Microsoft is building an Xbox Mobile Store to bring games directly to mobile devices, challenging Apple and Google. The software giant first hinted at a “next-gen” store that it would “build for games” earlier this year, but has now quietly revealed details of the plans in filings with the UK’s Competition and Markets Authority (CMA).
The CMA is currently investigating the $68.7 billion acquisition of Activision Blizzard and has asked Microsoft for context. In its filings, Microsoft says that a big motivation for the purchase is to help expand its mobile gaming presence. Plans for this space appear to include the creation of an Xbox mobile gaming platform and store. Here’s what the company says in the filings:
The transaction will enhance Microsoft’s ability to create a next-generation game store that will work across a range of devices, including mobile, as Activision Blizzard’s content is added. Building on Activision Blizzard’s existing gamer communities, Xbox will seek to scale the Xbox Mobile Store and attract gamers to a new Xbox Mobile platform. However, the shift of consumers from the Google Play Store and App Store to mobile devices requires a fundamental change in consumer behavior. Microsoft hopes that by offering familiar and popular content, players will be more inclined to try something new.
Call of Duty: Mobile and candy Crush Saga are two extremely popular mobile games published by Activision and King respectively, and Microsoft could leverage these titles to help build a game store that can compete with Google Play and the App Store. With Apple’s policies blocking third-party app stores on iOS, it’s hard to imagine Microsoft competing on iPhones any time soon. But that clearly doesn’t stop it from imagining an Xbox Mobile App Store.
Microsoft’s admission of a mobile gaming push comes as the company increasingly positions Xbox cloud gaming as a mobile gaming option on new handhelds. Microsoft was quick to support Xbox cloud gaming on Valve’s Steam deck, followed by a partnership with Logitech and Razer for their cloud gaming-focused handhelds. That means a push into mobile gaming could happen on multiple fronts — not just on phones and tablets.
Beyond the hardware, there’s a lot of revenue at stake here too. Games are among the most popular downloads on mobile devices and encourage in-app purchases in app stores. Microsoft clearly wants a piece of that pie. Watch how the company describes the opportunity:
The transaction gives Microsoft a significant presence in the mobile gaming space. Mobile gaming revenue from the King division and titles such as Call of Duty: Mobile, as well as ancillary revenue, accounted for more than half of Activision Blizzard’s revenue for the first half of 2022. Cellular customers make up about three quarters of its MAU. Microsoft currently has no significant presence in mobile gaming and the transaction will bring much-needed expertise in mobile game development, marketing and advertising. Activision Blizzard will be able to bring its mobile game development and publishing expertise to Xbox gaming studios.
However, the CMA has barely discussed the potential for Microsoft’s entry into mobile gaming as part of its investigation, instead focusing largely on console games, which Microsoft says represent an increasingly smaller portion of the overall market. In a chart published on Microsoft’s Activision Blizzard acquisitions page, the company charts the total gaming market as worth $165 billion in 2020, with consoles accounting for $33 billion (20 percent), PCs $40 billion (24 percent) and mobile gaming account for $85 trillion (51 percent).
However, building a successful competitor for the Google Play Store or App Store would be a tall order, and Microsoft will need to court third-party developers if it hopes to gain a foothold.
The company appears to be laying the groundwork here by committing to a set of principles that would allow developers to freely run their own app stores on their Xbox mobile platform and use their own payment systems to handle in-app apps. to offer purchases. That’s an advantage Apple certainly doesn’t offer. (Those commitments don’t fully extend to Xbox consoles just yet, but Microsoft said earlier this year that it’s “committed to closing the gap on the remaining principles over time”).
According to Microsoft, the same principles will also apply to the future Xbox Mobile Store, which could be enough to attract developers to the platform. One company that may be particularly interested is Epic Games, which has allied with Microsoft in its fight against Apple’s App Store policies in recent years.
Epic Games CEO Tim Sweeney welcomed Microsoft’s first hints of an open app store model in 2019 ahead of a huge battle between Epic and Apple a year later Fourteen days disappear from iPhones. Epic has argued that Apple should allow third-party payment systems on its app store, or even allow competing app stores to work on iPhones and iPads.
Epic eventually asked Microsoft to plead its case in court, and Microsoft upped the pressure on Apple with some significant changes to the Windows Store days before Epicv. Apple attempt last year.
Epic didn’t win its legal battle and Fourteen days is still not back on the iPhone. But Epic has reached out to Microsoft to bring it Fourteen days to Xbox Cloud Gaming earlier this year, after court documents revealed that Epic originally blocked the game from Xbox Cloud Gaming because the service was “competitive with our PC offerings.”
This closer partnership between the companies could help convince Epic to get involved in Microsoft’s mobile gaming plans early on. Epic has already embraced Samsung’s Galaxy Store on Android and has Fourteen days and Call of Duty: Mobile in Microsoft’s Xbox Mobile Game Store would be a great start to a difficult task to take on with Apple and Google.
However, a major potential stumbling block to Microsoft’s mobile gaming ambitions could be its control call of Duty both on mobile and console. Microsoft has found success with Xbox Game Pass and made it clear that it wants to bring Activision games to the service. Regulators are now weighing how this would affect competition.
Xbox Game Pass is also at the center of the ongoing battles between Microsoft and Sony call of Duty. Sony argues that Microsoft could take over call of Duty away from PlayStation, while Microsoft says it wouldn’t make any business sense. That disagreement has escalated into a public war of words between Sony’s PlayStation boss and Microsoft’s Xbox boss, but the real conflict is taking place behind closed doors.
Microsoft says hold now call of Duty on PlayStation is a “commercial imperative for the Xbox business and the economics of the transaction” and that it would put revenues at risk if withdrawn call of Duty from Sony’s consoles. “Microsoft has made it clear that it relies on revenue from distribution of Activision Blizzard games on Sony PlayStation.”
But even if call of Duty remains on PlayStation, Sony could still lose some serious revenue if Microsoft offers the title on Xbox Game Pass. Microsoft previously claimed that Sony paid for “lockdown rights” to keep some games off Xbox Game Pass, and now says it does call of Duty. “The agreement between Activision Blizzard and Sony includes limitations on Activision Blizzard’s ability to place itself call of Duty titles on Game Pass for a number of years,” Microsoft says in its filings.
The CMA and other regulators now have the unenviable task of untangling these disputes between Sony and Microsoft and figuring out exactly how this deal could harm consumers or harm the competition. Microsoft still hopes to close that deal by Spring 2023, but there’s a good chance we’ve got months of fighting ahead of us — as well as an opportunity to glean rare glimpses into the gaming industry’s secretive ambitions, as with these mobile plans.
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