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.