Here's How Microsoft Nearly Killed PC Gaming

Microsoft seems to be robbing Peter to pay Paul in its quest to promote Xbox games at the expense of Windows PC games.

May 18, 2014 at 8:00PM

One of the biggest draws to the Microsoft (NASDAQ:MSFT) Windows platform on the PC for consumers has typically been the ability to run PC games. While Linux and Apple's (NASDAQ:AAPL) Mac OS have gotten some love from PC game developers as of late, the fact remains that the platform that allows for the greatest variety in hardware choice and the one with the richest library of truly great games. That said, despite Microsoft's "lead" in PC gaming, it hasn't done a whole lot to support the platform and has even taken actions to damage it in order to bolster its Xbox business.

Microsoft has hurt PC gaming
While Windows is the most popular PC gaming platform, Microsoft has also risen to be one of the two major players left in the dedicated gaming console market with its Xbox systems. To boost the popularity of its consoles, Microsoft has acquired and built up a number of internal game development houses under the wing of Microsoft Game Studios. On top of that, Microsoft has acted as publisher for a number of titles from third-party studios such as Epic Games (known for Unreal Tournament and Gears of War) and Remedy Entertainment (known for Max Payne and Alan Wake).

Instead of leveraging its in-house studios and publisher position to promote both of its platforms -- Xbox and Windows -- it has used these assets to promote Xbox and to exclude PC gamers, as the following example will illustrate. 

The Alan Wake example
Remedy Entertainment is a company well known for the hit series Max Payne. Both Max Payne 1 and its successor, Max Payne 2: The Fall of Max Payne, were heralded as superb third-person shooters and brought a lot of innovations from the actual combat to the quality and depth of the story telling to action games. Following these two games, Remedy set out to build its next franchise known as Alan Wake. 

Initially, Alan Wake was touted as an open-world masterpiece with a particular focus on advanced physics. Intel (NASDAQ: INTC), for instance, used an early build of the game -- which had pretty remarkable effects at the time -- to show what kinds of games could use the horsepower that a quad-core Core 2 Quad processor could enable. Shortly thereafter, Microsoft took over the publishing rights and killed the PC version. 

Two years after the original Xbox 360 launch (which was far more tame on the physics and open-world nature of the early demos), the game was ported to the PC, but at that point it was too late and the damage was done. Microsoft got its exclusive, but it once again let the Windows gaming community know that they are an afterthought that will be tapped once it's clear that the game console variant is out of steam. 

Short term, Microsoft is right. Long term, not so much.
There's nothing wrong with putting exclusives on your platform to exclude a direct competitor (for example, Sony's (NYSE:SNE) PlayStation platform), but Microsoft actually harmed its own Windows PC gaming install base to drive sales of its game consoles. From a short-term perspective, this makes financial sense; force people to buy your game consoles, and then get a cut of every copy of each game sold for your platform. It's much more directly lucrative than gaming on Windows at a glance.

The problem here, though, is that without top-notch, brand-new PC games to sell ever more powerful hardware, there is less incentive for a good chunk of the PC gaming population to buy new PCs (which hurts Microsoft's WIndows sales). Further, if Microsoft ends up pushing gamers off the PC entirely and onto the Xbox, then those same gamers will have far less of a reason to buy a Windows based PC and could very well find a Linux-based or Mac OS-based PC perfectly suitable for their needs.

Foolish bottom line
In short, PC gaming is a way to keep gamers on Windows and a way to drive sales of ever more powerful PCs in order to support those new games. This is an asset that Microsoft would do well to nurture and exploit, even at the "cost" of Xbox revenue, in order to keep that "moat" around its Windows platform.

Fortunately for PC gamers, companies like Valve Software are picking up the slack and championing PC gaming. However, given Valve's aggressive support of Linux-based gaming, championing PC gaming is not necessarily synonymous with championing Windows gaming, something that could ultimately serve to hurt Microsoft down the road.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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