depth, seen the leaked emails, talked with execs, and read news outside of the actual gaming press, you might only see the specific silo that is PlayStation, as it is marketed to you by the kind of people who literally held a grudge against Kotaku for like a decade for offending them one time.
But if you actually study the company, you’ll be able to understand why they do just about everything they do. A lot of those decisions make sense within the context of what Sony’s whole deal is: they’re an electronics manufacturer. They always have been. Even when insurance made them more money. Yes, they could make even more money actually trying to run the businesses of making art well, but they’re trying to make art that looks expensive to give their electronics a premium feel. It’s no different than the piano-black finish on the original fingerprint magnet, the PlayStation 3.
Companies also tend to be slow to change. They’re big, big ships. They turn slow. It takes time to get people aligned.
If you think Microsoft is exiting games right after the $69 billion deal to buy Activision, which, for some goddamn fucking reason, people actually said was going to happen, you’d have to be an idiot. Sixty Nine Billion Dollars is a “my CEO has absolute faith in my decision making ability” move, not a “uh, shit, actually, we’re spending more than ONE HALF OF AN ENTIRE SONY CORPORATION, let’s just throw that out the window teehee” decision.
Executives are not gamers. They do not go around on forums believing dumb bullshit. They are dudes with literal armies worth of accountants named Jerry at their disposal, and these accounts explain to them in exacting detail how moving this one thing a little to the left will make their profits go up by 0.1%.
You think you min-max?
Buddy, wait until you see the kind of genuinely serious big dogs in the business sphere.
Yes, I am exaggerating for comic effect, but, seriously, talking with someone who actually has as many billions of dollars riding on them as you can possibly imagine, you get the sense that these people put a lot of thought into their decisions. This isn’t the weird, flippant shit you think it is. These guys are serious fuckin’ sharks. Any exec at a wildly successful business like this is. They’re not the weird fucking techbro dumbass execs you’re thinking of. These guys are basically old money in comparison.
Microsoft is twenty five times larger than Sony. Let that sink in.
Microsoft is like… one of the actual biggest organizations in existence. It is one of the biggest moneymaking enterprises. Literally, the most-profitable thing in all of human history at one point was Microsoft Office. This is like me trying to explain how big the sun is to someone and they’re going “yes, I’ve seen a picture of the solar system.”
And they think it looks like this:
When actually it’s more like:
Earth is a tiny fuckin’ nothing compared to the sun. Compared to Jupiter. You can fit a hundred Earths into Jupiter, if I remember right. Not in that top image, you can’t! Earth’s nearly the same size as Jupiter, and maybe half the size of the sun.
Microsoft is like the fucking sun. They are enormous.
And sometimes the people there make stupid decisions, and other times the people there make smart decisions, but they do spend a lot of time doing their best to be right.
They’re not gonna spend sixty nine billion dollars and just immediately fuck outta here. This is a company that has more cash on hand than Sony’s entire net worth.
Sony’s a lot closer to being on the ropes than Microsoft.
Sony’s overspending on games that don’t sell to bolster the PlayStation brand as a Premium Product. It’s old-school merchandise mindset. Microsoft is a digital-age company trying to sell software. Even backward compatibility was the smart play for them — if you can keep selling old games, you have additional revenue streams. If no one can buy Halo: Combat Evolved, they can’t give that hard-earned money to you. If they can play it on their latest Xbox, even if Halo’s actually a newer game than The Matrix.
I heard once that Hollywood never loses money on movies ’cause they always have ways to get revenue out of ’em beyond the initial box office run. Backward compatibility and streaming is how video games are gonna make that same kind of cash. Adios hit the end of its reasonable sales life (that is, it can no longer keep the company going on its own, but did amazingly for being around as long as it did given the scale of the project), but we can give it away in bundles and get paid to do it. That’s a way to make a bit more money out of the game, y’know?
Sony doesn’t have the Starfields or the Haloes. It doesn’t even have a major shooter franchise at all. It doesn’t have a Grounded or Sea of Thieves — both games are still going strong. What Sony has are… a lot of third person over-the-shoulder cinematic narrative games, some linear and some not-so-linear.
I saw someone animate a gif, seamlessly cutting between a bunch of Sony’s characters walking, and I found myself going “…they’re all the same game.” It’s like seeing towers in a Ubisoft game. Eventually, you get kinda bored of it, even if it technically works. It’s nice to have variety.
Microsoft has a more varied slate. Age of Empires as an RTS, Halo as a shooter, Indiana Jones as the over-the-shoulder action game, Starfield as the open world sandbox, State of Decay as the surprisingly-best-selling (seriously, it was originally a very low budget XBLA release. kudos to them) survival game, and on and on I could go.
They’re way more able to withstand the shifts of the market because they have a much, much more stable portfolio than Sony does. The issue wasn’t so much that Sony isn’t buying up studios as much as Microsoft is (and can’t afford to), it’s that Sony literally killed off studiuos and apparently mandated shifts to cinematic games. This is a death of their own making.
Microsoft isn’t leaving gaming, it’s growing.
I don’t know if that’s a good thing or a bad thing, but it’s what’s happening. Sony’s out there going “please, buy this game that literally looks current gen, with a couple new tweaks and a bunch of very cheap, extra features like director’s commentary” (seriously, I’ve been talking with the team about maybe putting a director’s commentary in Adios since that’s pretty cheap) “and a roguelike mode” (which developers keep trying to make as a way to remix content cheaply, but always ends up being more expensive than you think). They’re trying to wring as much moisture out of that sponge as they can ’cause the expense of the games is fuckin’ skyrocketing, but the expense is skyrocketing particularly for the exact kind of games Sony is trying to make all their exclusives into.
People want to say “there will be another game industry crash.” Sony might. Nintendo’s making their games for way less and doing just fine. Microsoft has a massive range of games of varying budgets, all designed to get people into service-based platforms. The hardware is secondary to that, as awesome as it is (and as much as I’m a geek for it!).
Sony is a hardware company that makes money on one of the worst things about capitalism: making parts less generic so that people get locked into your bullshit ecosystem. Minidisc, Vita memory cards, Memory sticks (which do the same thing but are for everything that isn’t the vita), betamax, you name it, Sony makes weird shit that’s not super useful as a way to vertically integrate their whole ecosystem. Can’t risk SanDisk making memory sticks, I guess.
Sony is a hardware company. You don’t make stupid shit like this unless you’re a hardware company.
Sony is a hardware company. You don’t deliberately ensure that PSVR2 can’t run PSVR games so that you have to force everyone to re-buy all the games they already bought for the PSVR unless you’re trying to… actually, no, that was just stupid. More people would buy PSVR2 IF it were compatible with their existing library.
Sony’s weirdly greedy like this. They removed backward compatibility around the time they started selling those “yup, that’s a PS2 collection on a blu-ray” version of PS3 ports of PS2 games. Suddenly you were expected to buy Ratchet & Clank twice. Or Jak like… what, three times? For some reason, even though Ratchet did better than Jak, Sony keeps putting Jak on everything, but you can’t get Ratchet unless you have a working PlayStation 3.
Sony is a hardware company. The software, for them, exists to sell the hardware. But as the cost of software rises, it becomes harder to sell hardware.
So you’re likely to see a pretty big contraction in Sony’s process over time. I wouldn’t be surprised if Jim Ryan’s gone because a lot of this happened under his watch and it’s gonna take a lot to unfuck this for them.
Microsoft, on the other hand, is getting back to their core competency. They’ve been doing it the whole time. Seriously, even back with DOS, they were doing it. Sometimes, they went too far and it got ’em in trouble (remember the Internet Explorer shit from the 90s?).
People like to try to say “hey, when Xbox One came out, Microsoft spent 50% of the presentation on TV.” That wasn’t actually true. The initial reveal was about half-TV, half-games. Sony did the same thing a few weeks later at E3, though the PS4 reveal began with the MSTRKRFT remix of Metric’s “Monster Hospital” (which was a console war song if I ever heard one — “I fought the war but the war won’t stop, for the love of God” — which I always found funny). Meanwhile, Microsoft said almost nothing about anything except games at E3. People don’t remember it that way, but go back and watch. Both companies had the same presentations, just in different order.
Why?
Well, back then, at the end of the 360 era, the most played game on either console was, I believe, Youtube, followed by Netflix. Not games. Because, again, the internet isn’t real, and all those people you know online who own a hundred games are a small blip compared to the millions of people who, weirdly, own these consoles to watch netflix on instead of buy dozens of cool games.
Seriously, I know I sound glib, because I’m sleepy and trying to remain entertaining until I pass out, but… like, seriously. It’s weird. My lived experience doesn’t match the data, and neither does yours. We know Young Sheldon sucks, but somehow more people are watching that than Fargo.
Makes no damn sense.
But the execs, those super serious sharks I talked about earlier? Those motherfuckers have that data, and they’re minmaxing it more than any gamer could ever minmax their kit.
Microsoft is experimenting with ways to make as much money as humanly possible, and they’re pretty good at it. Remember when I said “Microsoft is the future?” Here’s another fun one: a long time ago, Microsoft got off the virtual reality bandwagon. While Apple’s trying it, and it seems like a boondoggle, and Sony went whole hog into it and it sold like ass, Microsoft quietly said “yeah, we don’t think that’s the future,” and tapped out.
And lo and behold… they’re actually right. Sorry, Zuckerberg, I know you loved Ready Player One, but you advertised it by going “you can go to meetings,” and literally no one alive except executives like meetings.
Microsoft went to things more likely to work. Streaming — which they can do and Sony can’t do nearly as well, since Microsoft owns FUCKING AZURE — and game pass, which didn’t really exist before (and in the forms that it did exist, which were some digital game rental services, only Microsoft, Sony, Nintendo, Epic, and Valve can actually pull a game-pass-like service off: existing storefronts that are more than just a way to stream games, which is a big part of what killed Stadia. Turns out, people like owning games and not losing their save games! who knew? Not Phil Harrison).
Gabe Newell Time
The most interesting insight I have into Gabe Newell’s brain is that he said his dream for Valve, the most successful of the platform holders (unless you consider Microsoft as a whole and not just Xbox), was, at least at one point, to exist as an API. Any storefront on the internet could sell you a game, and that would hook into what Valve was doing, and bam. You’d get the game.
For a while, they did exactly that — wanna buy a game from Humble? You don’t get a code to unlock the game, you have to click a button and then it connects to your Steam account. Valve killed that for some reason.
Valve would, in this model, get a cut of every game sale in existence. It’s the toll booth thing we talked about earlier. Everything Valve does these days, at least from an outside perspective, is to make sure that’s what happens. It’s how Valve makes money. Sure, sure, they have CS2, but having 500,000 people playing your game right this second is peanuts compared to taking like 30% of every single transaction on their storefront.
Gabe is an ex-Microsoft employee, and you can see Microsoft’s business practices in his company. You can also see where he differentiates.
Valve tried the Microsoft thing. Make an OS, get other people to build the hardware and shoulder the risk of having to actually move an inventory, and hope for the best. But… because there were no Steam Machines directly produced by Valve, and because the Steam Controller was… a cool idea with a difficult learning curve, and because of Valve’s whole “no hierarchy” leadership style that cratered morale and made it impossible for them to ship single-player retail games at all anymore… (ever tried to do a group project? now imagine one without any deadlines where everyone gets paid the same and no one’s in charge).
That didn’t work and Steam Machines died.
Then Valve took a more Microsoft Surface approach. Steam VR. Steam Deck. Boom. Suddenly, Valve was controlling the hardware and setting the pace, just like Surface does. And, wouldn’t you fuckin’ know it, those things performed way better than Steam Machines, and now non-Valve products that use Valve’s software, like the ROG Ally or Lenovo Legion Go, exist. Valve set the tone, the hardware manufacturers will make a lot of money, and Valve will get a cut out of every transation from people who buy these things and start buying games on Steam.
Gamers Are So Dumb
If it rains today, will you assume it’s raining everywhere, across the entire world, and will rain forever?
No. You are a smart person. You know that there are trends. A weatherman is an expert who studies those trends and can do a pretty good job making bets about what will happen. It’s not about predicting the future, it’s about understanding physics. If you know how heat works, if you know how water works, and if you know how air works, you can tell people an awful lot about the future that they don’t know.
The Farmer’s Almanac guys will then be even more accurate somehow, but they’re probably wizards or something. Seriously, no idea how they’re so accurate.
Microsoft isn’t going to quit hardware because gamers have wanted them to stop competing with Sony since they first came into existence, sorry. Pay attention. Watch the company, what it does, how it acts. There’s none of the tells we saw before Nokia shut down.
Could still happen, but that’s clearly not happening soon. We won’t really know until about 2026 or 2027, when the new consoles hit. This is just usual fandom bullshit rearing its ugly head. You are clearly not paying attention if you think Microsoft’s about to gut hardware.
Microsoft still does weird shit. There’s always been a fascinating relationship with Sega, not just the formerly PlayStation Exclusive Persona series being on Game Pass, but dating all the way back to the original Xbox with stuff like Otogi and Panzer Dragoon Orta.
They also clearly really wanted RPGs, trying to get basically every major RPG studio in existence under their label. I remember hearing rumors they tried to buy CDPR, and I assume that’s where the Cyberpunk marketing exclusivity began. They picked up Bethesda, Obsidian, and InXile, which means that if someone at Microsoft is looking at Baldur’s Gate 3, they should be saying “jesus fucking christ, holy shit, let’s see if we can get a classic isometric Fallout game made by the o.g. Fallout guys STAT!”
And, now that they own Arcanum: Of Steamworks and Magick Obscura, maybe we can get a remake!!
But… look. This is a big fuckin’ business with a lot of very serious people trying to make a lot of money. They are extremely well equipped to do this. They aren’t necessarily smarter than you or I, but they have an awful lot riding on it and do try to be prepared about it. Microsoft is one of those companies that’s way beyond the corporate raider bullshit that goes around retail chains like Toys R’ Us. I’m pretty sure they’re literally immune to getting shafted like that at the scale they operate at. They are too big for a venture capital firm to rob like this.
Maybe they do leave hardware one day, but the problem the gamers have is that gamers are fundamentally conservative. They expect everything to work the same way as it always has. Microsoft is a company that is true to its nature — get software everywhere — and they’re always trying weird shit to get there. It’s why they’ve always been a fascinating company to watch; they are big, as evil as any other big company, they get things (like Cortana, the search chatbot thing) wrong. I think they’re wrong about AI.
But… every bit of evidence we have doesn’t point to them quitting the hardware market, sorry.
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