Xbox Game Pass, that’s Microsoft’s monthly gaming subscription service, which you currently help manage. It launched just over three years ago, and now has over 10 million subscribers from 41 countries. The service was around six months old when you joined the company. Given your subscription background from T-Mobile, what was that like?

Subscriptions were still a very new concept for Xbox. At the time, the company’s DNA was still very transaction-oriented: stand-alone title sales, as well as in-app purchases. The team launched the initial Game Pass catalog with the goal of adding more games regularly and improving the offering for members. They brought me on board because they were looking for someone with additional perspective around concepts like customer lifetime value, churn rates, and member engagement.  

That’s right, you came into Xbox knowing a lot about subscriptions and mobile phones from your time at T-Mobile. Let’s talk about what you learned about subscriptions and video games along the way to the current 10 million subscriber base. I’m sure a lot of developers were worried at first that subscriptions would cannibalize their game sales, for example. What have you seen happen to revenue? 

The short answer is that it went way up. In the old model, a game used to earn 75% of its revenue in its first two months. Today a subscription-based game takes about 24 months to earn the same amount. And that’s a good thing, for a couple of reasons. First, a lot of these games have in-app purchases, so the longer people play, the more they tend to buy. Second, as I mentioned earlier, successful games have a community effect. They actually grow their audience over time, which is kind of surprising when you think about it relative to other kinds of media. Revenue per user might be lower when compared to the old model, but that’s offset because the audience has increased by an order of magnitude.  

Did you see any shifts in gaming behavior? Do people think differently about games when they consume them on an access model?

Oh, definitely. Discovery has gone way up, for example. People feel free to try out all sorts of new games, because the pricing barrier is so minimal. For example, we have a great puzzle game called Human: Fall Flat. Sixty percent of the people who play this game have never played a puzzle game before. And forty percent of them go on to buy another puzzle game. So the subscription model has completely changed gaming behavior. It’s made people more open to trying new experiences. It’s also starting to open up our demographics. There’s greater racial diversity, greater income diversity.  

It goes back to that idea of games as places to explore and create. And games as places that allow people to connect with each other. A few years ago there was a lot of hype about VR enabling all sorts of virtual environments, but the fact of the matter is that it’s happening right now. The social connection isn’t a byproduct of the game anymore. It’s the main feature.

 Right. If you and your friend have Xbox Game Pass, you live in a world where you have a shared library of over 100 games, all the time. So you always have a neighborhood to hang out in. In fact, starting September 15, Xbox Game Pass Ultimate members can play more than 100 games from the cloud on their Android phone or tablet. There are really no barriers anymore.  

The COVID crisis is a massive accelerant for change, and gaming is obviously a huge part of that story. Thanks, Sarah! 

Thanks, Tien. Any time.