Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. No investment advice, views all my own. Feb. 02, 2020 3 min read + Your Authors

1) The Metaverse will likely be the next platform after smartphones.

Xbox All Access, which has received little attention, might drive the biggest change in the videogame industry since the shift to digital/mobile while advantaging Microsoft in this coming platform shift.

2) Xbox All Access is a free Xbox in exchange for a 2 year, $20 per month Gamepass subscription. This is a new business model, not a new technology.

The same way that cellular service was sold in the United States for many years. Device subsidy in exchange for a subscription.

3) Funny that everyone is so focused on cloud driving subscriptions when this is a much easier, better subscription value proposition for consumers.

Streaming is a delivery mechanism. Subscriptions are a business model.

4) I do think it needs to be below $15/month for this to really work. My biggest takeaway from spending several years as a Roku board observer is how price sensitive customers are. $10 to $12 per month for streaming video is too much for many, hence ad supported services.

5) If All Access is ever offered at lower price, it will likely expand the TAM and accelerate the business model shift for publishers to games either being free to play or bundled in a subscription vs. $60 upfront. Likely a much more lucrative model. 

6) Success would put pressure on the biggest games to be in the Gamepass as engagement is everything for monetization and for PvP quality given the importance of a large player pool to matchmaking and Status as a Service. Flywheel would ensue. 

7) However, the publishers of the best franchises would also have leverage given that the largest games account for a much higher % of engagement relative to the largest movies/TV shows/music.

Large games are already social networks today. “A place, not a game” per @ow

8) Despite some inevitable consternation, I think publishers would make significantly more money over time with a subscription/F2P based model.

*All* of the world’s largest games by revenue are F2P. And subscription/F2P revenue is capitalized at a higher multiple

9) And it’s the ultimate trump card for Microsoft vs. the PlayStation which would find it difficult to compete with this offer on every level: financially, technologically, etc. Also helps head off streaming based Xbox competitors like Stadia who currently lack content.

10) Already beginning to happen with Gamepass subscribers up over 100% in the December quarter. Could bundle in XCloud for an upcharge, but marginal costs for streaming are real so this will take time.

11) As @ZhugeEX noted the ultimate goal is eliminate all barriers to entry to gaming; for consumers to be able to play all Xbox and PC games anywhere on any device at any time and Microsoft to get a cut of all the ensuing revenue. Engagement always drives monetization.

12) Irrespective of any Xbox business model shift to subscriptions that may include XCloud, I remain optimistic about streaming over the next 2-3 years. I do think controllers like the Razer Kishi are the “unlock” for streaming: 

13) Near term, streaming is primarily pressuring platform take rates by expanding distribution options for publishers to their benefit.

Mixing subsides/Gamepass/XCloud *might* pull a streaming reality forward and advantage Microsoft in this reality.

14) Given that all major platforms are positioning themselves for the Metaverse, it would be ironic if Microsoft “won” the coming platform shift to the Metaverse based on the Xbox which Wall Street wanted spun off only several years ago. 

15) AR becoming a widespread reality in the next few years is the biggest risk to Microsoft using the Xbox as the winning foundation for its Metaverse platform.

The current dominant smartphone OS’s have already won in an AR first Metaverse.

You can follow @GavinSBaker.


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