Microsoft are among the major technology companies that are now undergoing a major round of layoffs. Having released around 11,000 employees, Microsoft has downsized staffing across its numerous business operations, including gaming units Xbox and Bethesda. This round of layoffs has also seen the disbanding of the development teams behind Altspace VR and the Mix Reality Tool Kit. The VR social media platform Altspace VR is scheduled to shut down on March 10th this year.

Is Microsoft Exiting the Market for Technologies Related to AR/VR and Metaverse?

Microsoft acquired AltspaceVR in 2017, and the Windows Mix Reality headset was released in the same year. The plan was to have the newly acquired social media platform generate the demand for the headset, thereby spurring other hardware brands to continue investing in similar products.

However, fast forward to the current year of 2023, the Windows Mix Reality headset possesses almost no market share as AltspaceVR fails to hold a notable number of active users for this device. TrendForce believes Microsoft has no choice but to stop maintaining the social media platform that is not bringing in any significant economic benefits.

However, TrendForce has to point out that “platform system” is still the core of Microsoft’s strategy for the development of AR/VR technologies. Going forward, Microsoft intends to have applications related to VR social media integrated into the Microsoft Mesh, which is its new VR/AR communication and collaboration platform that can work on multiple types of devices.

Microsoft can also encourage third-party developers to build VR social media platforms that are compatible with its technologies. Bottom line is this: there is no need for Microsoft to operate its own VR social media platform. All in all, AltspaceVR is a component that Microsoft has taken out because it no longer fits into its strategy. Terminating the platform does not mean that the company has decided to sit on the sideline in the formation of the Metaverse market, as speculated by some outsiders.

The Metaverse Is Only a Medium, and Maintaining User Engagement on a VR Social Media Platform Depends on the Capability to Offer a Variety of Functions

The shutdown of AltspaceVR reveals the current challenges in the development of Metaverse communities. In the case of social media services, simply adding AR/VR technologies or some elements related to the Metaverse will not lead to long-term engagement by users. To get users to stay, these platforms need to rely on their own special interfaces, functions, and features.

Take the relatively successful VR social media platforms such as Roblox, Rec Room and VRChat as examples. They first enable users to self-generate content and express their creativity in various ways, and then they provide the avenue for social interactions and trading of virtual goods. Hence, TrendForce believes fulfilling the creative aspiration is the key to keeping users. Offering some AR/VR technologies and gimmicks associated with the Metaverse is just not enough.

On the other hand, functions that allow creativity tend not to be the reason why the majority of users join a particular social media platform in the first place. Also, a platform that has to work with an AR/VR device will be relatively difficult to access and operate, and this further limits the size of its user base. Taking the aforementioned factors in account, it is clear as to why AltspaceVR failed to gain traction. Positioning itself only as a social media platform, it did not really stand out in the competition even with AR/VR functions.

TrendForce’s takeaway from the closure of Altspace is that rather than building a social media service from scratch, Microsoft’s interests would be best served by acquiring an existing social media app or platform that already has a huge following. With the support from the Microsoft Mesh, such app or platform would be able to strengthen Microsoft’s service offerings for Metaverse communities in the future.

（Image credit: Microsoft LinkedIn）

At Gamescom 2021, Microsoft announced that it will extend its game streaming service (Xbox Cloud Gaming) from PC and mobile devices to game consoles starting on Christmas Day this year. In addition to supporting the new consoles Xbox Series X/S, Xbox Cloud Gaming will also be compatible with the Xbox One models. TrendForce’s investigations indicate that the Nintendo Switch remains the mainstream option in the consumer market and is expected to reach 30.13 million units in annual sales for 2021. The PlayStation 5 consoles, which have been in severe shortage since its release, will take second place with annual sales of 17.61 million units, while the Xbox Series X/S will take third place with 8.66 million units sold this year.

Xbox One owners will comprise the majority of Xbox Cloud Gaming users on game console platforms

Microsoft has been making long-term efforts to promote cloud-based game streaming services. One such example includes the improvements that it made to its web browser to better support Xbox Cloud Gaming and permit the service to run on PC and mobile devices, with official PC and iOS releases taking place in June 2021. Microsoft’s announcement of game console compatibility with Xbox Cloud Gaming represents yet another step taken by the company towards its goal of extending game streaming services to all platforms.

As previously mentioned, Xbox Cloud Gaming supports not only the latest Xbox Series X and S consoles, but also the previous-gen Xbox One models. This wide compatibility can primarily be attributed to the fact that game streaming services have relatively low hardware requirements, thereby making it compatible across virtually all console hardware. The other reason is Microsoft’s aim to quickly expand the user base of Xbox Cloud Gaming. After all, very few people currently possess Xbox Series X/S consoles because these consoles have only been recently released, and their sale volumes have been constrained by the severe shortage of electronic components. Hence, the ability to quickly expand Xbox Cloud Gaming’s user base is contingent on adoption by current owners of Xbox One consoles, whose total cumulative sales are relatively high by now.

Going forward, Microsoft is expected to leverage the attraction of Xbox Cloud Gaming to draw consumers to purchase the Xbox Series X/S through the Xbox All Access installment payment plans. This is also why Microsoft is aggressively collaborating with and acquiring game developers, as having more games playable through Xbox Cloud Gaming will make the service more attractive to consumers.

Xbox Cloud Gaming will likely reduce the willingness of existing Xbox One owners to buy new consoles

Microsoft’s core strategy revolves around its platform and service. By attracting consumers through service first, Microsoft will then be able to raise the sales of its hardware. Put another way, increased hardware sales result in an expanded user base, which will further result in increased earnings through both platform and service.

Hence, the initial sales performances of the Xbox Series X/S are not a point of focus for Microsoft. If the company is able to expand its user base, Microsoft does not even necessarily need to ensure the popularity of the Xbox Series X/S. It can instead potentially release other modified models that are better suited for game streaming services or even simpler, dedicated game streaming boxes. However, in consideration of other services such as Xbox Live Gold, as well as earnings from players that do not subscribe to game streaming services, Microsoft must still maintain a range of game consoles that can compete with the PS5 in terms of specs.

Although Microsoft’s core strategy is in alignment with its software services for the PC market, such as Office and Windows, the heavy push for Xbox Cloud Gaming will inadvertently lower the console replacement demand of existing Xbox One owners. Furthermore, the difference in hardware specifications between the Xbox Series X and Xbox Series S will also complicate the software development process for game developers, in turn reducing the willingness of developers to create games for the latest Xbox consoles and affecting the sales performances of the Xbox Series X/S.

Therefore, it makes sense that despite the similar specs between the Xbox Series X and the PS5, their sales numbers differ wildly. At any rate, the Switch will remain the sales leader in the game console market in 2021, with the PS5 experiencing a gradual sales growth and the latest Xbox consoles lagging behind.

（Cover image source: Pixabay）