Microsoft publicists put on their dog and pony show reveal of the upcoming Xbox console yesterday, the Xbox One.

Amidst the press puffing were a few kernels of fact, kernels which are popping into corn all over the place.

One of the most interesting things to be revealed wasn’t part of the planned presentation, it came out of the Q&A afterwards.

On the new Xbox One console, which offloads a lot of information to ‘the cloud’, when you want to play a game for the first time you install the whole thing on the hard drive of the console. Once you’ve installed it, the disc is of no further use to you. You can toss it, or file it, you won’t need it to play.

Now, that was an interesting fact, and immediately spawned questions on whether a 500 gig hard drive was going to be large enough to accommodate all of the games a player might own (even with the cloud), but it wasn’t the surprise reveal. They were up front about the cloud and the install, as though always having to be on the internet and not needing the disc in the console to play were big advantages I had always wanted.

The surprise reveal came when someone had the guts to ask what that meant for used games. If the entire game is installed on your hard drive and tied to your Xbox Live account so you are “free to play it anywhere, on anyone’s Xbox when you sign into it”, then what does that mean for used games?

Microsoft, what is to prevent someone from installing the game that they can now run without the disc, and selling the disc to a used game store?

Well, they weren’t glad that question was asked, because the answer, the official answer, is that if you want to play a game from a disk on your system that someone else already registered, you will have to pay Microsoft a special fee.

That’s right. If you buy a used Xbox One game, you will have to pay Microsoft to be allowed to play it. If you borrow a game disk from your friend to try it out, you’ll have to pay Microsoft.

Oh, but it’s all okay, because if it’s really your friend lending you the game, you can just log into your Xbox One as HIM, and play the game with appropriate permissions on HIS account.

I guess people borrow games differently these days than when I did. I don’t recall having my buddy over for a sleepover camping in my living room for a week because I wanted to borrow his Halo 2.

Now, that fee could be anything Microsoft decides. No way now of knowing what it might eventually be, what structure it might take. The system isn’t even out yet. Maybe they’ll have one set fee, maybe there will be a higher fee based on ‘premium’ games or on games exclusive to the Xbox franchise, maybe there will even be a time decay structure so the longer a game is out in the world from it’s date of release, the less the fee would be.

“This game is two years past it’s born-on date. You are free to play.” Blech.

Who knows? Maybe if the stink reeks enough before launch, they’ll drop it to a token fitty cent, get the worst of both worlds, too low to generate much revenue, enough of a fee to outrage people that a fee exists.

The point here is that with that one announcement, they have killed any possibility that I or my family will ever buy one.

We won’t buy an Xbox One because we are not early adopters, and we don’t have to play the latest content to feel like we’re keeping up with the gaming joneses.

When my family buys a console, we buy it only after it has been out long enough to have a decent selection of titles available at a used game store on the cheap, and after most of the software bugs have been worked out. Typically, we’ll hold off until there is a really nice ‘Black Friday’ sale over Thanksgiving, or some other serious cost savings to getting it.

See? I am not the target market Microsoft is pitching to, so what I think shouldn’t make any difference to their marketing plan. Their game will be a hit or a miss the first year entirely without our dollars stirring the shallow end of the pool.

The key point is, if we buy a game console, and we have friends with games we could borrow, or we find a good deal on a game that got decent reviews at the used game store or online, we’re good. We do our gaming on the cheap. We just don’t have the inclination or the capability to spend thousands a year on games.

Any console that will charge us extra money, whatever that amount may be, just to install and try a used game is doomed.

Gamefly is a service that is the Netflix of games. It’s a pretty cool option, one I’ve looked at for when our son gets old enough he wants to start playing some of the same games his friends inevitably will. Likewise, if we want to try out a game on the Wii or PS3, you can rent games for a day or two from the local Redbox dispenser.

We’re not going to rent a Gamefly or Redbox game and then turn around to pay Microsoft their ‘rental use’ fee before we play it. Just, not going to happen.

And the idea we’d do the teenager route of dropping $60 or more on every new game that comes out that sounds cool? Man, that’s something kids with disposable income do, not us.

But here’s the thing.

Whether you like the idea, hate the idea, or dislike it but think it’s inevitable, don’t make the mistake of thinking this is the result of “greedy corporation lusting after your dollars.”

I know the tendency will be to paint Microsoft as evil and greedy.

Please, be original. before you jump on the hater bandwagon, take a moment to think about what drives these kinds of decisions for them.

Microsoft, along with all other publicly traded corporations, are responsible for reporting their revenue streams, profitability and plans to their shareholders.

Like it or hate it, the market has set expectations. Your company must not just be profitable, it must be more profitable than your previous year.

You literally cannot simply make money, or be profitable, and survive. You must have ‘growth’, and that growth is defined by making more of a profit, or ‘profit before income tax’, then you did the previous reporting cycle.

You must grow to be successful in the market, because the market said so. If you simply continue to be really profitable each quarter, then your earnings to shareholders are ‘flat’, and the market will count you as a failure to dump.

There is a lot behind all this, but in the end the core metric is simple to understand. A stockholder takes $1000, and buys a block of stock in some company that makes widgets or game consoles or whatever, and that block of stock was valued at that moment at $1000.

From then on, so long as you own that block of stock, you can make money one of two ways.

One, you will get paid a few cents on the dollar each quarter based on how much money the company made as profit. Those are your earnings, for owning the stock.

OR, you can play the market like a casino, and hope that the company will get some rocking good news, sound like earnings are going to go through the roof and be a ‘good investment’, and someone else will be willing to pay you more than you spent on your block of stock. A short term quick profit.

If a company experiences ‘growth’, if they keep making more money in profit each year, then their stock is considered desirable, and you could flip your block of stock next month for maybe $1200. You just made $200 for picking the winning racehorse, and bailing out before the company revealed they had a union strike in Malaysia and profits are going in the shitter next quarter.

If the stock continues to grow every quarter, and the earnings continue to grow for your block, then the perceived value of your block goes up. Ooh, this month my stock is worth $1500! I wonder what it will be worth next month. Microsoft, make me some money! More profits! Make people want my block even more, so I can dump it and make buckets of dough!

So, think about it.

Corporations are about greed because shareholders are about greed. A corporation must always be looking at ways to be come more profitable than they were a year ago, because if they don’t the shareholders will respond by dumping the non-performing stock, and when your stock price falls it be bad, yo.

If you invest or have holdings in a 401K plan, congratulations. You’re part of a huge shareholder block that distorts these things, too. 401Ks and pensions funds that represent huge numbers of employees have enormous power over the market, and they aren’t interested in what the product is, they want increased growth. So before you bitch about greedy shareholders, consider that you might very well be one of them, or at least are represented by one.

You financial pitbull, you. Grr!

It absolutely does not matter if a company made a billion dollars in profit last year. If you only make a billion dollars in profit this year, your earnings were flat and you are a FAILURE, your stock price will drop because you’re not an easy cash cow for day traders to flip your stock for easy profits, and the drop in stock price triggers all sorts of bad things.

“But… but we made a billion in profit last year!”

Yeah, but how much more than a billion will you make next year? You won’t make more? No growth for you! LOSER!

It is this core philosophy that drives corporations to look frantically at new ways to, sigh, ‘monetize’ their intellectual properties and any asset they can find. It is what drives automation, efficiency efforts, reduced benefits for employees, reduced headcount and layoffs, outsourcing manufacture to cheaper labor markets, and yes…

It is this kind of thinking that can drive a Microsoft to look at used game sales, and see that as money being left on the table.

Nobody in Microsoft was sitting over there, wondering how to screw gamers on a budget. There was little to no malice in this decision.

No, if you think about how the market game is played, you can see that for every executive, the drive is to come up with new ideas for getting as much possible profit and residuals out of their products as they possibly can, to continue to have growing profits quarter over quarter.

So, somebody had the great idea of designing the architecture of the system so that you’ve got your DRM on the ‘cloud’, someone can buy a game and register it to their Xbox Live account, and if someone else tries to use that same code, they have to pay. Makes no difference if the game disk was ripped or sold to a used store, Microsoft won’t care, because every time a code is registered, someone will pay.

Personally, I hate the whole idea, but I can see where they’re coming from. A new launch is costly, and they want to be able to show the shareholders that the new system architecture will result in more robust residual sales and reduced losses from theft or pirating.

I hate the idea, because I play PC games for the online experience, I play console games for the single player or multiplayer sitting in front of the TV experience. If I lose internet, your cloud based DRM just bricked my console. Screw that for a game of soldiers.

Anyway.

If you are intrigued by how shareholder concerns and business conditions in the market can directly impact the businesses that create the stories and movies we dearly love, I highly recommend the book “Disneywar” by James Stewart, a gripping account of the inner working of the Eisner-era Disney Corporation, written by a journalist that was given amazing levels of access for purposes of a biography.

James Stewart witnessed and accounts firsthand the events that led to the creation of Dreamworks, among other things. A fascinating book that takes the things we as gamers and geeks love, and shows you the money matters and profit driven concerns that shaped them. Considering they now own the Star Wars and Marvel brands, the book is even more relevant to us geeks today.

As a side note, you’ll also learn the secrets behind the Disney VHS and DVD timed release strategies.

In conclusion, I think the Xbox One media event just confirmed for me that this is not the console I’m looking for.

At the same time, I don’t think they’re being greedy and hateful to gamers. I just think they are allowing the real need to please shareholders and increase profits any way they can to drive their design, and it’s gonna bite them in the butt in the long run.

The solution?

There isn’t one. We have a market economy, and for small businesses, the holy grail is to take a company public and hope the stock will go through the roof, make you as the owner a millionaire overnight, and then you turn the company over to the people who have to start riding the shareholder accountability train.

Companies that are not publicly traded don’t have to cater to market pressures. Smaller companies can actually be satisfied with flat growth so long as they can make payroll and expenses, and reinvest the rest into improving the quality of their products and even, and this may shock you, provide better benefits and wages to their employees.

You sometimes hear of these companies out there, where the owner pays employees great wages and benefits, and still makes lots of money for himself, and turns out a great product or service. They are the exception, not the rule, but they are out there.

Things are rarely as simple as they seem, and sometimes understanding the system, what it is, and seeing how it pressures others to act as they do helps us see what we can expect.

It looks to me as if in this case, Microsoft is feeling their position as the number one selling game console with the 360, and is looking at ways to increase revenue streams with the next launch rather than consider that if they do things like this, they may lose the crown, along with a big chunk of market share, to someone else that is giving away the store to bring in more customers.

 

Comments and criticisms and opposing points of view very welcome!

14 Responses to “The Xbox One – It is what it is”
  1. Nimizar says:

    While I agree with you about the perverse incentives and behaviours resulting from the “growth at any cost” mindset, I think there are a few signs of hope.

    Red Hat has made it past a billion dollars a year in revenue, while developing all of our products in the open, and making the source code freely available, not just to our customers, but to anyone. We’re still less than a tenth the size the of the true technology leviathans, but the leverage of open source means we can compete with them on an even footing. Tim O’Reilly’s “create more value than you capture” soundbite sums up the ethos perfectly. Is it possible to be a Fortune 500 company without turning into a toxic corporate wasteland internally? Perhaps not, but we’re trying damn hard to prove it’s possible :)

    As far as consoles in particular go, I think Microsoft, Sony and Nintendo are about to be devastated by a wave of Android based consoles (including OUYA and nVidia’s Shield), as those devices (including phones and tablets themselves) start reaching “good enough” levels for some serious gaming. Where those lower end devices leave off, the next generation of consoles are going to be going head-to-head with SteamBox and similar PC-based gaming systems.

    A friend linked me to this great slide deck which includes some interesting comparisons of current and past generation graphics for consoles, mobile devices and browser based games: http://www.slideshare.net/bcousins/weapons-of-mass-disruption-creating-the-drowning-19554735

  2. Shane says:

    I was reading through you rant on economics until you stopped me with one thing (once you eventually got to it)
    “If I lose internet, your cloud based DRM just bricked my console. Screw that for a game of soldiers.” At first I was thinking ‘always online’ cant be too bad… then I read that statement and I realised this is what really pisses me off about DiabloIII. I originally thought Diablo would be a good game to play when WOW was done, but most times its down as well at the same time (this may not affect all of you since youre probably asleep – but maintenance tends to be during my prime awake time in the evening) and as I said it bugs me to no end.

    I have an Xbox360 (A friend gave it to me after she upgraded to a Halo 4 version) and I enjoy playing it when Im not playing WOW, did so on Tuesday night when WOW went down and Diablo was down as well. I dont think Ill be upgrading to an XBox 1. It pretty much took over a decade before I finally managed to upgrade to a 360 from an original XBox, I dont think Ill be upgrading anytime soon, especially if I have a brick when the internet is down… or the Servers are down for maintenance.

  3. Ted says:

    It is my understanding the new PS4 will also work in this very same way. I’m not sure about the Wii U.

    • BlueFletch says:

      Sony ruled out always-online for the PS4. Whether or not used games can be played without having to pay a fee still sounds up in the air, or at least not known by the public.

      • bigbearbutt says:

        And at that point I will put the PS4 on the ‘afraid not’ list as well.

        It is getting close to the time when we are told that each of us, individually, must pay to enjoy each item of ‘information’. If you want to listen to a song, you will have to pay money, and if you want to share it, the person you share it with will have to pay, too, or you will have to pay for a licensing fee allowing you to share with up to x number of friends.

        The only thing preventing it now is a way of consistently blocking content from those who don’t have the key to the gates. Steam gates it well, but all content has to be behind the gate consistently so you have no options before it will work.

        I wonder at what point physical media of music will vanish, leaving only wild DRM in it’s wake.

        • bigbearbutt says:

          I also wonder what will happen to libraries when you can’t borrow a book without paying the single user license fee before you can read it.

          • Ngita says:

            Currently they don’t buy the book.

            Their have been licensing deals based around ebooks that can only be loaned a certain number of times(5???). So far the libraries have refused to touch them and keep on buying paper.

            Not every corporation is better for going public,chasing short term profits is good for keeping your shareholders happy in the short term. Its not the way to long term success, oh and this applies to quite a few corporations, Portraying people who don’t purchase your products as criminals or even better the people that did purchase your products, is not a good way to generate PR with those customers.

            But I don’t think microsoft was to worry about me, both my first 2 xbox turned into bricks from known issues shortly after the warranty ran out. I never bothered with a xbox 360.

  4. I just went on a tour of Microsoft the other day, but am not sure what my NDA dictates. But….yea

  5. Dahakha says:

    I agree that Microsoft as a company are not evil and greedy, but that Microsoft are greedy and evil because they are a corporation. It is the system that is the problem. It boggles my mind that very few people even think about the powers that corporations get as legal entities. Hell, I’m not even sure I know where the limits to their powers lie. It also boggles my mind that nobody (on the inside, anyway) ever seems to want to question the idea of infinite growth, that you MUST grow each and every year or you will be dropped like a hot potato. IMO if every business were a private business rather than publicly owned, we would avoid most of these problems. Starting with the fact that a lot more of those businesses would stop focusing on MORE PROFIT EVERY QUARTER and would be satisfied with just….a decent profit.

  6. gus says:

    i think m/s is doing a swan song …….at best ! no older games etc the big brother mind set …….it will dies now very slowly …it better get it right or lose big time !!!

  7. Chairman Kaga says:

    Frankly, I don’t even touch consoles anymore. Too many great games on Steam, so my PC is my preferred game platform at this point. The only dedicated game systems I really use now are portables — DS and Vita. Hell, I guess even my Android phone counts here.

    I only own a PS3 because I needed a Blu-Ray player, and one that also happened to play some cool games seemed like a better deal.

    I feel like home consoles are dinosaurs just waiting for the meteor to hit. It seems like the only thing keeping them afloat are a captive market awash with Halo and Call of Duty fans.

  8. Jem says:

    http://www.imdb.com/title/tt0379225/?ref_=sr_1

    I may have odd tastes, but I found that documentary to be interesting on how the corporation as a business entity affects the world.

    Shareholders and share price matters more than anything else. That’s the nature of the financial world we live in these days because no one demands anything else. Environmental responsibility? If it is going to negatively affect the share price, no chance. Sack a town of workers, if the share price goes up then it was a good decision, never mind what it may do to the local economy.

    I understand business decisions, I generally don’t like the morality involved though. The X-Box decision doesn’t affect me, but the model of ‘pay to play’ used games may become problematic if more companies take it on board.

  9. Jason says:

    Sony killed my confidence in them with the PS3. Microsoft looks to be after it with the Xbox One. So, for me, all this really means is that now I’m a PC gamer again, and will really only be hanging on to the consoles I have in the house now for my kids.

  10. Tesh says:

    This is part of why I hate the stock market and “investing”. They are simply mathematically impossible, and the mentality is killing a lot of things, not just in games.

    …and Microsoft isn’t the only company that will have things blow up in their faces when the unsustainable can no longer be sustained.

    Also, I’m with you on the “online” side of the thing and used games. I’ll sit this console generation out, I think. It’s odd, really, since I work to *make* console games… but as a consumer, nope, not playing.

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