Microsoft builds Xbox mobile game store to compete against Apple and Google

Microsoft is building an Xbox mobile store to offer games directly to mobile devices, challenging Apple and Google. The software giant first hinted at a “next-generation” store it would “build for games” earlier this year but has now quietly revealed details of the plans in the files with the UK Competition and Markets Authority (CMA).

The CMA is currently investigating the $68.7 billion acquisition and has asked Microsoft for context. In its filings, Microsoft says a major motivation for the purchase is to expand its presence in the mobile gaming space. The plans for this space apparently include creating an Xbox mobile gaming platform and retail store. Here’s what the company says in the files:

The transaction enhances Microsoft’s ability to create a next-generation game store that works on a range of devices, including mobile, as a result of the addition of Activision Blizzard’s content. Building on Activision Blizzard’s existing gamer communities, Xbox will seek to scale the Xbox Store to mobile, attracting gamers to a new Xbox Mobile Platform. However, taking consumers out of the Google Play Store and App Store on mobile devices requires a major shift in consumer behavior. Microsoft hopes that by offering well-known and popular content, gamers will be more inclined to try something new.

Call of Duty: Mobile and Candy Crush Saga are two hugely popular mobile games published by Activision and King respectively, and Microsoft could use these titles to build a game store that can rival Google Play and the App Store. Given Apple’s policy of blocking third-party app stores on iOS, it’s hard to imagine Microsoft competing on iPhones anytime soon. But that clearly doesn’t stop it from envisioning a mobile app store for the Xbox.

Microsoft’s recognition of a push for mobile gaming comes as the company increasingly positions Xbox Cloud Gaming as an option for mobile gaming on emerging handhelds. Microsoft quickly supported 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 toward mobile gaming can happen on multiple fronts β€” not just phones and tablets.

In addition to hardware, a lot of turnover is also at stake here. Games are some of the most popular downloads on mobile devices and encourage in-app purchases in app stores. Microsoft clearly wants a piece of that pie. See how the company describes the opportunity:

The transaction gives Microsoft a meaningful presence in mobile gaming. Mobile gaming earnings 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 in the first half of 2022. Mobile customers represent about three-quarters of its MAU. Microsoft does not currently have a significant mobile gaming presence and the transaction will bring much-needed expertise in the development, marketing and advertising of mobile games. Activision Blizzard will be able to contribute its knowledge of developing and publishing mobile games to Xbox game studios.

However, the CMA has barely discussed the potential for Microsoft’s entry into mobile gaming as part of its investigation and has instead focused largely on console gaming, which Microsoft claims makes up a shrinking share of the overall market. In a chart posted on Microsoft’s Activision Blizzard acquisition site, the company projects the total gaming market as worth $165 billion in 2020, with consoles worth $33 billion (20 percent), PCs worth $40 billion (24 percent), and mobile gaming at $85 billion (51 percent).

Income from the gaming market.

Income from the gaming market.
Image: Microsoft

However, building a successful competitor to the Google Play Store or App Store would be a huge challenge, and Microsoft will have to pursue third-party developers if it hopes to get through.

The company appears to be laying the groundwork here by committing to a set of principles that will allow developers to freely run their own app stores on their Xbox mobile platform and offer their own payment systems to facilitate in-app purchases. process. That’s an advantage that Apple certainly doesn’t offer. (These commitments don’t fully extend to Xbox consoles yet, but Microsoft said earlier this year it’s “committed to closing the gap with remaining principles over time.”)

Microsoft says the same principles will also apply to the future Xbox mobile store, which could be enough to lure developers to the platform. One company that may be particularly interested is Epic Games, which has rallied with Microsoft in recent years in the fight against Apple’s App Store policies.

Epic Games CEO Tim Sweeney welcomed Microsoft’s first hints of an open app store model in 2019 ahead of a massive battle between Epic and Apple a year later. Fortnite disappearing from iPhones. Epic has argued that Apple should allow third-party payment systems in its App Store or even allow competing app stores to function on iPhones and iPads.

Epic eventually appealed to Microsoft to help take its case in court, and Microsoft stepped up the pressure on Apple with some major changes to the Windows Store days before launch. Epic vs Apple test last year.

Epic didn’t win its legal argument, and Fortnite is still not back on iPhone. But Epic turned to Microsoft to bring Fortnite to Xbox Cloud Gaming earlier this year after court documents revealed that Epic originally blocked the game from Xbox Cloud Gaming because the service “competed with our PC offerings”.

This closer collaboration between the companies could help Epic get on board early with Microsoft’s mobile gaming plans. Epic has already embraced Samsung’s Galaxy Store on Android and has Fortnite and Call of Duty: Mobile on Microsoft’s Xbox mobile game store would be a good start in a difficult task of tackling Apple and Google.

Fortnite arrived on Xbox Cloud Gaming earlier this year.

Fortnite arrived on Xbox Cloud Gaming earlier this year.
Image: Xbox

However, a major potential stumbling block to Microsoft’s mobile gaming ambitions could be its control Duty on both mobile and console. Microsoft has had success with Xbox Game Pass and has made it clear that it wants to bring Activision games to the service. Regulators are now weighing how this will affect competition.

Xbox Game Pass is also at the heart of the ongoing battles between Microsoft and Sony over Duty. Sony claims Microsoft could take Duty completely away from PlayStation, while Microsoft says that wouldn’t make business sense. This disagreement has turned into a public battle of words between Sony’s PlayStation chief and Microsoft’s head of Xbox, but the real conflict takes place behind closed doors.

Microsoft says keep it now Duty on PlayStation is a “commercial necessity for the Xbox business and the economy of the transaction” and that it would jeopardize revenues if it stopped Duty from Sony’s consoles. “Microsoft has been clear that it is counting on revenue from the distribution of Activision Blizzard games on Sony PlayStation.”

But even if 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 pays for “blocking rights” to keep some games from Xbox Game Pass and now says it does with Duty. β€œThe agreement between Activision Blizzard and Sony contains restrictions on Activision Blizzard’s ability to Duty titles on Game Pass for a number of years,” Microsoft said in its filings.

The CMA and other regulators now have the unenviable task of disentangling these arguments between Sony and Microsoft and figuring out how this deal could harm consumers or competition. Microsoft is still hoping to finalize this deal in the spring of 2023, but chances are we have months of fighting ahead of us β€” as well as the opportunity to gain rare insights, as with these mobile plans, into the secret ambitions of Microsoft. the game industry.