Microsoft at E3 – Game on.

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Better late than never.

• The biggest move at this year’s E3 gaming conference was Microsoft which may be finally moving to address the biggest opportunity in gaming, the smartphone.
• In addition to 50 new titles, 15 Xbox exclusives and the acquisition of four gaming studios, Microsoft also announced that it is working on a streaming game service.
• The genesis of this strategy began about 12 months ago with a dedicated team coming together at the end of 2017.
• With only 6 months of development under its belt, it could be a while yet before anything is launched, and I think that the key to this will be the multiplayer experience.
• The aim of the service will be to offer (for a monthly fee) a service that is available on any device including iOS and Android based smartphones.
• I have long seen game players falling into two categories:
  • First, PC and console: These are hard-core dedicated players who spend a significant portion of their time playing games.
  • They are willing to spend a lot of money on both hardware and software but are, compared to mobile, relatively small in number.
  • Second, Mobile: These game players are casual gamers.
  • They will pick up a game for a few free minutes here and there and then maybe not play it again for days.
  • The preferred games are far simpler in nature, much lower in cost and require far less dedication from the user.
  • Although the individual spend per user is much lower, there are so many of these gamers, that this is a very relevant revenue stream in its own right.
  • For example. Tencent’s $517bn market capitalisation is largely based on selling games to smartphone owners in China.
• While Tencent dominates the market for mobile gaming in China, in developed markets, the opportunity remains relatively open as there is no one player that dominates the space.
• This is why Activision bought King Digital (creator of Candy Crush) and why Tencent bought Supercell (Clash of Clans) but things have not gone well for either of these two post acquisition.
• As a result, I still see the gaming space as being wide open.
• The big question for this streaming service, is where it will be targeted and how compelling the multiplayer piece of it will be?
• Hence, if the service is targeted at every game player, it will need to have two distinct categories each optimised for the device upon which the game is playing played.
• Furthermore, as the games themselves tend to be very different in terms of complexity, how they are played and price, there will need to a separate catalogue targeted at each of the two segments.
• This should be further enhanced with Microsoft’s acquisition of four gaming studios, which should help make the Xbox gaming service differentiated from competing offerings.
• Both Microsoft and Sony have so far failed to address the opportunity in mobile thus far, but this is a move in the right directions.
• The success of this service will be determined by the quality of the user experience and how well Microsoft convinces developers to make their games available for it.
• Microsoft, which is now predominantly an enterprise focused company and has been a favourite of mine for a long time, is now looking pretty fully valued these days and so one could be forgiven for taking some profits on the name.