It’s been a while since I even bothered thinking about Microsoft. For the last couple of years, my brain has been solidly occupied with mobile, free-to-play, and games-as-a-service, categories in which Microsoft’s presence is neither competitive nor noteworthy. I was aware of it when the Xbox One launched, but I didn’t care because there were no must-play games, no new experiences on offer that weren’t available before at slightly lower resolution with faster loads. Instead, of spending hundreds of dollars on a new box to replace the box in my television cabinet, I bought a brand new iPad and upgraded to cellular service so that I could play online games no matter where I happened to be. That is the world we live in now: always connected, portable, social. The smartphone may not be the dominant medium for games, in terms of pure dollars, but it is the dominating metaphor of culture today.
However, I am (and always have been) a huge fan of the Rock Band franchise, and Harmonix as a company. Going back to the original Guitar Hero, the fantasy of being able to play the music I heard and loved on the radio and getting to pretend to be a rock star was a joyous experience. The novelty of the controllers provided challenge; learning the songs provided gradual mastery; and, the increasing complexity of play-patterns kept firing that learning center of my brain, my favorite part. Plus, I could play with friends, particularly my wife, and while there was some competition, everyone was starting from zero and quite bad at playing, so the competition was good-natured and cooperative rather than cutthroat.
So, when Rock Band 4 came out, I finally had a reason to buy a new console. Because I had invested so much in peripherals for Rock Band 3, I went with the Microsoft version, which meant a brand new Xbox One, and of course some add-ons like extra controllers, plug-and-charge packs, and the like. All told, I probably spent over $500 so that I could play a $60 game. I’m fine with that. As someone who makes a living in this industry, I don’t begrudge the companies the money it takes to pay their people. Setting up the new box took a certain amount of effort – running cables, connecting power supplies, synching controllers, etc.; it’s a lot more than what it takes to get up and running on a new tablet, but again, as someone who used to manually manage memory to get games to run, nothing unexpectedly arduous.
Rock Band 4 came with a box to enable legacy controllers, so I plugged that in to the one USB connection towards the front of the box, figuring I didn’t really need much else. I went to synch up my Microsoft-brand microphones from the 360 and hit my first roadblock. Even though the legacy box enables use of the older frequencies, these microphones refused to synch up. This was confusing. I grabbed one of my third-party guitar peripherals, and synched it up, no problem. Hmm. I wasn’t really interested in jumping into playing fake guitar; my wife really enjoys singing, so I wanted to get a microphone working. So, I grabbed one of my gaming headsets, plugged it into the USB slot, and tried to use that as a microphone. Of course, that didn’t work. That’s not entirely surprising; after all, Microsoft sells its own gaming headsets, so I went to plug in my old Microsoft headset to the new controller, except that didn’t work because the plug is the wrong size.
By this point, I have spent over an hour trying to get this box set up to run the game, I have exhausted every type of microphone I have in the house, and nothing is working. Resigning myself to having to go out and buy some extra peripherals to sing with the game, I gave up on vocals and focused on my favorite part: fake drumming. One of the big improvements in Rock Band 3 was Pro mode, where you could actually pretend to play both cymbals and pads, so I had (over the course of several birthdays and Christmases) acquired an extensive fake drum kit. I plugged it into the USB port, and I knew something was wrong when it didn’t light up.
That’s when I noticed that the controller for the drum kit was Xbox branded, just like the wireless microphones I had tried to use earlier. I looked more closely at the standard Xbox One controller; while it had exactly the same number of buttons, and almost the same distribution, they had changed the icons on two of the buttons. On a hunch, I grabbed one of my 360 controllers and plugged it in; sure enough, no luck. Microsoft had obsoleted all of their previous peripherals.
Sadly, this is not surprising. Everyone knows that Microsoft and Sony sell consoles as loss-leaders; they make up for it in licensing and peripherals (unlike Nintendo, which makes a profit on each console sold as well as licensing and peripherals). No doubt, there was a spreadsheet somewhere that showed how much revenue they would generate based on a completely new generation of peripherals vs. implementing backwards compatibility, and sure enough, it must have shown that you get more money from selling things than from allowing users to use old equipment.
This is the old logic, the last-century thinking that is why Microsoft continues to trail the rest of the industry. Yes, in the short term, you make more money by selling new peripherals. However, you also make the cost of switching platforms more equal. Instead of being tied to the hundreds of dollars I had previously invested, I now have no incentive not to return the Xbox One and all of its peripherals. In fact, there is a cost advantage to switching to the PS4, because I can buy used and 3rd-party peripherals cheaper than new ones. In today’s world, where everything is social, connected, portable, I have fallen out of Microsoft’s network because of this decision. Not only do they not make any money out of me now, they won’t make any money out of me in the future. I won’t advertise for their platform by posting social messages about the games I’m playing or my achievements within them; there will be no Twitch streams of me playing on my Xbox One or YouTube videos of me doing hilariously stupid things using their hardware.
Let’s be clear: this is not a hardware issue. It’s not about hardware, and Microsoft understood that once (and used it to grab market share away from Apple). The controllers have the exact same numbers of buttons. The connections are USB (Universal Serial Bus). Microsoft could patch backwards compatibility into their system through software updates. They are intentionally forcing returning users to pay a premium for the privilege, and this is why they are losing ground.
Successful companies today know that the real value is not in hardware or software. It’s not about content or format. It’s about the network. Having the user within your network means you have an opportunity to sell to them, to advertise to them, to mine their use patterns for valuable data. Users outside of your network are dead to you. Acquiring high-value users is going up in price every week, literally. Facebook, Google, Tencent, these companies are growing their networks by buying entire sub-networks of users (Instagram, YouTube, Activision/Blizzard). They are opening up their networks to more and more users, and developers, and content providers, because they understand that open networks grow and thrive at a completely different scale than closed networks. Even Apple, the poster child for closed networks, relies on the open dynamic of the App Store to keep its users engaged.
Microsoft is trying to move from product to service – shifting their monetization model from one-time to recurring transactions – but they are missing the forest for the trees. It’s not about boxed products on shelves. It’s about connectivity, sociality, the dynamics of how people connect and communicate with each other. Microsoft is losing the war of generational change. Whereas they once benefited from kids growing up with computers (a whole new market of consumers), they are now fundamentally missing the generation that is growing up with Snapchat and Twitter. Time is now their enemy. They had a good run, but those who fail to evolve will lose to those who do.