Microsoft's Activision Blizzard deal just tipped the balance in its console war with Sony

Is Xbox a piece of hardware, or is Xbox a software platform? The obvious answer is "both." After all, Xbox Series X and Xbox Series S are game consoles, while Xbox Game Pass is a game subscription service. A better question, then, might be.

"What will be the Xbox of the future?" After its monumental acquisition of Activision Blizzard, Microsoft is now one of the most powerful software publishers in the games business.

Xbox console, Xbox service how about PS5?

Plus, Microsoft's goal over the last few years has been to make Xbox a whole gaming ecosystem, not just a family of consoles. Xbox hardware has been around for 20 years; what are the chances of it surviving another 20 years?

The short answer is that Xbox fans can rest easy, for now. The Xbox Series X is hugely popular in 2021, and it looks like 2022 could be an even bigger year for the console.

But as Microsoft focuses more on subscriptions, cloud play, and cross-platform compatibility, its need to produce a custom gaming system may not last forever. And an analyst we spoke to believes this acquisition could strike a balance of power with Sony in the console wars.

Xbox console, Xbox service

“This is a huge development,” said George Jijiashvili, a principal analyst for games at London-based Omnia during an interview with Tom's Guide. “This underscores Microsoft's commitment to gaming and will no doubt impact the dynamics of the broader gaming industry.

[Microsoft CEO] Satya Nadella once again underlined Microsoft's huge ambitions in gaming, which is expected to grow alongside Microsoft's broad range of capabilities, from hardware to consumer services, development tools, and cloud services.”

Of course, the Microsoft acquisition has to actually happen before it can shake up the entire industry. In that sense, Jijiashvili expects him to "distract" in the area of ​​antitrust law.

However, he thinks the deal will eventually go according to plan.

Imagine how Microsoft would look on July 1, 2023, right after the ink on official documents had dried. (Activision Blizzard has until June 30, 2023, before Microsoft officially swallows it; it could happen sooner, but it won't happen later without some sort of costly delay.)

The company will own the publishing rights to games from Double Fine, Nixie, Morang, Ninja Theory, Obsidian, Rare, Bethesda, and Activision Blizzard. That includes, among others, the Minecraft series,

The Elder Scrolls, Doom, Call of Duty, Diablo, and Warcraft. Each of them was at least a minor pillar of the gaming industry; taken together, they include some of the most popular series of all time.

In other words, Microsoft will soon have an almost unparalleled selection of software, whether you measure its success by units sold, money earned, or popularity among gamers. Between its slate of publishers and its increased focus on the Xbox Game Pass, Microsoft may not need to produce Xbox consoles forever.

However, the Xbox console is still a key part of Microsoft's strategy in the here and now, according to Matthew Bailey, principal analyst for media and entertainment at Media.

Xbox Series [X/S] consoles

·      "Despite strong demand for its Xbox Series [X/S] consoles, Microsoft currently still sits in third place in the global console market, behind Nintendo and Sony," said Bailey. 

·      “Most importantly, the proposed completion date for the [Activision] console acquisition will coincide with when more casual gamers will be looking to pick up the new console. Making Call of Duty exclusive to Xbox — or even just included as part of Game Pass — could be a huge benefit.”

·      However, Bailey and Jijiashvili both agree that Microsoft's continued investment in Xbox Game Pass — and Xbox Cloud Gaming, in particular — will make these services even more necessary over time.

·      “Microsoft's heavy investment in cloud gaming is accelerating the entire industry's shift to cloud gaming,” Jijiashvili explains. “With more publishers, game makers, and device manufacturers moving into the space, Microsoft will be well positioned to offer aspiring cloud game providers solutions across the value chain.

·      "While Xbox will remain committed to its console business as its primary focus for at least the first half of the decade, we will likely see higher cloud and subscription priorities towards the second half," Baily added.

To be clear, the next-gen Xbox console is at least five years away, if the last two console generations are any indication. Microsoft sold a ton of Xbox Series X systems, and will likely sell many more once the supply chain stabilizes a bit.

Xbox Console and Xbox Game Pass go hand in hand and will complement each other even more once the Activision Blizzard deal is closed.

But “Xbox, ecosystem” seems to be evolving much faster than “Xbox, console,” and dedicated gaming hardware may no longer be such a strict requirement.

How about PS5?

Microsoft's “every piece of software, everywhere” strategy contrasts sharply with Sony's “a handful of high-quality exclusives, only on PS5”. Currently, the PS5 is selling better than the Xbox Series X, although the former is generally harder to find. 

But Sony didn't have a service that rivaled Xbox Game Pass (yet—see Project Spartacus), and the company's biggest hit didn't come to PC until years later.

Simply put, the next few years will pit Sony's “console-bound game” and Microsoft's “game as ecosystem” philosophy against each other. Both strategies may work in the end. But Media analysts believe that Microsoft's strategy will work better.

·      "Based on Microsoft's aggressive developer acquisition strategy and the increased value generated from the Game Pass subscription service, we predict that sales of Xbox consoles will be stronger than PS5 later in this generation's lifecycle," Bailey said.

·      “[The] long-term goal is to create an all-encompassing cross-device gaming ecosystem that goes beyond owning an Xbox console.”

Jijiashvili, on the other hand, pondered whether Sony would — or even could — attempt the same bold acquisition to compete with Microsoft. The main problem, he argues, is that Sony doesn't have as much money as the American tech giant.

"Sony is now under immense pressure to respond,"

he said. “Sony doesn't have as deep pockets as Microsoft, so options are more limited... This acquisition of Activision Blizzard may force Sony to make a bold move with regards to its subscription offerings.”

If Sony wants to compete more with Microsoft, and with Game Pass specifically, Jijiashvili argues that the company could commit to day one first-party release through the subscription service.

Sony can also play to its traditional strengths: high-end exclusives, a library of reliable legacy games and PlayStation VR. Right now, only about half of these ideas (exclusives and VR) seem to be running at full speed.

In short, Microsoft's purchase of Activision Blizzard probably won't eliminate the need for Xbox hardware, nor will it definitively end the PS5/Xbox sales competition. But it's a major step on Microsoft's path to a platform-agnostic cloud-gaming future. 

And if consoles do become an optional part of the console gaming world, whichever publisher offers the best games will be in an enviable position.