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Intelligence Brief: The end of the console wars ushers in a new era of gaming

By the end of this week, both Microsoft and Sony will have released their latest gaming machines, the Xbox Series X (or S) and the PlayStation 5 (PS5).

The launch of a new generation of consoles would normally signal the start of a new console war like the one which raged throughout the 2010’s between Sony and Microsoft. But as the gaming world prepares for the arrival of the new consoles, what is most striking about this generation is how unlike it is to the previous generation.

Although Sony has stayed largely in its comfort zone with the PS5, producing a console whose primary appeal will be its library of marquee exclusives, Microsoft has instead embraced an emerging and increasingly popular subscription-based model for its gaming business. This move leverages its extensive institutional expertise in cloud infrastructure, and has the potential to permanently reshape both the console world and the wider gaming market, with immediate and direct consequences for mobile operators and smartphone OEMs.

How to build a Netflix for games
Our recent Consumers in Focus survey suggests that the PS5 will once again outsell the new Xbox, with 14 per cent of consumers intending to buy it compared with 9 per cent for the Series X and S. But from Microsoft’s perspective, raw unit sales will be much less important than they once were, as its strategy is now built around its Game Pass subscription which allows users to pay a monthly fee to access a library of titles to play on any device including Xbox, PC, or smartphone. As Microsoft CEO Satya Nadella put it, the company’s aim is to become the “Netflix for games.” To achieve this, the Xbox maker has not been shy about investing, spending billions to acquire high-profile game developers to bring high quality, premium titles to its platform. So central is the subscription model to Microsoft’s new strategy, it is even offering the new Xbox bundled in with its All Access Game Pass subscription, for about $10 extra per month.

There are several reasons for Microsoft to be optimistic about its odds of success.

While the console gaming market is relatively small (earlier this year we estimated there are about 778 million console gamers globally), the broader gaming ecosystem is massive, with some 2.5 billion people playing on either a smartphone, a PC, a console, or a tablet. Despite being a nascent business model, gaming subscription services already enjoy reasonably high adoption figures in the gaming community, as 28 per cent of console gamers already have one. [1]And, our survey showed, the top feature drawing current users to gaming subscriptions in the first place also happens to be the one that Microsoft is investing the most heavily in: a large library of high quality titles (see chart, right, click to enlarge).

Our survey shows there is certainly latent consumer demand for a “Netflix for games”, but there are other signs out there that gaming subscriptions are poised for growth. Most notably, there has been an enormous influx of new entrants into the subscription gaming market of late. Beyond Microsoft’s manoeuvring in the console space, Apple recently reshuffled Apple Arcade to fit within its combined Apple One subscription, which will bring the service to far more customers, and now Amazon and Facebook have announced new gaming services. This doesn’t, in itself, mean gaming subscriptions are guaranteed to take off (the industry has been wrong before), but the sheer volume of activity in the space makes it hard to ignore.

What is unique about Microsoft’s strategy is it was first big name in gaming to pursue a largely device agnostic approach to gaming subscriptions. That a legacy player should want gamers to be able to access their games no matter what device they are using is genuinely innovative, and is only possible because of Microsoft’s position as a both a gaming company and a cloud infrastructure heavyweight. The reason this strategy signals a shift not just for Microsoft, but for the gaming industry as a whole, is the move brings a radically different style and calibre of game to the mobile gaming ecosystem. And in terms of competitive landscape, Microsoft has gone from competing head-to-head with Sony (and to some extent Nintendo) in the 2010’s to competing with any company with a presence in gaming, on any platform. Deliberately increasing the number of direct competitors you face may not seem wise, but in so doing, Microsoft has more than tripled its addressable market, mostly by tapping into the massive and under-monetised world of smartphone gaming.

New opportunities in a changed gaming landscape
For the smartphone and telecom sectors, the impact of moving large numbers of console gamers onto mobile platforms is likely to be both immediate and profound. Operators, in particular, should be paying attention to the ways Microsoft is redefining its position in the gaming market, as the ability to stream games over operator networks is central to its approach. This move dovetails with the operator push to roll out 5G, as mobile gaming has been one the key use cases for operators to highlight their new network’s capabilities. Our survey showed console gamers are more interested than average in upgrading to 5G (66 per cent intend to, compared with 45 per cent among non-console gamers), so operators should take this opportunity to convert as many of them as possible, whether that be through a partnership with an established cloud gaming provider, cross-promotion, or some other arrangement. Smartphone OEMs can similarly benefit, as Samsung is doing by offering a trial of Microsoft’s new service bundled with its devices.

As Microsoft moves into new competitive terrain, it leaves a reconfigured gaming industry in its wake. What is certain is that the Microsoft/Sony console wars of the 2010’s are over and a new era has begun. The most likely effect of Microsoft’s moves to bring console gaming to new devices is the collapse of the silos that have traditionally separated different segments of the gaming world. Where hardware was once the crucial factor that decided the games you could play, Microsoft’s manoeuvres could signal the start of new paradigm where games are accessible at any time, from anywhere, on any device. Even a few years ago the idea that Microsoft could pivot to become the Netflix of gaming would have been met with scepticism. But it’s often forgotten that before Netflix grew into the streaming giant we know today, it spent years as a mail-order DVD service, struggling to compete against firmly entrenched legacy players in video rental and pay-TV. Only when it embraced nascent digital streaming technology did it succeed, and in the process it ushered in a new paradigm for online video. It’s possible that in the not-too-distant future, we might recall Microsoft’s pivot to subscription gaming as a bit of history playing out again.

Jason Reed – lead analyst, Digital Consumer, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.


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