Microsoft (NASDAQ:MSFT) plans to launch Xbox Game Pass, its subscription-based "all you can play" gaming platform for the Xbox One, on Windows PCs in the near future. During the company's first quarter conference call, CEO Satya Nadella stated that launching Game Pass on PCs would be "a big element" of "increasing the strength of the community" around its Xbox brand.
Microsoft launched Xbox Game Pass last year as a $10 per month service that gives gamers unlimited access to a shifting library of over 200 games from 11 studios. Game Pass isn't a cloud gaming platform like Sony's (NYSE:SNE) PS Now, which remotely streams games; instead, Game Pass lets subscribers download, install, and play any of the games so long as their subscriptions are active.
Stepping on EA's toes
The only other company that offers a comparable service is Electronic Arts (NASDAQ:EA), which offers Origin Access for PC gamers and EA Access for Xbox One gamers. Origin Access offers unlimited access to over 110 PC games, and EA Access lets gamers play nearly 70 Xbox One games.
Both of EA's services cost $5 per month, or $60 per year -- making them significantly cheaper alternatives to Xbox Game Pass. Xbox Game Pass, Origin Access, and EA Access all offer subscribers discounts on digital downloads and early access to new games.
EA recently announced that it will launch a premium version of Origin Access called Origin Access Premier, which will allow gamers access to all new EA titles instead of the older games on the basic tier, along with the ability to play full versions of future EA games before their official releases -- in contrast to the "trials" offered to basic Origin Access members. The new tier will cost $15 per month or $100 per year.
A recent Newzoo survey found that both Microsoft and EA's platforms are gaining ground with Xbox One gamers in the US, UK, Germany, and France, with 8% of gamers subscribed to Xbox Game Pass and 9% subscribed to EA Access. Both platforms are popular with families --14% of family gamers are subscribed to Game Pass, and 15% are subscribed to EA Access -- because the subscriptions are more economical than buying individual games.
Laying down the foundations for bigger ecosystems
Microsoft is clearly launching a PC version of Game Pass to challenge EA's Origin Access, but it also ties neatly into the company's other gaming initiatives, which include sales of PC games on the Microsoft Store, Xbox Live, Xbox to Windows 10 game streaming, the Mixer live streaming platform, and Project xCloud, a new multi-platform cloud gaming service that challenges PS Now and other nascent cloud gaming platforms.
Electronic Arts is also reportedly developing a new cloud service for Origin Access. That integration would allow subscribers to choose between downloading or streaming games, allow EA to expand the Origin Access ecosystem to tablets and smartphones, and possibly merge the two Access platforms on the Xbox One.
Microsoft and EA's efforts clearly target each other, but they also challenge Valve's Steam, the world's top Digital Rights Management platform for PC games. Microsoft, EA, and other major game publishers removed their games from Steam to launch their own DRM platforms, but Steam retains a first mover's advantage among PC gamers.
However, Steam doesn't offer an "unlimited" option comparable to Game Pass or Origin Access, or a next-gen cloud streaming service. As a result, Steam could eventually fall behind the tech curve as Microsoft and EA's platforms gain ground.
Why gaming matters to Microsoft
During the first quarter, Microsoft's gaming revenues surged 44% annually to $2.74 billion, or 9% of its top line. That made it Microsoft's third fastest growing unit after Azure (76% growth) and Dynamics 365 (51% growth). Microsoft attributed that growth to the unit's 36% sales growth in Xbox software and services and its 94% jump in Xbox hardware revenues.
During the conference call, Satya Nadella stated that Xbox Live now reached over 57 million monthly active users, Mixer's growth was "accelerating", and that Project xCloud "will empower game developers to scale to hundreds of millions of new users across devices." Nadella also noted that Microsoft was investing "in content, community and cloud services across every endpoint to expand usage and deepen engagement" across the gaming market.
Therefore, expanding Game Pass to PCs should help Microsoft further blur the lines between Xbox consoles and PCs, widen its moat against EA and Valve, and lock more gamers into its multi-platform ecosystem. This could be a smart move that ensures that Microsoft's gaming business remains a pillar of growth for the foreseeable future.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.