While the US technology giant has said it is still working on a new generation of more powerful consoles, analysts think its long-term direction is clear.
“All signs point to the hardware becoming less and less important to Microsoft, so there is that possibility that we could go back to a point like we were in the 1990s where the viable choices of console were all Japanese,” said Serkan Toto, head of the games consultancy Kantan Games.
Giving up the console fight to concentrate on software could be taken as a huge victory for Japan. To many, the birthplace of Super Mario, Sonic the Hedgehog, Final Fantasy and Pokémon is the spiritual home of the console and has featured industry’s fiercest “golden age” 1980s and 1990s clashes of Nintendo vs Sega, and later, Nintendo vs Sony.
“It may not happen immediately because the technology of cloud gaming is clearly not ready yet, but from what Microsoft is indicating, there is a possibility that we go back to an all-Japan console industry with Sony and Nintendo each dominating their part of that market in their different, unique ways.” said David Gibson, an analyst at MST Financial.
But the return to a Japan-only industry for dedicated games hardware could more clearly define the console as a commercial cul-de-sac.
That issue, said independent games analyst Pelham Smithers, could be particularly acute for Sony, which last week announced plans to cut 900 staff from its games unit.
“It was tough enough for Sony arguing the need to investors for a PS5 — and a lot of people at the time were saying that the PS5 could be the end of the line — but Microsoft’s commitment to console gaming helped,” said Smithers.
Microsoft, which has spent huge sums on acquisitions of game studios such as the $75bn purchase of Activision, is facing similar issues with its hardware economics. Analysts said the US company may have greater motivation than Sony to become an all-platform king
“The state of the console market right now may not be an advertisement per se for Japan getting its mojo back. It feels more like these three very idiosyncratic businesses are doing well or not for idiosyncratic reasons,” said Robin Zhu, games analyst at Bernstein.
There is a chance that Microsoft’s new direction is a “win, win, win situation”, according to Atul Goyal at Jefferies, because of the different situation each company finds itself in.
Microsoft, he said, could pump up returns by offering its games across different platforms while Nintendo and Sony would face “less intense competition” and benefit from having a wider choice of titles for customers.
But, as Zhu said, one factor that might keep Microsoft from killing off the Xbox entirely is the same thing that will keep Sony and Nintendo in the market — the fierce loyalty of gamers.
“The concern [Microsoft] will have is that you’ve already convinced your customers to buy the hardware; by telling them that Xbox games will be on every other platform, you risk upsetting your highest engagement and most dogmatic customers,” he said.
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