Microsoft has long argued that its Xbox store should be treated differently than the app store ecosystem around PCs or phones. The software giant takes a 30 percent cut on digital game purchases through its Xbox store, just like Apple takes from software purchased on its App Store. While Microsoft defended this business model during the Epic v. Apple trial last year, the Xbox maker is now hinting that it needs to make its Xbox store more open in a move that could change its Xbox console business model in the future. Microsoft has unveiled a series of app store principles today that are similar to the ones it laid out two years ago. The principles are designed to “ensure we’re providing the best possible experience for creators and customers of all sizes,” according to Microsoft president Brad Smith. Some of the principles only apply to Microsoft’s Windows Store, and not its Xbox store, though. Microsoft’s reasoning behind why the Xbox store should be treated differently will be familiar if you’ve heard the company argue in Epic’s favor before. Smith says legislation is being written to address app stores across PCs and phones but not game consoles like the Xbox. “Emerging legislation is not being written for specialized computing devices, like gaming consoles, for good reasons,” says Smith. “Gaming consoles, specifically, are sold to gamers at a loss to establish a robust and viable ecosystem for game developers. The costs are recovered later through revenue earned in the dedicated console store.” Microsoft has previously revealed it doesn’t earn any profit on sales of Xbox consoles alone, and that thanks to a hardware subsidy model, “profits are generated in-game sales and online service subscriptions.” This model is particularly lucrative for games like Fortnite, Call of Duty: Warzone, and other popular free-to-play games that rely on in-game purchases for monetization. Microsoft takes a cut of all of these purchases, and we’ve seen the impact Fortnite can have on Xbox revenue alone. Despite this lucrative business model, Microsoft says it will need to change, as it seeks to assure regulators that are looking closely at its $68.7 billion acquisition of Activision Blizzard. “We recognize that we will need to adapt our business model even for the store on the Xbox console,” admits Smith. Microsoft confirms to The Verge it will apply seven of its 11 principles to the Xbox store starting today, February 9th, including treating apps or games equally, transparency about promotion or marketing of apps and games, and holding its own apps or games to the same standards imposed on others. Crucially, one big principle won’t be applied to the Xbox store yet: not requiring developers to use its own in-app payments system on Windows. “We’re committed to closing the gap on the remaining principles over time,” says Smith, but there’s no firm commitment to when the Xbox store will be more open. Microsoft is also committing to keeping popular Activision Blizzard games like Call of Duty and Overwatch on PlayStation, too. This commitment will even extend to Nintendo, in what looks like a move to position Microsoft as a game publisher across Xbox, PlayStation, PC, and Nintendo Switch, beyond Minecraft and existing Bethesda games. It certainly feels like a strategic shift for Microsoft, even if it’s not clear when the Xbox store will be more open. Microsoft says it’s now building a “next-generation game store” based on these new principles. Could that include a reduction of its Xbox store cut? Possibly. This is something it has previously explored. Documents in the Epic v. Apple trial revealed Microsoft had been planning to reduce its Xbox store cut to just 12 percent, a move that would shake up console gaming. Instead, Microsoft shook up the PC gaming industry with its announcement last year to match the cut that Epic Games takes: 12 percent. It puts more pressure on Valve, which still takes a 30 percent cut on Steam purchases and was also designed to crank up the Apple pressure. A similar move on Xbox would have far-reaching consequences for console pricing, game development, marketing, and the future of subscriptions. Regulators will undoubtedly want more clarity on these open principles for the Xbox store, particularly as Microsoft is attempting to shift its business model toward subscriptions and its Xbox Game Pass service. Follow this thread on OUR Forum.

One of the most outspoken proponents of the metaverse is struggling to find its place in this hypothetical virtual world. Microsoft has reportedly scrapped plans to make a HoloLens 3—what would have been a successor to its current mixed reality headset—and infighting within the mixed reality division has fueled uncertainty about its future, according to Business Insider. One source told Insider that the decision to abandon plans for a HoloLens 3 would mark the end of the “product as we know it.” Multiple sources said Microsoft had agreed to partner with Samsung to develop a new mixed reality device, a decision that has reportedly “inflamed” division within the team. One employee called the partnership a “shit show.” Insider spoke to 20 current and former employees at Microsoft who described “confusion and strategic uncertainty.” Some folks within Microsoft believe the company should continue to make hardware while others favor pivoting to a software platform for the metaverse—that is, a Windows for the digital world. There is also a question of which customer base to target. Microsoft employees are apparently split on creating hardware and software for consumers or continuing their focus on enterprise customers. HoloLens 2, the company’s latest AR/VR hardware, is a commercial product that sells for $3,500. Rubén Caballero, a former Apple executive who was hired in 2020 to join the mixed reality and AI division, reportedly wants to shift focus to consumers and the metaverse. Others within the team believe they should continue selling to businesses, and even fulfill military contracts. In 2018, Microsoft secured a $480 million contract when the military purchased 100,000 HoloLens headsets, believing it could provide “increased lethality, mobility, and situational awareness necessary to achieve overmatch against our current and future adversaries.” Microsoft employees protested the contract, and sent a letter to Microsoft CEO Satya Nadella and President Brad Smith, stating the deal had “crossed the line” and that they “did not sign up to develop weapons.” The IVAS contract with the U.S. Army could net Microsoft up to $22 billion but was postponed because the technology doesn’t meet the intended goals. LinkedIn profiles show that at least 25 Microsoft employees working on mixed reality left to join Meta last year alone, and Wall Street Journal reports the team lost around 100 people in 2021, many of them to Facebook’s parent company. The HoloLens team is now uncertain about the long-term goals of the project and whether they will transition to working on a software platform. Disagreement on what to do next has made HoloLens’s future unclear, though Microsoft maintains its commitment to the headset and promises to release more products in the future, “Microsoft HoloLens remains a critical part of our plans for emerging categories like mixed reality and the metaverse,” said Microsoft spokesman Frank Shaw. “We remain committed to HoloLens and future HoloLens development.” Microsoft was one of the first companies to champion augmented reality headsets, with Nadella stating in 2019 that “mixed reality is one of the defining technologies of our time” and listing mixed reality as one of three technologies that will shape the future (along with AI and quantum computing). Microsoft has been working on its AR headset for nearly a decade and launched the first developer edition in 2016. While the technology was praised for its innovative approach to overlaying digital objects onto a user’s view of the real world, it was clear that Microsoft has a long way to go to create the headsets you see in futuristic movies and shows. When we went hands-on with the HoloLens 2 a few years later, it felt like the company had taken only small steps forward. Despite slow progress, Microsoft has doubled down on augmented and virtual reality in recent months, claiming its $68.7 billion acquisition of Activision Blizzard will provide the “building blocks for the metaverse.” Microsoft’s mixed-reality plans now appear to be hanging by a thread, and its most ambitious project yet is on the brink of collapse, just as talk about the metaverse—the future it was meant to help create—reaches a fever pitch. Follow this thread and more on OUR FORUM.