Foley on Microsoft

Why Gaming Matters to Microsoft

Redmond's focus on its Xbox and PC gaming brands tie directly to the future success of both Windows 10 and mobile development.

• By Mary Jo Foley
• 06/22/2015

Satya Nadella's mantra from a year ago that Microsoft is a productivity and platforms company has become a reality. The 'Softies have refocused and are concen­trating on the businesses where Microsoft makes money and has credibility. That said, there's still one area that doesn't readily fall into the productivity category, but over which the 'Softies continue to obsess. And that's gaming.

Nadella acknowledged a year ago that gaming wasn't "core" to Microsoft, in spite of the longstanding existence of its Xbox business. But he noted that "the single biggest digital life category, measured in both time and money spent, in a mobile-first world is gaming."

At the recent Microsoft Financial Analyst Meeting, Nadella beat the gaming drum, yet again, claiming Microsoft has "the most thriving social network for gamers," a reference to Xbox Live. But he also got to the real heart of the reason Microsoft continues to focus on gaming in his remarks to the Wall Street analysts in attendance at that meeting: "Gamers are the people who make app stores on all mobile phones today," he said. "Most of the liquidity of app stores on iOS or Android is fundamentally driven by gaming."

When Microsoft bought Mojang, the makers of Minecraft, for $2.5 billion last year, many Microsoft watchers scratched their heads as to why a productivity company would shell out so much for a game maker, even one that claimed the spot as maker of the best-selling PC game ever. One Microsoft vice president claimed Minecraft could be considered a "development tool," one which would whet kids' appetites for PowerPoint and Visual Studio. (This is a true story, I'm not making that up!)

Here's the more compelling reason: Minecraft also happens to be "the highest-selling paid app on iOS and Android in gaming," Nadella reminded Wall Streeters earlier this year.

Without a store full of games, Microsoft won't ever be a big player in the mobile-first world, the 'Softies reason. This reality explains the constant flogging of games in the Microsoft Twitter streams, blog posts and press conferences. And it also helps explain why Microsoft was willing to allow game maker King to preload Candy Crush Saga on Windows 10, along with the fact that King was Microsoft's poster child for its new porting tools for bringing iOS apps to Windows 10.

Microsoft is counting on gaming to help monetize Windows -- something that Wall Street and others are keen to see happen. With Microsoft giving away Windows 10 for free to consumers willing to upgrade from Windows 7 and 8.1 in the first year it's available, as well as to many OEMs to incent them to make small Windows tablets and Windows Phones, some Microsoft watchers are worried about how Microsoft will maintain Windows as a $15 billion business, which it was in fiscal 2015.

Chief Financial Officer Amy Hood, who also spoke to analysts at Microsoft's Financial Analyst Meeting a couple of months ago, was up front about gaming as a way Microsoft thinks it can monetize Windows. Hood claimed that having search, a new unified store (plumbed with games) and gaming built directly into the Windows experience are all "new monetization opportunities, once a PC is sold." Microsoft officials have touted the ability to stream games back and forth between Xbox One consoles and Windows 10 PCs as a selling point for the new OS, as well as the inclusion of an updated Xbox app for the platform.

But back to iOS and Android. Microsoft has a multi-faceted strategy to try to become a bigger player in mobile. The company wants to own the most popular mobile apps that run on iOS, Android and Windows Phone. That explains the company's recent purchases of Acompli, Sunrise and 6Wunderkinder, as well as Mojang, one could argue. But Microsoft also wants to beef up its own Windows Store. And games are what make mobile-app stores go round. Throw in the fact that Microsoft is counting on gaming to help monetize Windows in the new world where many expect their OSes to be cheap if not free, and Microsoft's gaming obsession makes a lot more sense.