Is Microsoft Moving Away From Video Game Consoles?

Image source: Microsoft.

Microsoft Corporation's head of Xbox gaming division, Phil Spencer, made waves among video game players and developers alike at a recent Xbox showcase event. Comments about "unifying" the Xbox and Windows 10 platform are causing concerns that Microsoft could be moving away from video game consoles or making Windows less open. Both concerns seem to be overblown at this point, and the move would likely strengthen Microsoft's competitive positioning.

What's a universal platform?The comments shouldn't come as a surprise, as Microsoft has already been moving in this direction. It's updated the Xbox to be compatible with Windows 10, and offered the ability for Windows 10 PCs and tablets to stream games from any Xbox in the house. But the difference this time is the push for Universal Windows Applications, or UWAs.

The idea behind UWAs is to have games and other applications run across multiple devices on a common ecosystem, called the Universal Windows Platform. Games developed for the universal platform will be able to be run on a PC, Xbox, tablet, or phone. Microsoft will be unveiling some of these universal apps and tools later this month, and this spring it will be releasing a new Forza Motorsport game for free to Windows 10 users, a popular franchise previously only available on the Xbox.

BenefitsGamers should benefit if they only need to buy a game once and it works on all of their devices, rather than buy multiple copies. Hard-core gamers may also like the idea of the Xbox becoming more like a PC that is upgradable or refreshed more often. Currently, game console hardware is refreshed every five to eight years. With a faster refresh cycle, such as two or three years, gamers can enjoy better hardware and graphics without having to wait for the next upgrade cycle. It would also make games automatically backwards compatible, so old games will still work on new hardware.

Developers should in theory also welcome the move as blockbuster games will not have to be written for both the PC version and the Xbox version. Spencer claimed bringing the two together has, and will, result in more games being developed.

Why the uproar?If the move is so great for everyone involved, why are gamers and developers so upset? Developers are worried Microsoft is attempting to make its own "walled garden" for the PC game market, similar to what mobile app operating systems have done.

Microsoft has confirmed anyone can use its tools to develop Windows Universal Apps, but to distribute them they will have to do so through the Windows Store, after registering and following their guidelines.

Game developer and founder of Epic Games, Tim Sweeny, blasted Microsoft over this point in an op-edin The Guardian, claiming the move is anti-competitive and will hurt consumers by closing off the currently vibrant and open Windows ecosystem. Spencer has responded, claiming this will not be the case, but specific details will need to emerge to see who is right.

What about gamers? Do they actually want or need this? Some devotees of the Xbox believe Microsoft may be abandoning them and will instead be focusing resources on PC games. Gamers also got mad when Microsoft recently released sci-fi game Quantum Break for the PC, weeks before the Xbox, after previously touting it would be an Xbox One exclusive.

Another potential problem with a move away from consoles is losing the benefits of a dedicated gaming device. Part of the appeal of the Xbox compared to a PC is there is no need to check recommended hardware specifications, download special drivers, or install and configure games. Gamers only need to pop in the disc and start playing.

Spencer has tried to assuage these fears as well, clearly stating in a follow-up interview that it is "absolutely not" true that Microsoft is backing away from console gaming. Personally I believe this will be true in the short run, as Microsoft would be making a big mistake to alienate fans of such a big franchise. But in the longer term, I'm not so sure if it makes sense for Microsoft to be in the hardware business of consoles.

What this means for investorsFrom a competitive advantage, the move to unify Xbox and PC gaming with Windows 10 makes a lot of sense. Rather than having two very distinct businesses, Microsoft can leverage both off of each other, bringing more services to gamers and to the living room in general.

It also signifies a shift away from hardware and the continued push for software and services. Video game console hardware has notoriously razor-thin margins, with companies often selling them at a loss at the beginning of their life cycle in order gain loyalty to their platform and hopefully make up the loss in future game sales.

If Microsoft moves away from hardware, it can focus on more lucrative software and services, such as monthly online subscriptions. Again, I don't think Microsoft will be ditching the actual Xbox console soon, but perhaps it will start to push living room PCs running Windows 10, partnering with other hardware manufacturers.

At the end of the day, Microsoft is a software company, and its competitive advantage lies in its ubiquitous operating system and related services. Where it does venture into hardware, it is usually to experiment or show other manufacturers what is possible with Windows, such as the Surface. Unfortunately Windows missed out on the move to mobile, but it might be able to make up some lost ground if it can successfully extend its operating system further into gaming and the living room.

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Chris Kuiper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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