The end of closed Xbox hardware and Steam's existential threat to consoles

One hardware walled garden is crumbling and it's signalling a long overdue sea change for the industry

I’ve had a version of this post sitting in drafts since April, but the Xbox ROG Ally announcements, unexpected scale of recent Microsoft layoffs and calls for Microsoft to spin off Xbox following have given this conversation new relevance.

The long overdue crumbling of hardware walled gardens as the default operating mode in video games is quickly gathering steam (heh). It’s now clear dedicated Xbox console hardware isn’t going to be significant in 5 years no matter what Microsoft does moving forward. Sony and Nintendo’s will likely still be, but will increasingly look like luxury anachronisms like music LP collections or in-home arcade cabinets than the default mass market game industry of the late 80s to mid 2010s.

The center of gravity has irreversibly and definitively shifted within less than a decade from console & PC premium to mobile F2P and is now in the process of moving to platform games like UEFN and Roblox. Dedicated hardware in a very literal sense simply isn’t what it used to be.

Despite its reputation as a slow and lumbering giant, Microsoft has, aside from the Ballmer period, generally been run with reasonable strategic acumen. Aside from their core businesses of PC OS and office software, they’ve correctly anticipated gaming, software subscriptions, mobile, cloud, tablets, foldables and XR, some of which they’ve managed to lock up one side of an oligopoly in.

Of course most suffered in execution, most famously Windows Mobile (PDA and smartphone), both completely written off. Microsoft has always had unrecognized merit in being early to market or at least to concept with products like tablets, its attempted pivot from x86 to ARM hardware, HoloLens and the Courier turned Surface Duo. Microsoft was never directionally wrong on mobile, tablets, ARM computing and XR. All of those happened and were absolutely worth winning for Microsoft if they could. That they didn’t win some of those is only definitive in hindsight but never a fait accompli.

Despite being some of the first in all these markets, execution has more often than not been their main problem due to three factors:

1. Microsoft’s famously tribal and territorial organizational structure preventing glaringly obvious integration opportunities between products to preserve local fiefdoms.

2. Coming in too early to the market before technology matured with often clunky hardware and terrible UX.

3. Refusing to adjust course and doubling down on the initial approach when problems become clear assuming their sheer bulk and domination of adjacent areas would see them through.

How Closed Hardware Ecosystems Became The Norm

The dedicated console default is so ingrained in the game industry psyche that like all defaults it’s not even questioned. I cover some of how and why it appeared in this piece. The TLDR boils down to 6 factors:

• The chaos of the 80s game industry

• Dependence on immature, fragmented and quickly obsolete tech.

• Zero marginal cost of distribution of digital goods in the high speed Internet era

• Simple UX

• Cost efficiencies

• Emergence and effectiveness of sport team-like tribal marketing

Let’s break each down below, see if they still apply and try to find solutions not to “fix Xbox” which I argue shouldn’t be fixed, but to realize the real promise of Game Pass - crossplatform game ownership with no compromises.