Valve and Microsoft

by Rodolfo Rosini

“If you wait by the river long enough, the bodies of your enemies will float by.”
-Sun Tzu

So,

I once blogged that by Q2 2014 Microsoft would have acquired Valve and that Gabe Newell was a serious contender for the top job at the world’s largest software company. Not quite.

Back then I did correctly assume that Ballmer would be pushed aside, but MSFT’s disorganization (apparently a new CEO could be announced “soon”) and rapid deterioration of their core business took me by surprise. My expectation of Valve being acquired is being turned upside down, with now looking likely that Microsoft might look to offload their Xbone to Valve or to another player (but at this point it seems that the move of Steam onto Linux hardware is going well, so Valve might not be particularly interested in loading its balance sheet with hardware that competes with its partners, even if it would certainly come with a big dowry as well.)

Microsoft’s cash cows are under attack. Windows 8 is not being adopter by consumers and (more importantly) shunned by developers. Unlike Apple or Valve they do not control any meaningful share of the software distribution market. Their online units have been losing $1bn/year since forever. Their mobile OS relies on paying developers to port second-rate apps since nobody uses it. PC sales are falling fast because users are switching to phones for their productivity. Consumers do not want to interact with a Kinect. Microsoft fought the war on for the living room without realizing that the battleground was outside, in the mobility of computing and not shifting from a chair to a sofa talking to HAL9000.
One of their biggest success is patent licensing to Android. It’s a big business, but it’s not a $300bn company.

Blackberry had its best quarters when it was no longer relevant. The next six quarters for Microsoft could be incredible. Not sure what comes next for them.

Microsoft sold 3m Xbones in 2013. Steam has 7m concurrent users and 70m accounts.

No large developer can afford to make a top franchise exclusively for the Xbone/PS4. The numbers just do not add up. So they will never be able to have a product that Steam doesn’t have as well that drives hardware adoption.

Nintendo this week slashed their sales forecast by 2/3rd for the console and by half for the 3DS. Basically they are done for in the hardware business (at least globally. They might keep some devices for the Japanese market).  As a comparison Apple sold 173m iPads last quarter. There are 150 million smartphones in the United States only.

Will console units hit 100m units globally and then stop? If that is the case then would the only solution for Sony and Microsoft be to move away from hardware and offer a software client a la Steam? What is their mobile play?

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