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MS Financial Briefing: Xbox Live biggest gaming network, E3 "Next Wave of Big Hits"

JlNX

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Aug 14, 2016
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Microsoft held a financial analyst briefing at build this week, of the many topics covered during the briefing Xbox was one of the key ones. Phil Spencer held a presentation on the Xbox business and gaming as a whole for Microsoft, while Satya Nadella CEO talked about what Xbox and gaming as a whole meant to Microsoft including the future. While CFO Amy Hood talked about the profitability and future growing profitability of Microsoft's gaming business.

First Amy Hood started of by stating that Xbox is a "critical" asset for the future of Microsoft.
This graph shows the growth expected in total XBL MAU through 2017 into 2018, it also demonstrates the relation between XBL MAU and users engaging beyond their console. Hood explained that Xbox is a multi billion dollar business that is profitable and is growing in profitability that Microsoft is "already able to compete very effectively in", this is a building ground for further growth through business models like subscriptions (Gamepass), broadcasting (Beam) and more.

Satya Nadella started by saying that investors were looking at the Xbox business the wrong way ”Most of you view gaming as ‘Microsoft has ...an Xbox business,' I think you understand the console economics. But it's a much broader thing for us." Nadella said that Xbox live is the biggest gaming social network, and monetizes far more than any other gaming social network.
This presentation slide brought up by Nadella during the briefing is to describe what he calls "connect the dots around gaming" According to Nadella this approach brings more revenue per customer than the old way of simply selling a customer a Xbox. This approach is due to Nadella's process of building connections between Microsoft's wider range of products. Nadella brings up examples of Xbox live originally being seen as a online subscription service now being broadened into a social network between Xbox and Windows 10, cross play between both platforms and Beam.

Now Spencer's part of the presentation, according to Spencer gamers enter the market through many devices not just console. That consoles are purchsed to access great content which Microsoft believes brings customers into the cycle, that is why they invest in "great first party content."
This attracts more users to Microsoft's social network which in turn builds loyalty. This is were people find and meet their digital friends and keep connected with them. The result of this is it drives commerce which leads to a cycle that is demonstrated in the slide above. A developer creates content for the platform which in turn attracts more users to the social network which results in the cycle beginning over again and repeating.

Spencer makes note that investing in first party content is what starts this cycle into new areas of growth, like Beam which allows for new forms of monetization or avatars were avatar items can be sold. Microsoft sees the way to drive revenue is through monetization in the network of which Xbox live is the core.

Spencer went on to say that at E3 Microsoft will talk about the "next wave of big hits" that will come, and that Microsoft will continue to invest in first party to accelerate the cycle leading to the growth of Xbox live.
Spencer went on to talk about the "Metaverse", describing a scenario were the Xbox live social network was a physical space. That upon logging into the network you would walk into a room were you could interact with friends through their avatars directly. This image was brought up during the build conference relating to VR/AR which strongly resembles what Phil was describing.
Spencer finished his presentation by stating that the gaming business is currently riding the same secular transition and digitization that can be seen in every other business. With Xbox live and Microsofts first parties ability to reach customers across many devices as a strong draw in the future. A lot of already known info was also reiterated during the presentation.

Souces: source 1, source 2, source 3, source 4

If you are looking for other info relating to Xbox at build then here are some other threads:
Microsoft announces VR motion controllers. $399 VR headset + controllers this holiday
New Xbox (Scorpio?) interface quickly showed at Build 2017

If you would like to watch the briefing: https://www.microsoft.com/en-us/Investor/events/FY-2017/fam-fy-2017.aspx?EventID=181160

Leaked Investor Documents: Internal Microsoft research on xbox users
More info and graphs at link:
 

mcrommert

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Oct 24, 2013
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Wow great summary and breakdown... Perhaps enough evidence finally that Microsoft and Xbox will never be parting ways
 

Trup1aya

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Jan 18, 2015
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Does steam not count as a social network?

That said, it doesn't seem like MS has any interest in leaving the console business behind, as people continue to suggest despite a console upgrade coming out this year.
 

cw_sasuke

If all DLC came tied to $13 figurines, I'd consider all DLC to be free
Sep 9, 2006
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For the first time in a while i feel like all 3 companies will deliver at e3 ...hmm.
 

FelipeMGM

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This ''Metaverse'' thing and their whole stance with Mixed Reality in this Win10 ecosystem is very very smart approach. MS has a good chance to create a thriving MR community that embraces gaming and non gaming activities.
 

Marcel

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Feb 16, 2012
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We have to change the target's avatar in the Metaverse. Let's send the calling card today.
 

paulogy

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It's interesting to see what Microsoft considers important as a business, as that may or may not be what we consider important for Xbox.

Based on that next wave slide, does that mean we should expect to see Microsoft's versions of Pokémon Go and Overwatch at E3? (or Minecraft 2, which could be both AR and service based)
 

Crumpo

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Jan 23, 2016
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That last chart...a whole segment with "loyalty" written next to it...WTF does that even mean?

Less PowerPoint, more games please. And nail the Scorpio release and support.

Until then, you can keep your MAUs.
 

CalamityPixel

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Sep 26, 2014
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It's no longer just about selling consoles. It's just part of a branch to the whole tree.

Its never been about just selling consoles for years. XBL Subscriptions have changed the game on how a company can make more money on a console, to the point Sony and now Nintendo have done the same.
 

Phatosaurus

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Apr 17, 2013
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adella said that Xbox live is the biggest gaming social network, and monetizes far more than any other gaming social network

That's great for shareholders, but not what I want hear as a consumer.
 

CalamityPixel

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Sep 26, 2014
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It's interesting to see what Microsoft considers important as a business, as that may or may not be what we consider important for Xbox.

Based on that last slide, does that mean we should expect to see Microsoft's versions of Pokémon Go and Overwatch at E3? (or Minecraft 2, which could be both AR and service based)

Give me an Overwatch rip off with characters from Halo, Gears, KI, Crackdown, Fable etc and I'll be happy.
 

JaggedSac

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Jan 14, 2010
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Hood explained that Xbox is a multi billion dollar business that is profitable and is growing in profitability

Well that is a cut and dry quote for people that constantly say the Xbox division is in the red.
 

faridmon

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Dec 6, 2008
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Wow, Msoft is banking hard against Youtube Twitch crowd. Its almost like they never learnt that doing exactly as big competitor will lose you money
 

DocSeuss

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Maybe people will finally shut up about "do you think Microsoft will give up on the Xbox after Scorpio" questions.

Nadella clearly believes in it.

I do wish MS were better at FP exclusives, tho.
 

JlNX

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Aug 14, 2016
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Does steam not count as a social network?

That said, it doesn't seem like MS has any interest in leaving the console business behind, as people continue to suggest despite a console upgrade coming out this year.

Steam would count as a social network, it's seems like now more than ever that microsoft is trying to entrench xbox into all of Microsoft. They are trying to change the image of Xbox as a piece of hardware to gaming as a whole for Microsoft.

Ugh dont force me to use avatars again microsoft.

They are working on new avatars, can't blame them they mentioned in the briefing that selling avatar items is a good business. I wouldn't be surprised to see them come back more prominently.
 
Feb 25, 2013
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Very smart moves here branching out into more than just consoles (referring to play anywhere). This should make every xbox fan happy as this means a healthier brand all around and more money for content.

Very interested to see some of these GAAS games at E3. I know Phil's favorite game is Destiny atm and I'm betting he is wanting something like that.

Very, very interested in seeing what this VR/MR mmo stuff pans out to be (the rumors anyway). More VR anything especially from the big 3 is great as long as it isn't locked down which I don't think it will be by the looks of them wanting their products on more and more devices.

Now let's just get the windows store in order...
 

JaggedSac

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Jan 14, 2010
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Very smart moves here branching out into more than just consoles. This should make every xbox fan happy as this means a healthier brand all around and more money for content.

Very interested to see some of these GAAS games at E3. I know Phil's favorite game is Destiny atm and I'm betting he is wanting something like that.

Very, very interested in seeing what this VR/MR mmo stuff pans out to be (the rumors anyway). More VR anything especially from the big 3 is great as long as it isn't locked down which I don't think it will be by the looks of them wanting their products on more and more devices.

Now let's just get the windows store in order...

That VR thing is likely not an MMO game, but just something like PS Home, at least that is what it sounds like in the OP.

Spencer went on to talk about the "Metaverse", describing a scenario were the Xbox live social network was a physical space. That upon logging into the network you would walk into a room were you could interact with friends through their avatars directly.
 

wapplew

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Mar 1, 2012
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That last chart...a whole segment with "loyalty" written next to it...WTF does that even mean?

Mean people with M sign on twitter, loyal users, big spender, 1 loyal MAU is better than 10 casual MAU.
 

Outrun

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Oct 7, 2014
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Sounds good and all but they need to have the first party games to back it up.

No they don't. But more would be better.

If Xbox becomes a place where 3rd party games excel, then the MS metaverse expands. These virtual spaces can become drivers for hardware sales and subscriptions, which is perhaps more important for them.
 

ArkhamFantasy

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Oct 13, 2013
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This is the first time i've heard Microsoft publicly state that Xbox is profitable. We already strongly suspected that but its nice to have confirmation.

No hardware numbers but oh well.
 

Dee Dah Dave

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Nov 24, 2013
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After the disaster of the Xbox One launch and philosophy, MS have done a great job of refocusing the brand and integrating it into the core of Microsoft. You can't deny that.

Still lot's of room for improvement though, the Goldeneye Remaster for a start!
 

JlNX

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Aug 14, 2016
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This is the first time i've heard Microsoft publicly state that Xbox is profitable. We already strongly suspected that but its nice to have confirmation.

No hardware numbers but oh well.

I don't think we are ever going to get those even if they are doing good or not, they see profitability as users not hardware.
 

Steverulez

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Business is business, and they've gotta make money. I'm not complaining about that.
I'm saying as a consumer, that puts me off reentering the Xbox ecosystem.

You're put off because ms are following the market and making money in the process? 🤔
Would you prefer it if they didn't and were not profitable and therefore there was no division?

I don't really know what sort of end game you want here… they provide plenty of options, the same as everyone else for monetisation and content?