Xbox is preparing for a post-console future

Microsoft, at its heart, is a software and services company.

It always has been. It makes operating systems, word processors and offers Cloud services. That is at the core of the company's identity.

By contrast, Sony is a hardware business. It builds Walkmans and TVs and smartphones.

Of course, they dabble in each other's worlds. But this core difference is key to understanding the slightly different approaches both companies have to their gaming divisions.

Sony is rightly proud of its 73.6 million PS4 install base. The more PlayStations the company sells, the happier it is.

Microsoft wants to sell a load of Xbox Ones, too. Of course it does. But it's not the No.1 metric that it uses to judge its success. Microsoft - as a software and services business at its heart - wants to have a large audience of people using its software and services. That can be on Xbox One X, or PC, or (whisper it) even a PlayStation console.

I often encounter gamers bemused by the fact Xbox One exclusives are launching on PC. They suggest that this will only damage the overall appeal of Xbox One. But Phil Spencer and his team don't really care. If you're playing Sea of Thieves on PC, or Minecraft on Nintendo Switch, you are (in effect) a Microsoft customer. Customers are good.

That's why yesterday's Game Pass news was so significant. When Xbox announced the service, which delivers 100 games to subscribers for a monthly fee, natural comparisons were made to Netflix. But it wasn't really the same thing. Netflix is full of new, original content that you can only get via the service. Game Pass offered a load of catalogue, backwards compatible and indie games. That limited the audience to either niche gamers, or those that were new to the platform and wanted to dip into past products.

"Microsoft's cloud infrastructure could eventually be used to offer an on-demand gaming service that's accessible across multiple screens"

The news that all first-party Xbox games will be coming to Game Pass, including upcoming games on the day of their release, is a significant move. That's a big incentive to invest. If you were always going to pick up Sea of Thieves or Crackdown 3, the service already pays for itself for the next six months.

The initial challenge for Game Pass is the lack of upcoming first-party content. There are a handful of releases in the first half of 2018 (add State of Decay 2 to the above two games), and Phil Spencer teased new games in the Gears of War, Halo and Forza franchises. But to encourage a large number of people to invest in Game Pass, Xbox needs to deliver more unique software more frequently.

Spencer told Bloomberg last year that's exactly what the company is trying to do. He said that Xbox needs to grow and that he would "look forward to doing that". And current rumours of a new Fable and Perfect Dark games points to Microsoft investing in growing its first-party slate.

These games will take time, and that's fine. The reality is that Game Pass isn't going to revolutionise anything right away. For now, it will enhance Microsoft's value proposition and help differentiate it in its on-going efforts to chip away at PlayStation's dominance. It is a way for Xbox to put extra focus on its first-party exclusives (both new and old), without having to actually release more games. And it could even help broaden the console's appeal amongst a more mainstream customer.

Yet long term, Xbox is putting the pieces in place for a future without hardware. Microsoft's cloud infrastructure could eventually be used to offer an on-demand gaming service that's accessible across multiple screens, much in the way Netflix is today. It has the tools at its disposal to radically change how it distributes its content to gamers.

This isn't Xbox giving up. Far from it. This is just the company doing in games what it does so successfully elsewhere - create a strong platform from which to deliver high quality software.