Across various industries, from software to entertainment and even retail, more and more businesses are opting for the subscription model. But why?
The appeal of subscription models lies in their ability to provide businesses with a more predictable revenue stream, fostering a deeper and ongoing relationship with customers.
Instead of one-time transactions, customers engage in a continuous exchange, providing companies with regular income and increased opportunities for upselling or cross-selling. For customers, these models offer convenience, cost-effectiveness, and consistent access to products or services they value.
One industry where this shift has been particularly noticeable is the gaming sector. Gaming giants have recognized the benefits of subscription models, including the potential for higher customer retention and steady revenue. A standout player in this trend is Microsoft’s Xbox division, with its Xbox Game Pass service leading the charge.
However, as with any significant industry shift, this journey towards a subscription-based future is not without its challenges. A recent development that perfectly encapsulates this struggle is Xbox’s proposed acquisition of Activision Blizzard, a move that has stirred controversy and landed Microsoft in a lawsuit with the US Federal Trade Commission (FTC).
Microsoft’s Acquisition and the FTC
Microsoft’s desire to for the Activision Blizzard deal can be seen as a strategic move to solidify its subscription-based business model. The acquisition, priced at a staggering $69 billion, has been met with regulatory roadblocks, as the FTC is suing to block the deal.
The Communication Workers of America (CWA), the largest union in the U.S, has criticized the FTC’s move. They argue that the FTC has overlooked the potential labor benefits of the merger. Prior to the lawsuit, Microsoft had struck a deal with the CWA, committing to remain neutral in any unionization efforts undertaken by Activision Blizzard employees starting 60 days after the merger closed.
The CWA believes the FTC’s case is unlikely to convince a federal judge, particularly as the European Union’s commission may move to approve the deal. Approvals from other regulatory bodies, including in Brazil, have already been received by Microsoft.
Can an exclusive product be a roadblock?
Interestingly, part of the FTC’s lawsuit revolves around the issue of exclusivity. The FTC cited the exclusivity of Bethesda’s Starfield and Redfall, both upcoming games, as reasons Microsoft could not be trusted.
However, regulators in the European Commission has refuted these accusations, stating that they cleared the Microsoft/ZeniMax transaction without concerns about competition and didn’t rely on any statements made by Microsoft about future distribution strategies. Not to mention gamers on any platform have access to Blizzard’s wildly popular Overwatch and Diablo.
The FTC might have a strong hold on the situation, though. They failed to get a preliminary injunction against Meta last year, which could happen again. If that’s the case, the UK’s Competition and Markets Authority (CMA) would be the only antitrust regulatory body that stands in the way.
As we await the final decision on this acquisition, one thing is clear: the outcome will have significant implications for the future of subscription-based business models. The video game industry, and indeed the broader tech sector, will be watching closely.
The Xbox division’s business model has long been shifting towards subscriptions, with its Xbox Game Pass service at the helm. By acquiring Activision Blizzard, Microsoft aims to bolster its subscription service’s offerings and keep its gaming-related business viable in the face of declining game console and hardware sales.
The Microsoft-Activision games trial is ongoing. We will have to stay tuned for the outcome from the federal court. A US judge could announce the decision as early as next week.
What does this have to do with subscription-based business models?
Microsoft’s desperation to get some of the world’s largest video game titles, Call of Duty, among other popular pay-to-play titles on their roster is a sign that hardware is not a profitable business alone. Neither is single-purchase games or services.
We’ve seen this in every game company: Sony’s PlayStation with PS Plus, Nintendo with Switch Online, and Xbox with Xbox Live. These are introductions into what can make their gaming units profitable, but it’s still not enough.
Apple has done the same. Every single Apple product is linked to a subscription service. iCloud, AppleCare, and the device upgrade program.
This isn’t unique to just big tech players nor the gaming market. It’s a huge, billowing flag that’s telling every business owner to shift towards subscriptions.
Sustainability of Subscription Models
As we look towards the future, the sustainability of subscription models is a topic of considerable interest. Like any business strategy, this model comes with its own set of benefits and challenges.
What are the benefits of a subscription model?
On the benefits side, subscription models promise recurring revenue, enhanced customer loyalty, and the potential for cross-selling or upselling. They can provide a more predictable revenue stream and open the door for deeper relationships with customers.
This is particularly true in the gaming industry, where subscriptions can offer players access to a vast library of games for a monthly fee, mirroring the successful models of streaming services in the entertainment industry.
What are the challenges?
However, the challenges cannot be overlooked. Subscription models require businesses to continually prove their value to customers. They must regularly update their offerings, maintain high-quality service, and ensure that they are meeting the evolving needs and expectations of their subscribers.
This can be a resource-intensive endeavor and can put pressure on businesses to constantly innovate and improve.
In the context of the gaming industry and the Microsoft deal with Activision Blizzard, the move towards a subscription-based model is not only a strategic choice for financial sustainability but also a response to the evolving dynamics of the gaming industry.
As the industry continues to grow and change, the demand for diversified gaming experiences and the increasing prevalence of online and cloud gaming platforms may make subscription models even more relevant.
Yet, the sustainability of these models is heavily dependent on the regulatory environment and market competition. The FTC’s lawsuit against Xbox’s Activision deal serves as a potent reminder that businesses need to navigate regulatory hurdles carefully. How these challenges are addressed will undoubtedly influence the direction of the gaming industry and the broader tech sector in the years to come.
We Can Ease Your Transition
The business world is in a state of constant evolution, and the shift towards subscription models is a defining trend of our times. As we’ve seen through the lens of the gaming industry, with Microsoft’s Xbox division at its forefront, these models can offer significant advantages.
However, the journey is not without its hurdles. From San Francisco to the United Kingdom, we can see just how high Microsoft has to leap.
Despite the challenges, the potential benefits of a subscription model — including steady revenue streams, enhanced customer retention, and the opportunity for cross-selling and upselling — are compelling. They represent a viable path towards sustainability for businesses willing to navigate the associated complexities.
As we continue to witness the evolution of this trend, one thing is certain: subscription models are no longer just an alternative — they’re becoming a business imperative. And for businesses looking to explore this route, it’s crucial to have the right partners in place.
If you’re considering a move towards a subscription model, DirectPayNet can help. As a trusted payment processing partner, DirectPayNet offers subscription merchant accounts that can simplify your transition and ensure smooth, secure payment processing for your subscribers.
With DirectPayNet, you can focus on delivering value to your customers, while we handle the complexities of payment processing.
The future is here, and it’s subscription-based. Are you ready to be a part of it?