Only Microsoft is going to be able to fully comprehend the economy of what value proposition they're losing by offering users free or severely discounted trials or account upgrades. We can guess all we would like about how many users of Game Pass are currently in their $1 one month trial, and how many are fully paying customers. We can only guess how many people bothered enough to invest $180 for the three year deal, we can only speculate.This just means that you don't understand the market. Of course it's a great deal, because as I mentioned, MS needs some sort of winner product/service as they have had a terrible few years. Even the One X meant nothing in the market other than a great PR move for their core base, as its release didn't end up stimulating sales of the console.
What I want you to understand is the following: No service that is given away for free is sustainable. What does that mean and why do people care when criticising a service? It's simple, if there is no financial incentive, no company will continue in that line of business/service. It's a bit bigger whether you get a great deal or not, it has to be a win/win scenario for both consumers and producers, otherwise it goes away, or it changes.
Let's take an example, mobile apps. Everyone had rushed to try to get everyone to install theirs and no one knew what were the proper price points, they just knew there were hundreds of millions of potential new customers and they wanted those bucks. The result was a race to the bottom, where eventually every app was a couple of bucks or just plain free. Sounds great, excellent value for customers, right? Well, not exactly, in the case of games, you can't have a sustainable business giving away your games, you need to pay facilities, developers, equipment, so on and so forth, something has got to give.
So, if you can't exist with the price of the game on the story, what do you do? Well, voila, the answer was, Games as a Service and micro transactions, which lead to the discovery of whales, marketing to children and people with addictive personalities and other lovely things. So, the developers adapted to the market, created awful games designed to draw you in then annoy you until you agreed to either give them money or quit.
That is why when people brag over a service because of stupid console wars (and anyone that does has the mental maturity of a 5 year old) then that is why this is pointed out: anyone can give away something in a closed system with a captive audience. Anyone.
The question is, how will the service fare once it stops being given away for free? How long is MS willing to keep funding this system for tiny, tiny revenues? What proportion of customers are paying the actual monthly fee vs the given away memberships? And so on and so forth. They are relevant questions and they spur conversation and they will reveal how sustainable it is.
What is not healthy is having the attitude of "fuck corporations, let them bleed!" because that just reveals a lack of understanding that that thing you enjoy will disappear if it doesn't end up being very profitable for any company.
But Microsoft knows. They know how many of those $1 trials have converted subscriptions into $10-$15 of monthly recurring revenue. They know that a large number of users will sign up because it's cheap, then either fail to unsubscribe or genuinely enjoy the service and continue paying full price. GAF likes to think that MS is just "giving this away for free in a closed system with a captive audience", but the reality is that Microsoft has a team of economists, psychologists, and accountants that are making sure the money they are investing here pays long term dividends. A psychologist working for Microsoft probably did a study to show how many people will remember to cancel a subscription if that person goes longer than a year without paying any additional money - and that will help them determine the price point to discount their annual subscription fee (if any). Microsoft's ultimate goal here is to take a customer who (on average, and again Microsoft has pretty hard numbers on this) maybe buys two games per year at $60 each, and convert them into a customer who will instead be happy to pay $15 a month.
Additionally, the system of developer monetization on their platform also doesn't really concern us because third party developers will either find that this is a good deal for them and utilize it to make profit, or not. But again we can speculate in areas that Microsoft absolutely has hard numbers. From the developers I spoke to, the blanket offer from Microsoft is that developers are paid based on the percentage of each subscriber's play time of their games. So if you're SEGA - your cut of Game Pass revenues will be directly proportional to the amount of time people play SEGA games that are part of the Game Pass program. This goes down to the user level - if I'm a Game Pass subscriber and the only game I play on Game Pass this month is Streets of Rage 4, then DotEmu gets 100% of my Game Pass revenue this month. If I spend 9 hours playing Streets or Rage 4, and 1 hour playing Gears 5, then DotEmu only gets 9/10ths of my revenue. But this is multiplied out by 10 million subscribers so it's so far been very profitable for most developers with popular games. Microsoft is putting their first party games on the service day one because they know that will be a huge draw and they want to keep as much of this revenue to themselves as possible.
This also incentivizes developers to make games with a higher level of player engagement. Most players are more inclined to continue playing a game with an engaging story or fun game play and that's rewarded through Game Pass. Most people fear that the system just leads to developers making games that are designed to turn out microtransactions from users, but in reality this type of behavior would make most games less profitable on Game Pass's model. Developers will, of course, find a nice balance between the two but I honestly feel it'll fall somewhere closer to Assassin's Creed Odyssey (massive game / story, but optional microtransaction store focused on cosmetic content) rather than Clash of Clans.
The real question we should all be asking is "how well does this scale up?". How many games can be put on Game Pass before individual developers get less and less of a cut in revenue before everyone starts dropping out of the service? How many studios can you buy that essentially become an investment in future Game Pass revenues? It's going to be a careful balancing act for Microsoft to figure out.