The future of Xbox is to copy Steam Machines

More to the point, the future is licensing.

As Microsoft has shown time and time again, they know how to observe a good idea and copy it. This tenant is core to the way Microsoft operates since its inception when Bill Gates used what he learned from working on Macintosh OS and replicated the idea for IBM machines running DOS. While the company has grown, so did its number of operating systems for different devices. PCs had their unique OS. However, so did Mobiles, Embedded components, Servers, MP3 players, game consoles, and more. But now – as CEO Satya Nadella sees the unification of OS code – the Windows 10 model returns Microsoft to a position of being able to offer that open-market choice for hardware manufacturers.

As the Xbox will be running Windows 10, surely this business will undergo a transformation. Xbox President Phil Spencer continues to emphasize the blurring of Xbox & PC gaming. It is widely accepted that the Xbox One’s hardware specs are well behind Sony’s PlayStation, and it is also understood that Microsoft was making them for nominal profit (although that figure comes from when the Kinect was included). As game developers become more adept at squeezing the most out of available tools for these nearly two-years-on-the-market consoles, the gap in hardware capacity is becoming more and more evident. Microsoft will be looking to avoid this embarrassment again in the future. Ultimately, the best way for them to indemnify themselves from blame is to share the responsibility.

Innovative gaming company Valve will be releasing its first Steam Machine in November of this year. Steam Machines are essentially computers running Valve’s specialized Linux distribution, SteamOS. These machines will require manufacturers to submit hardware configurations to Valve for testing and certification in order to receive the Steam Machine licensing. Valve’s idea is stupendous. It’s brilliant. It’s marvelous. It gives the consumer choice as to just how much he or she is willing to spend. Does the customer want a $500 box or a $2000 box? Complaints are minimized because it’s not a one-size-fits-all approach. It provides Valve with licensing revenue. But alas, the business model itself isn’t patentable. And Microsoft will copy it for Xbox.

The embarrassment that was and is the Xbox One will never be repeated. Xbox gaming hardware won’t be second best again. A wealth of third-party hardware manufacturers will take the helm as new Windows SKUs will read something like Windows TV, Windows Xbox, or Windows Gaming. There will likely exist between 3-5 grades for these systems which will determine what settings, and even what games can run at what grade system. Questions do exist though. Will Xbox gamers be able to build their own hardware configurations for these SKUs? If not, are these machines intended to be user-upgradeable? Is it possible to swap graphics cards? Can RAM be increased? Or will one be forced to buy a new “Xbox” in order to improve the hardware? What other Windows features will be available within the OS? When will this change occur?

These questions are clearly being worked out. But whatever happens, the change will be good for Microsoft. They save themselves the trouble of R&D, manufacturing logistics, retail agreements, shipping arrangements, international-body political tribunals, supply chain creation, hardware support, along with other facets of selling and building both hardware and software. Thousands of jobs will surely be cut. There is also the matter of new revenue streams from collecting licensing, new subscription fees from users, accessories, and a constant stream of up-to-date hardware choices for the Xbox ecosystem. With attribution to Jon Stewart’s daily show moniker, Well played Mr. Nadella.