APRIL 1, 2014 • As part of an executive suite reshuffling at Microsoft Corp. new chief executive Satya Nadella has promoted Microsoft Studios Xbox head Phil Spencer to lead the entire Xbox operation. The appointment also represents a restructuring within the unit with Spencer in charge of the Xbox Platform team, Microsoft Studios, Xbox Live, Xbox Video, and Xbox Music. Spencer will report to Microsoft executive VP of operating systems Terry Myerson. Appointed as executive vice president of the devices group by Nadella was Stephen Elop who will also participate in Xbox One hardware development. The final promotion was Scott Guthrie to take over the cloud and enterprise group that Nadella oversaw before being named CEO in February. Spencer fills the leadership role absent since last July when Don Mattrick left for Zynga. In related news, Microsoft global vice president Zhang Yaqin spoke at an IT summit in Shenzhen on March 29 and said that sufficient progress had been completed in technology and content so that the Xbox brand could be launched in China soon. Last September Microsoft and BesTV New Media Co Ltd set up a joint venture within the new Shanghai Free Trade Zone where previously proscribed electronics devices can be manufactured and sold in China. BesTV New Media makes and sells a variety of electronics devices.
Impact: Given all of the changes at the top we have been curious about how the Xbox business would fare when the dust settled. As control of the brand moves to Phil Spencer it is clear that Microsoft remains thoroughly invested in the console game business. The restructuring forces together both the creative and platform teams into what is hoped to be a cohesive unit. The company has writ this philosophy large with its One Microsoft mantra, yet we can now see that the same focus is being applied to specific product lines as well. Spencer is naturally keen on the organizational changes as he sees the closer integration of Xbox staff will produce better games for consumers. The peril is that with more centralization of authority it also becomes more difficult to delegate blame. Frankly, there is not much to worry about at this stage since DFC Intelligence forecasts that both the Xbox One and the PlayStation 4 will each pass 100 million units sold. The restructuring can also be seen as a more complete focus on gaming than when the Xbox One was introduced as a home entertainment media system last year. This may or may not be the case, but Sony is obviously doing quite well with the PS4 marketed as a game-focused console, and Microsoft may want to go further down that road itself. The fact is that core gamers are spending more than ever and we don’t see that trend changing in the near future. Now we can only wait for Microsoft to tell us how well Titanfall has boosted its Xbox One sales.
It is easy to be skeptical about a Chinese Xbox launch because Microsoft has been talking about the possibility for years. But we take this latest case more seriously. After years managing R&D in Asia and a major player internally working on non-PC market segments, Bill Gates and Steve Ballmer reportedly thought highly enough of Zhang Yaqin to appoint him to his current headquarters position together in person last January. With impeccable scientific credentials, if Zhang is talking about an Xbox One launch in China then we tend to take the disclosure as a bankable statement. When the Xbox 360 was taken to Japan, the heavy lifting was done with exclusive Japanese games of which there were too few for the system to be a success. If the Xbox One is to be a success in China, then a great deal more interface and content localization will have to be available on day one than the 360 ever saw in Japan. We also would expect that any major console in China would favor digital distribution over retail discs. The larger question is how the free-to-play model is embraced. Xbox Live’s technology can handle the model, what we are curious about is whether core Xbox One games might be converted to F2P for China. Chinese firms such as Yodo1 are performing that service for mobile game apps, so the possibility is not out of the question. With geopolitical tensions with Japan leading many Chinese consumers to shun Japanese brands, Microsoft may steal a lead in the critical Chinese market if they get the localization mix right.