r/gaming • u/anurodhp • 16h ago
Why Microsoft's $80B Xbox Bet Backfired | WSJ What Went Wrong
https://www.youtube.com/watch?v=zpqTnv7H2eo185
u/kickinwood 13h ago
The Activision purchase was a mistake for multiple reasons. Spend that much company money and you lose autonomy within Microsoft. They eye of Microsoft Sauron was then focused on Xbox, and it wanted a return.
That pressure then leads to the game pass price hike. The subscribers they had weren't there for call of duty, so being charged $120 more per year for a game they could just buy for 70 in the past if they even wanted it made no sense to consumers. They bailed. It's easier to retain subs than get new subs, so lowering the price (though they didn't lower it back to where it was before) and removing cod was too little too late. Customers had already been without game pass and getting along just fine, so why go back?
All because of Activision/Blizzard.
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u/TheGreatOneSea 12h ago
Microsoft wanted King/Candy Crush, far more than Activision/Call of Duty, because it was the easiest way to break into the Asian market. Considering that King and Minecraft are also the only things making any money, Activision was probably the best buy Microsoft did in the gaming space.
Hell, stock holders of Activision even took Bobby Kotick to court over selling too low; did anyone else do the same for their CEOs?
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u/kickinwood 9h ago
They made a lot of money. Will they make a lot more?
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u/GWI_Raviner 8h ago
Candy Crush never stops making money. Acti/Blizz’s biggest earner for what, a decade?
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u/kickinwood 8h ago
Cool. Now keep that up for another 80 bil
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u/TheBeeSovereign 40m ago
According to a quick and dirty Google search I just did, candy crush made about 20 billion in 10 years, so if we split that to an average of 2 billion a year it'll take 40 years to pay for the acquisition lmao
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u/esmifra 6h ago edited 5h ago
Depends on how much Activision make in 5 years and how much Microsoft wanted to get back as a margin.
When you make an investment you want a return, either that investment be in stock, some bank fund or deposit, a house or whatever.
That return can be measured in years, 2,4,5,10.
If you spend 80B$ on an asset. You want that to grow. Activision made 8.7B$ in revenue and a 'meak' 2B$ in profits in 2023...
Any sensible person can see that no matter how much candy crush or Warcraft or whatever Activision has to sell, they would never get back those 80B$ in a a sensible time frame. If you invest 80B$ something that something better get paid back in 5 years (per rule) with some more on top of it.
Which leaves strategy, the strategy was that they would lose the money but it would lead to the target game pass subscribers they wanted and put Xbox on top.
It didn't. Therefore it failed miserably. Lost the money and lost the target.
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u/kingmanic 11h ago
That sounds like cope. King may make money but did nothing for them strategically and they will recouped the cost in 70 years if candy crush doesn't die. That's a Terriblde deal. They have not pushed further into mobile after all this time so it seems to be a lie.
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u/Schmenza 12h ago
ABK actually makes them money. Can't say the same about the studios they just sold off
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u/kickinwood 9h ago
Does it make them 80 billion dollars? Cause it needs to be that to break even.
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u/DGSmith2 8h ago
That’s not how any of this works…. They didn’t spend 80 billion and then become instantly 80 billion down. The company is still worth value.
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u/kickinwood 7h ago
True. I'm being silly with numbers to make things more understandable, I'll admit. If you're saying that Microsoft will be okay, lol, I agree. This was a miss. A dramatic miss. An 80 billion dollar miss. Nothing from candy crush, or call of duty, or world of warcraft will make them 80 billion dollars over any amount of time. They bought high.
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u/Mind1827 1h ago
This is incredibly naive, sorry. Part of buying your competition is having market control. Microsoft wants to own the way you play and buy games, they want to own the marketplace, which is the Microsoft store and Game Pass, and then have enough stuff to put at the front of the store so you buy their stuff and not the competition.
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u/thekillergreece 7h ago
It took 10+ years for GTAV to make 10billion dollars.
There was no way Microsoft was getting 70b back within a decade or so.
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u/raralala1 12h ago
This and Bathesda is Phill biggest fuckup, MS doesn't have to buy both company. I seriously don't know what happen in the back since I am pretty sure all decision is from Nutela anyway and Spencer is not the true boss like other gaming console CEO.
I feel like Nutela have big vision of gaming without platform, where gaming propping up Windows, so they can take the loss. But somewhere along the way, AI hype comes around and he decide he doesn't need gaming anymore or don't want to absorb gaming loss, which is why the ridiculous demand for 30%YoY growth for Xbox comes, either that or it is a way to justify firing Phill. Either way, game pass strategy is over, it is not going to achieve the goal they set to it.
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u/faffc260 11h ago
gaming wasn't meant to prop up windows, azure does that for microsoft just fine. I doubt with the knowledge from the FTC lawsuit over the purchase that it wasn't phils decision, sure satya approved it, it was a fuckload of money. it was them doing nothing with these studios to immediately turn around the money they hemorrhaged buying all these studios, most of the selling points from bethesda were either lower earning games, flops, or at least met mixxed receptions, call of duty wasn't able to be made exclusive for 10 years. sure they got wow and cod money form multiplat sales, but phil was all in on the subscription model, which once he included all those now first party studios as day 1 on gamepass he had to raise the price to the point it wasn't worth it.
on top of that, phil wasn't giving any of his studios direction, the ones being spun off now were given the rope asha sharma is using to hang them by phil, they were told to make games that didn't have huge mass appeal cause phil thought variety sold subs and retained them more than big blockbuster hits. toward the end phil was seeing everything he tried to turn xbox profitable and justify all the money he spent in an attempt to out spend sony to come out ahead of them fail as xbox console sales floundered. so he went multiplat in a last ditch effort to save it as a publisher and subscription model or something, I'm not really sure.
he then had to hike the price of gamepass cause he wanted all first party games on gamepass, including cod, on day 1, that cannibalized their traditional sales massively. which ended up with tons of subs dropping cause they didn't care about the new games, and many of those new subs interested in them would sub for a month or two tops, and be done. I think his focus on a subscription model is what doomed his business plan, at least one that had all first party games day 1. it incentivized people to not buy their games on console, they get them with their sub to the online service or just gamepass alone if they didn't play online games.
combine that with what we're seeing with sony right now and everyone wanting to "own" their games, even though all software obtained on a disc or through the internet is just being licensed still and most of those are revocable, that people don't want to rent their games from companies in fairly large numbers, I doubt all these people wanting physical games cause they think it offers more ownership than a digital purchase wanting even less ownership.
phil did a lot of good things for consumers, he was good to his devs until satya started wanting to see returns on his investments into xbox and he started trying to make it profitable but in ways that all failed, that satya realized phil was terrible at his actual job of making a profitable division, and his plan to beat sony by buying all the studios up he could was hemorrhaging money. he wasn't a good business man but he seemed like a good person at least.
so they told him and sarah bond to take their golden parachutes and either retire (phil) or look for new work (sarah) and brought in someone who had proven (or at least so I've been told) to be able to turn divisions that were hemorrhaging money around in relatively short order to take over, who essentially has the plan to change everything about how phil ran things cause it wasn't making money.
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u/raralala1 11h ago
You can't say Phil bad at his job, when he is doing exactly the same thing for 10 years, Nutela have 10 years to correct his mistake, IF he think it was a mistake. But Nutela didn't because Phill doing thing by Nutela command, the plan is plain and simple Game Pass prop-up Xbox, Xbox prop-up windows, azure prop-up MS so MS can prop-up Game Pass.
Somewhere along the way AI hype come, MS need money to prop-up AI but they can't, not with 1 of the department not making good money. The plan changed, it is not that Nutela realized that Phill bad at his job, this is Nutela realize there is something worth more to chase and it is not gaming.
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u/faffc260 10h ago
no, it was the massive spending combined with lack of profitable hits made by aquiring all those studios after years of chances too. when it became clear every move phil did to try to right the ship made it worse, he replaced him with someone who apparently has a track record for success. look into the lawsuit over the aquisition of acti-blizz-king, phil made most of the decisions himself.
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u/raralala1 10h ago edited 10h ago
Dude you are dreaming if you think you can SPENT 69 BILLION, without a lot of discussion from your big boss, more so if the money DO NOT come from XBOX.
It is like when your mommy tell you to spent the money because she can afford it, but later decide "wait a minute, I change my mind, this u/fafffc20 can take the blame because he is stupid enough to spend the money". Would you still blame yourself or your mom.
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u/faffc260 2h ago
of course he discussed it with satya, I said he approved it, but it was phil's idea. there's literal evidence of this. you dense as a pile of bricks or something?
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u/Dallywack3r 15h ago
WSJ lowkey has some of the best gaming industry coverage of any major news source. They broke a TON of stories about Activision’s workplace culture
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u/Musicman1972 14h ago
A lot of non industry coverage is good because they see these just as companies and analyse them as such.
They have a useful distance. Industry writers can't help but have favorites and blind spots.
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u/Lunar_mirror4 6h ago
"Favorites and blind spots" also known as bias. I think people in modern times are so used to the social media influencer "news" they receive on a daily basis that the idea of a purely clinical, factual and non emotional analysis of something is now not only strange but possibly even too boring to engage with, but if you want real news.. thats how it needs to be
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u/Musicman1972 1h ago
We live in a strange world generally now where even IPO filings are written like influencer social media posts.
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u/Chicano_Ducky 12h ago
people always run these stories through their personal biases regardless
the cracks in the industry were already known to places like bloomberg when they reported the problems at nvidia during the 360 era.
they were locked into such a long term deal that factories were wasted making ancient consoles when they could be used to make GPUs for the cryptomining craze at the time
gamers said it was just sour grapes because AMD was supplying for the next gen. they missed the forest for the trees.
now look at Nvidia, they are now one of the most valuable companies on earth.
that was the canary in the coal mine for the whole industry, and hardware too because right after that the first trade war hit. Gaming only looked good because of the post 2008 tech boom hype cycle, not actual fundamentals.
the entire business model for games never made actual sense because it was an unreliable income using incredibly expensive tech workers for many years at a time, but that didnt matter to all the cheap debt flowing into the industry.
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u/Jedzelex 15h ago edited 12h ago
I remember reading an article about the original Xbox back in the days.
A journo got an Xbox rep to admit that they had lost $2 billion with the OG Xbox. Just to make sure the console ended up in second place behind the PS2.
But the rep made sure to say that they saw that $2 billion lost as "an investment."
In a way, it did end up paying off with the X360. The brand was well known by many by then.
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u/PhasmaFelis 10h ago
That's not just cope, it was the plan from the beginning.
When the OG Xbox was still fairly new, Microsoft had this ad pamphlet about how, if you bought an Xbox, you could trust them to keep supporting the console for many years, because it had Microsoft money behind it and they were committed even if it took them a decade to turn a profit.
They did exactly what they said they would, and it worked. (And then they fucked it up some years later, but that's a different issue.)
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u/NtheLegend 14h ago
I mean, that's how it was always designed to work, as it happened. OG Xbox walked so 360 could run, outsell PS3 2:1 here in the US. They wouldn't have been able to do that if MS hadn't spent all that money building up Live and the server infrastructure behind it. Sony spent the PS3/PS4 years catching up and it was never as good.
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u/NoirEm 12h ago
Am I confused? I thought the PS3 outsold the 360 in its final years. Xbox was too focused on Kinect and didn’t have the games to compete against PS3’s 2012-2013 releases.
Xbox then went and fucked around with the Xbox One, which gave the PS4 a great advantage in addition to PlayStation already having a crazy momentum from those years I mentioned prior.
GTA V was a great release, but the PS4 added a lot of basic social features ppl wanted from 360 that were lacking on PS3 (I believe due to its RAM?) and just simplifying many things.
Even with the 360, Xbox had the advantage of PlayStation out pricing and not meeting the demand for the PS3. It was easier to find an Xbox compared to a Wii or PS3 for many people. They had better console sellers compared to the PS3 too, but I would love people to correct me.
I know people had purchased a PS3 cuz it was also a cheaper option for blu ray players at the time, but man the PS3 was lacking so much at launch. It seems like each company fucked around and the other took advantage of it.
The Series S parity (from a dev standpoint) and the proprietary storage seems to be another one for the current generation.
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u/NtheLegend 12h ago
Am I confused? I thought the PS3 outsold the 360 in its final years. Xbox was too focused on Kinect and didn’t have the games to compete against PS3’s 2012-2013 releases.
Yes, you are confused. PS3 outsold 360 in its final years worldwide but Xbox wasn't a major player in a lot of those other markets, or was barely behind. Here in North America, the 360 trounced the PS3, which is why their fuck up with Xbox One was so much more impactful since the 360 was such a popular system. In fact, Xbox 360's appeal to more casual players with the Kinect may have helped maintain/build that gap between the consoles here because the Kinect was very popular, even if it wound up being an absolute kick in the balls to include it with the XBONE.
And you bring up another point: people were buying PS3s as cheap Blu-ray players, so they also bought less software, which made the 360 a more popular platform for games and developers and it took Sony far longer to recoup their investment, which I don't think they even did until well into the PS4 days. That's also why most popular Western-developed games ran better on 360.
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u/kingmanic 11h ago
The cheap blue ray bit may be a old wives tale. The PS3 and 360 have a almost identical attach rate in N/A. The 360 outsold the PS3 and multiplatform tended to sell better on the 360 but they ended up with almost identical attach rates (11.7 360 vs 11.4 ps3).
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u/NtheLegend 11h ago
Even if you're taking VGChartz at their word (which you shouldn't) that's still a worldwide total. The delta was much higher in NA.
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u/Dallywack3r 31m ago
Ignoring for a moment that the Wii outsold the Xbox AND the PS3 in that generation
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u/doomleika 10h ago
Nah, Console space is hard to get into and was already dug deep by Sony. Xbox managed to established a beachhead so 360 could own PS3. It's a proper move as a follow in the market.
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u/speed-of-heat 2h ago
the consoles nearly always sell at a loss, that’s designed in… the margin is in the games … it’s the old wilkinson sword school of mangement… give em the handles sell them the blades…
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u/hypehold 10h ago
but I think they also ended up losing money on the 360 because of the rrod. I think overall in 25 years Xbox hasn't actually made Microsoft money
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u/cp5184 14h ago
Microslop tends to overempasize the losses they take on hardware, related to the at-loss sales price, their terrible reliability have to replace 1/4 of the original xboxes optical drives, and their poor contract with novideo which meant that they paid novideo the same for the first xbox as they did for the last xbox even after shrinking the gpu making it less expensive to make.
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u/robrossiter 1h ago
i paid into xbox live, then games for gold etc, 30 years, in the lat 5 years, i hardly played on x box, but was willing to keep subscription going, but when they put it up 50 percent, i deactivated my xbox account, and Still have not reactivated it. even with price decrease, im not missing it, and if i wait another few years, then the extra 3 pounds it is now, it will take Years and years, before xbox makes anymore money out of me, because of all the money i have saved not having xbox for a few years, and i might Never reactivate.
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u/dekuweku 16h ago
This is just a primer for investors who are not clued in on microsoft.
Xbox is in a death spiral and this piece makes it sound more stable than it really is. It does the usual hopeful glazing of what the company plans to achieve at the end of the piece.
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u/CapNCookM8 15h ago
I mean, of course they give future plans. It's the WSJ, not a reddit comment section. It's meant to be informative of their goals, not bet on their failure. The video literally said that Microsoft putting their money into a bank account would be more profitiable than Xbox currently is, anyway, so it's hardly "glazing."
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u/nikolapc 13h ago
It's a capitalist rag. Phil's era was glorious for us gamers and studios. Guy played MS, thinking of the games first. I am not a shareholder I am a consumer. So fuck them. I am not their payslave. That money created lasting value and much entertainment. That's intangible value. Can't measure everything by profits. But the party was crashed by MS starting to pay attention because of the big purchase and exacerbated by ramageddon.
Now Xbox really needs their affairs in order cause it's a matter of survival. But it will be capitalist af, people don't matter, line going up does. Funny gamers and journos now care for them, and the human cost but dunked on GP, Xbox and their creations for years. Hope Asha finds a middle ground. Cause now she needs to keep both Mr. Consumer and mr. Shareholder happy. Not an easy job.
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u/HanSolo71 13h ago
Bro it's games. If you are this upset about games, honestly go get some new hobbies.
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u/nikolapc 13h ago
Why do you think I am upset? I am passionate, cause it is art. Not upset. I may be upset about digital rights for digital goods, and I am glad Sony's blunder opened people's eyes to it. Personally I have hedged my bets and have thousands of games across all the platforms. Can go everywhere I want, and go where I am treated the best, and honestly don't need to buy a new game ever, and I am good for the rest of my life. I do it cause it's a shiny new toy, and I want to support the devs I like in these hard times.
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u/HanSolo71 13h ago
Games will exist as art regardless of consoles or digital store front. He'll look at the collection of games on calcolulators!
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u/nikolapc 13h ago
Sure, go play your calculator.
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u/HanSolo71 13h ago
"I am passionate, cause it is art." Art is art regardless of form. Are you mad because art being hurt or because your shiny games got taken away?
I am just saying, regardless of the future, gaming won't die, only charge forms.
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u/nikolapc 12h ago
You're just changing theses. Gaming as we know it is in real danger. Doesn't help with the newfound greed these companies now have.
Digital ownership is an another thing entirely. It's just a perfect storm of rammagedon, them trying to shaft us for our purchases, and the general fire that is spreading in the industry. The big companies and small are just very risk averse right now. And that doesn't leave space for small experimental stuff, that may grow into something amazing, like E33 for example.
For every E33(helped by Phil, id@Xbox, Xbox marketing and GP in a large way btw), there are 1000s of failed projects, some of them works of genuine art and passion that fall through the cracks. As One Take Jason said, doing an indie game is like bying a lottery ticket while surviving on ramen for a few years.
Also say goodbye to AA. That was a nice time.
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u/HanSolo71 12h ago
Bro, AAA, AA, A, indie gaming is going nowhere. Jesus christ. Its 3-4 bad years. I've been gaming since NES. I've seen good years and bad years.
Forms changes, stores changes, art does not disappear. You sound like someone who needs some priorities rearranged if gaming has you this upset.
I say this as someone who owns over a thousand games in steam. I like games, im not worried about them disappearing and everyone acting like it is gonna happen is not being realistic (And honestly, in 2026 getting worked about the wrong things).
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u/SmashingK 15h ago
MS has always been shit at handling its studios. They shot themselves in the foot massively with the kinect debacle pushing people towards the PS4.
They tried to buy their way into dominance in the market when they should have learnt from how Sony treats it's studios and those they partner with. Instead they continued to mismanage and end up in this shitshow.
Sony have handed them something they can use to their advantage which is thing about ending physical releases. They could easily capitalise on it and commit to continuing physical games while pushing for a gamer friendly narrative like Sony's previous "for the gamers" shtick and really rub it in with their own video on how game sharing will work on the next Xbox. I doubt they will though.
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u/Confused-penguin5 15h ago
Doubt they will. Microsoft already made their bet on Games Pass. Plus they were trying to phase out physical discs way before Sony. Honestly wouldn’t be surprised if Microsoft switched to solely publishing after the next generation.
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u/quikmantx 14h ago
According to some industry insiders, Sony was going to do a similar digital thing too, but waited for Microsoft's reveal to gauge the public's reaction, and quickly scrapped the idea entirely.
These companies aren't your best friends. They'll do what they can to win if they have competent people at the helm.
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u/lightsky445 14h ago
According to some industry insiders,
Right. “Insiders”. Don’t believe everything you read on the internet.
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u/kingmanic 11h ago
On NeoGAF back in the day that rumour came from the same guy who said there is a hidden co-processor to bridge the performance gap between PS4 and Xbone. The guy was a joke fan boy.
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u/kingmanic 11h ago
It might be hard because sourcing the drives is becoming hard. They are in less devices so the economics of scale are fading for them.
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u/Bobby837 13h ago
MS trying to phase out discs only mattered to MS, where with Sony its the industry simply for the fact that they built their backs on physical media. The PS2 helped create the DVD market.
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u/ClickyStick 12h ago
Digital future is what all mayor publishers want and they are likey grateful that Sony is taking this bullet for them.
Microsoft is likely going to announce the same thing, they just can't handle even more bad press right now.
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u/lufty574 12h ago
I know Reddit is up in arms about physical releases, but I’m not sure the broader market is going the same way.
My PC doesn’t have a disk drive. The last PS/Xbox console I bought was 10+ years ago. I’ve been using Steam and digital purchasing for years. Not out of a moral stance but just out of convenience.
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u/ICPosse8 14h ago
Yah the way he said “Microsoft has said they wanted 1bn daily players” and then says “they’re currently at 500m monthly players”, almost makes it seem like they’re halfway there but that’s not even close.
Do 1 billion people even game on consoles and PC on a per day basis? I can maybe see it happening if you throw mobile into the mix, but console? Doesn’t seem at all feasible, even if they had 100% of the console market.
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u/ChurchillianGrooves 14h ago
Given the bad decisions Sony has made recently it could keep Xbox relevant if they manage to become somewhat competent lol
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u/BookkeeperOK14 7h ago
ABK is a very profitable company and they paid for it in full with cash reserves. I have a hard time believing that it has been a mistake.
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u/Dapaaads 9h ago
I’m not paying monthly to play games I don’t own when I stop. I want stuff to leave my kids and bust out later
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u/doomleika 10h ago
Told ya MS buying AB was a bad idea to everyone and dumbass gamers just high on the kool-aid "NOOOOOOO Phil gonna save gaming"
And look where we are now.
Kotick is a bitch, but he knows how to make dev ship something people wanted
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u/Merpchud 13h ago
It took too long to get activision games on gamepass...and even now there are many mia. Thye had to get everything from activisions ip backlog on gamepass and it would have worked.
The legal issues from sony threw a wrench in some of that plan.
I still see comments asking for world of warcraft on console as well. They really just dropped the ball on getting everything from the last 20 years that activition owns onto gamepass.
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u/skizztle 15h ago
What went wrong was AI. It's just the more profitable future for them and they will spin off Xbox in the near future.
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u/CapNCookM8 14h ago
Totally agreed. They make more money putting the Xbox dollars into AI. Even the video mentions Microsoft would make more putting the money into a bank account than in Xbox.
I also buy the theory that Asha is here to clean shop, take the fall, make Xbox buyable, and then Microsoft will do just that (sell Xbox).
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u/C418_Tadokiari_22 14h ago
Who the fuck will buy Xbox? I agree with the rest of the paragraph but find it hard to figure out who would want to buy the brand. At most they will declutter the organization and stay only with the profitable games/studios, fire/sell what is not and just never invest as heavy as they did. Maybe keep Xbox as a storefront for PC.
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u/AmberJet 14h ago
Gaming history is filled with bold moves and huge risks, but the players are the ones who decide what truly survives
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u/CrawlerSiegfriend 13h ago
What's wild is just outright buying the most successful MMORPG in history, and then not figuring a way to put it on your console.