Raphael Thys
When Satya Nadella took the helm at Microsoft in 2014, some Wall Street analysts urged the new CEO to sell the company’s gaming business, which it had entered with the launch of the first Xbox console in 2001. Rather than divest, Microsoft doubled down and recently shifted from a console-centric approach toward a “ubiquitous global gaming ecosystem” focused not just on gamers but on game developers and publishers. Investments in cloud gaming, the Game Pass subscription service, and cross-platform play have enabled this ecosystem to develop, with an eye toward helping gamers participate anywhere, anytime, on any device.
In support of the strategic shift, Microsoft formed its Gaming Ecosystem Organization (GEO) in 2020, which looks after the needs of game creators across all of Microsoft’s software and services, including Xbox, Azure, and Microsoft 365. To learn about the relatively new division and its ecosystem approach (including Game Pass membership and an array of game development solutions, which address gamers and game creators, respectively), McKinsey executive editor Lang Davison sat down with GEO head Sarah Bond, Microsoft’s corporate vice president for game creator experience and ecosystem at Xbox. Insights from the discussion shed useful light on the potent digital ecosystems powering today’s increasingly borderless economy—and draw lessons from gaming that go well beyond the industry itself.
Let’s start with play. Why do playing and gaming matter in the world?
To play is fundamentally human. If you can experience something through play, it creates camaraderie. It’s fundamental to who we are. You think about games like hide and seek or tag—they’re very basic, right? But they have been with humanity since the dawn of time.
And the gaming industry is unique and special because it’s the only entertainment medium in the world where you can connect with someone you have never met; you don’t necessarily speak their same language, you’re not in the same time zone, you don’t have the same abilities—and [yet] you can achieve something with them. You can actually do something together.
And then, on top of it, the technical components that you need to enable that connection actually test every limit of tech. You have to be able to render a realistic world. You have to host billions of events simultaneously, in real time. You have to connect people. You have to be able to scale your workload up and down. So gaming is this incredible social force because it can enable shared achievement—not individual achievement or celebrating something that your friends can “like” or ”share.” And that social experience combines with a technical base that is unlike anything else.
Is that why Microsoft is putting an increasing focus on gaming?
There are a couple of reasons why Microsoft is putting so much emphasis on and investment in gaming. First, Microsoft’s mission is to empower every person and organization on the planet to achieve more. And gaming is the most prevalent and fastest-growing form of media on the planet. And it’s the only form of media where you can virtually walk in another person’s shoes and actually experience something from someone else’s perspective. For us, participating in gaming is an opportunity to have both that social impact on the world and to participate in the business opportunity that’s associated with it.
The other reason is that the future of gaming is completely interlocked with the cloud. Gaming represents an extremely complex workload. Most people don’t think of it that way. They think, “Oh, it’s a game.” But a technical failure has real consequences. If a video doesn’t load quickly, you restart the video. In gaming, you could lose all your progress, which can be hours of effort. Gaming pushes the edge of computing capabilities. Gaming is interactive. It’s multivariant. It takes years and years and years to build a really engaging game.
As a game developer, when you launch something, it doesn’t end. You’re constantly updating it, adapting it, integrating things into it. At Microsoft, that helps us technically because when we develop technologies that meet the high demands of game developers, we can scale that work into other industries. Because if you could solve it for gaming, you can solve it for pretty much anything.
What sorts of things are you referring to?
I’ll give an example of something that happens in gaming that translates into another industry. When someone is playing a game, and they’re interacting in the game, we have something called live operations.
We look at people’s interactions, what they do, how long it takes them, whether or not they purchase, and then we optimize the game for that constantly. Well, that same observation can be used in an amusement park: if you have an app on your phone as you’re running around in an amusement park, the app can be customized for you [in] real time. So we take the tech that we build for a game and we help somebody have another great, real-world, entertainment experience.
Can you say more about the structure of the gaming ecosystem?
[The gaming industry] is fundamentally a two-sided business with thousands of actors on one side, the developers and creators of the games, and millions of actors on the other side, the players, who are completely interlinked.
So a developer will create a game. They release it to the world. The players interact with it. Based on that interaction, the developer will continually iterate it. The player might also share something out from the game. That leads to another interaction. And it’s a continuous loop. So it is an ecosystem that is reliant on the system reinforcing itself to grow.
Are there other participants in the ecosystem?
Let me try and explain the actors in the ecosystem. So, you have creation of content which spans from the smallest indie developers to really large teams, or what we call triple-A developers.
Then you have people who publish the content, that actually drive the monetization engine around that content, that bring it to retail, that do digital versus physical, that promote it. Then you have storefronts, which used to be predominantly physical retail but increasingly, over time, are moving to digital.
You have Xbox, PlayStation, and Nintendo on console, but then you’ve got PC actors like Windows Store, Steam, or Epic. And then you have actors on mobile like iOS and Android. And then you have the tool chains that people use to make the games.
How does Microsoft think about and describe its role in the gaming ecosystem? Is that part of a broader vision, so to speak, for the ecosystem as a whole?
Our vision for the gaming industry is that anyone should be able to play any game, anywhere they want. That’s not how the industry works today. [Right now] the industry is split up by platform. It’s split up by type of game. It’s not actually possible to play seamlessly across devices.
That’s more a legacy of the way the industry has always been. Now, especially with the advent of the cloud, with tool sets like game engines, it doesn’t actually need to be that way. But what we realized is that to kick-start that flywheel, we had to change the way that games were made. That is where you can have impact that sustains.
For people to play any game on any device, developers need the tools to build games that are playable on any device. So we went through and looked at all the tool sets. 1
You mean you looked at how well existing tool sets supported and enabled ubiquitous gaming?
Right, things like cross-network multiplayer. That’s the ability for you and I to play together, even if we’re on different networks. You need to enable cross-save, so that if I start playing my game on a PC, and then I decide, oh, I’ve got to take my son to the soccer game, and I might play a little bit on my phone, then my saved state has to transfer across devices. You need cloud APIs so that the way that the game is being delivered to you, whether it’s running natively on your device or it’s being rendered from the cloud and being streamed to your device, changes dynamically based on your local conditions, and the UI [user interface] changes, understanding what screen size you’re on.
Those tools don’t exist in the legacy tool sets that game developers are using today. So, for us, the way that we’re enabling the future is by making it possible for creators to build that way, to help unleash their creativity. And that kick-starts the flywheel that meets the players’ needs.
And the platforms you provide are at the center of that, right?
The definition of a platform, I believe Bill Gates once said, is that everyone who uses the platform has more economic success from the platform than the platform holders themselves. And I think about that every single day, about our gaming platform. How are we creating more value for the world? The number-one thing is to make it easier for a game creator to create.
Making games is super hard. For a triple-A game, three years’ [development time] is great; six years happens frequently. So, if we can reduce their cost of development and their running costs, that is a huge value to [the game creators].
And then, making sure their games can be played everywhere is a huge value. There are three billion gamers in the world today. There are about 200 million who own a console. Depending on how you count it, there’s over a billion people who play on PC. If you can make one distribution mechanism so a developer can reach all potential three billion players with one instance of their game, their [development] costs go down as their reach goes up.
The Game Stack platform supports game creators. What about gamers themselves—do you think of Game Pass as a platform, too?
Xbox Game Pass is a subscription-based library of more than 100 games. It’s playable on console. It’s playable on PC. It’s playable on Android and now on iOS devices through the browser.
When we created Game Pass, we were looking at it as a product, if I’m honest about where we were. Players would say they want a library of games, they want it to be more accessible. So, that’s how we built it and we quickly saw that it was, in fact, a platform.
[That’s because Game Pass] wasn’t just acting on behalf of the player. It was also acting on behalf of the developer. And that created an ever-accelerating flywheel because once developers became eager [to put their games on Game Pass], then more players would play the games, which would drive monetization, which developers used to make more games, and it kept going and going.
You created what you thought was a product that turned out to be a platform instead. That must have been a bit of an aha moment.
The realization that Game Pass is a platform was a big moment. Fortunately, we were already running the Xbox platform, and we’re part of a company that runs the Windows platform and the Azure platform. Our experience made it easier for us to see patterns and to figure out what to do. Fundamentally, Microsoft is a platform company and Xbox has always been a platform. [Game Pass] was an acceleration on top of what we had already created—platform inside of a platform, or maybe a platform beyond the original platform might be a better way to describe it.
So the gaming platforms and the Azure platform become mutually reinforcing.
It may not seem like it to the outside observer, but there are enormous amounts of synergies between what Microsoft is doing in the cloud and what we are doing in gaming. Because what we’ve really done with Xbox Cloud Gaming—because we’ve put both the Xbox Series X and S into Azure—is to provide the capability to play a game rendered completely from Azure that can be played on any device, regardless of its local compute.
That [capability] takes our platform, which used to be tied to a specific piece of hardware, and it makes it playable anywhere. It dramatically accelerates [the platform’s] reach. It makes it dramatically more valuable for players because you can play anywhere.
And [that capability] makes [our platform] dramatically more valuable for developers because they can build a game that’s playable anywhere. So, it takes that core value proposition, which used to be linked to buying a $500 device, and it has unleashed it to be playable on any device on the planet.
And at the same time, it helps Microsoft make the most of its distributed network of servers, right?
Exactly. One of the things that many people don’t think about is if you’re going to play a game from the cloud, it’s very different than any other type of service that has to be rendered from the cloud because games require bidirectional data transfer. It sends you the stream, but you have to send a data stream back with what you’re doing on the controls. So your proximity to the server is actually really important to reduce lag and increase game responsiveness. Far more important than if you were streaming a video and much more important than if you were doing, for instance, a traditional back-end enterprise process. [Since] we have data centers in regions all over the world, it’s possible for us to deliver that experience at a level of fidelity that is truly unique.
What organizational changes did you have to make to support all this?
We’ve only had a team in Xbox dedicated to creators for about a year. [It’s called] the gaming ecosystem organization. And it has about 600 people. We are located in China, Korea, Japan, Latin America, here in the US in Redmond, Washington, in Europe—all around the world. We focus on all the relationships we have with game creators across Microsoft and across all Microsoft products. And we also develop and ship the development tools that creators use as well. [We formed GEO] about a year ago to have a team that thinks about creators as customers, in and of themselves.
So you were expanding your concept of who your customers were.
[Yes. We had to] be really thoughtful about who our customer is. It’s very easy when you’re in a consumer product to say that the end user is your only customer.
But for us, because we’re creating a product that’s a platform, thinking about game creators as a customer and how you create that flywheel where they want to be part of your ecosystem—that was a big step.
The second realization we had, though, was that game creators are extraordinarily unique because they are digital natives. Most game creators are extremely technical. So, to help them address their needs required a level of focus and dedication beyond what it might mean to address the needs of a less technical industry or group of individuals.
Because the attitude of a game creator is going to be that, if you don’t have the tool that they need, they’re going to code it themselves. So, having a relentless focus on that group was really important in order to meet them where they were and to develop the things that they needed. [Once we’d done that we could] take the insights from that development and spin it to all creators, beyond game creators, across Microsoft.
Beyond forming the GEO itself, were further organizational steps necessary?
[We needed to] reshape our culture. If you’re going to build products for everybody in the world, you need to represent everybody in the world. We needed to have a diverse team and a presence in countries where we wanted to have content both in terms of people who write the code and people who engage with developers and creators in those regions.
And that’s been a big part of our evolution. Even our leadership team now has gone from one that, within Xbox, was composed of people who had largely worked in gaming to [a team with more diverse experiences]. I came from T-Mobile. We have someone from Facebook, someone from Netflix, we have people from Amazon, all bringing together diversities of business models and experiences to actually create a global platform.
If you’re going to build products for everybody in the world, you need to represent everybody in the world.
And I would say we’re part of the way on the journey there. We’ve made progress. We’ve got further to go.
You mentioned your previous job. What led you into gaming?
Sometimes people ask me why I’m in gaming just because it’s not an industry that has a great reputation for diversity and inclusion. And that’s exactly why I’m in it. It’s the most popular form of media when you look at it by revenue. Seventy percent of people under the age of 25 say they’d rather play a game than watch a video. But [the gaming industry] isn’t one that is fully representative of all the voices in the world today.
Working at Xbox and at Microsoft, where we have a global gaming platform, I have an opportunity to change that. When we democratize development tools, we make it possible for everybody to have an equal chance for their voice to be heard, for them to tell their story.
And that provides more opportunity for someone to play that story, to build that empathy for that experience, which in turn changes perceptions and the way that we see our world.
This has been great, Sarah. One further question, if I may. What would executives from other industries learn from your experience in gaming?
I think there are two major lessons that you could take from the gaming industry and take to other industries. The first is that you should think about engagement driving monetization, not monetization driving engagement. What you want is someone’s attention.
You want to create something that delights them, that they want to play. And the money flows from that, not the other way around. And so, if you put these barriers up before people and you say, oh no, you’ve got to pay me $70 before you can even start, well, while you will have a business model there, it isn’t the winning business model. The winning business model has to be compelling in and of itself. And the monetization flows from that.
The second thing I would say is just the enormous power of making it possible for anyone to create something. You look at the world of user-generated content, you look at things that are going on in Minecraft or you look at the creator economy—and while a megacorporation or a large, very well-capitalized team can always create something, it will never have the creativity that comes from making it possible for anyone to create something.
So, the thing that I think is fascinating when you watch the gaming industry is, almost every year, there is a game that comes out of nowhere from a team that [was relatively unknown]. And it becomes one of the biggest games in the world.
You know, two recent examples, and people sort of can’t believe this now: Fortnite was a pretty small team. It came out of nowhere. Similarly, PUBG came from a small developer in Korea. It came out of nowhere. So, you need to learn to scan for those things, to look for them, but also be comfortable with enabling them because there’s real value in enabling that creativity and building a business model that empowers it.