01:18:02 · John Coogan, Ben Thompson, Jordi Hays, Rodrigo Liang
[01:18:02] S1: They bought Xenimax. It's like they have a bunch of, like, great idea like the Activision deal. Those but those developers just aren't releasing, like, incredible titles annually except for Activision, which does Well, have so release game. [01:18:15] S8: Exactly. And so the issue so the issue with buying these companies is their what you're paying for is you're paying for their existing business plus the premium. Mhmm. And their existing business was selling single copies of games Mhmm. To all platforms. [01:18:32] S0: Mhmm. [01:18:32] S8: And what they were saying is we're going to basically force all these studios to take a bath, to lose a ton of money by putting all their games on Game Pass. We'll still sell on PlayStation because we have to because that's a lot of money. It'd be massively economically destructive not to. Mhmm. But what we think is gonna happen is gamers are gonna realize I could be paying $70 a pop on PlayStation. [01:18:56] S4: Mhmm.
01:18:56 · Rodrigo Liang, Ben Thompson, John Coogan, Jordi Hays
[01:18:56] S4: Mhmm. [01:18:56] S8: Or I could go to Xbox and I could pay $20 a month, and I can get all these games, and that's it. What a better deal. And by the way, we'll get new gamers. People are gonna come in and and realize, wow. I can get all these games for $20 a month. None of that happened. All they did was cannibalize their existing business. They didn't expand the market for console gamers. All they did was have gamers who would have paid way more to play these games, pay way less to pay these games, and Microsoft ate it. Yeah. And they I think they, you know, the recent reporting was they expected to have 75,000,000 Game Pass subscribers by this year. They have, like, 30,000,000, and that number is actually decreasing. It's not going up. And so it's just been and so that that that's sort of the context of what's happened here. Yeah. Phil Spencer got retired, which if you retire at that level of a company, you're probably canned. Probably too late. The whole strategy of disaster. They brought in new leadership. [01:19:55] S1: Yep. [01:19:55] S8: And now there's sort of like a reset going on. They're they're laying off few thousand people. Yeah. They they say all games production are gonna continue, but there's a real sort of critical decision here. What do we do? Because we ended up getting stuck in the middle. Like and we're just this doesn't work. Mhmm. [01:20:17] S0: What, what did you read into their approach of laying off 1,600 people now and keeping a 1,600 person rift?
01:20:17 · Jordi Hays, Ben Thompson, John Coogan, Rodrigo Liang
[01:20:17] S0: What, what did you read into their approach of laying off 1,600 people now and keeping a 1,600 person rift? [01:20:26] S8: I mean, it's a terrible idea because, like, there for the rest of the year is terrible. [01:20:31] S0: I know, like, VC would tell you to, like, cut hard, cut deep. [01:20:36] S1: And then move forward with the team. If you're on the ship, we're going to Yeah. Valhalla together or something. [01:20:42] S8: I I do have some sympathy because the reality is I appreciated the note because they are in big trouble. And there's an there's an aspect of just stating it clearly. We're not sugarcoating it. And if they laid out how much trouble they were in and then only cut 1,600 people, then everyone kinda knows they're gonna be cutting more people. Right? So I think they're just in a bad spot. So, of course, it's not great. It's gonna destroy morale. It's gonna destroy everything for the next year because everyone's waiting to get fired. But there's a bit of they did, I think, tear the Band Aid off to the extent they could. And now there's just a now they can be very overt. They could go through and actually talk to employees about what are you working on? Why should you still be here? And, it's a reflection of the employment climate, but, like, people in general are more they're just not gonna bail. Microsoft, you know, they're gonna want to keep their job. And so they can probably, hopefully, fingers crossed, do better cuts by virtue of doing them in the open. [01:21:46] S4: Mhmm.
01:21:46 · Rodrigo Liang, Ben Thompson, John Coogan, Jordi Hays
[01:21:46] S4: Mhmm. [01:21:47] S8: But I don't know. I mean, I don't envy I don't envy Xbox's leadership at all. It's gonna be a very tough thing, but I I I can totally understand how they are where they are. [01:21:56] S1: Probability of a spinout. [01:21:58] S8: I mean, I think it I think it needs to happen. Like, I I but, you know, this is again, the regret is this was my take for years and years and years. I'm like, okay. Fine. Xbox Game Pass. That kind of seems kinda interesting. Let's go for it. It should've stuck to my guns. They're like, no. Stop. This is gonna be a disaster. I think, yeah, I don't I I I don't get it. I just don't I didn't see it before. The thing that got me to say, okay, let's give it a chance didn't work. [01:22:24] S1: Mhmm. [01:22:24] S8: I don't see it now. I mean, I think it does give me pause. They hired Matthew Ball who had Valens Retecery multiple Yeah. As their chief strategy officer, have a lot of respect for, you know, his takes. So I'm curious what he's thinking about. Yeah. This gets to the question before. Is there a bit where they just write off these acquisitions [01:22:43] S1: Mhmm. [01:22:44] S8: And say, actually, all this stuff's gonna be exclusive now. We're like Call of Duty, buy an Xbox. Wow. Like, basically giving into the FTC's worst fears, which, but they those fears didn't make sense at the time in the context, because it's by writing off [01:23:03] S0: What's funny what's funny is [01:23:04] S8: that we lost billions and billions of dollars.
01:23:04 · Ben Thompson, Jordi Hays
[01:23:04] S8: that we lost billions and billions of dollars. [01:23:06] S0: Yeah. And it would it would test. It it would be a good pricing test for the power of a triple a game to say, okay, you can only get Call of Duty on Xbox now. And you would see, like, how, like, how many incremental Xbox sales do you get? Because that means the real value of the game is actually in the hundreds of dollars if people have PlayStation. Yep. And then they'll try something new. Switching gears a little bit. We keep having this experience where there's a company, you know, an AI company, let's say an application layer company that is or lab that is, you know, hot but then you don't hear very much for a few months and you write them off and then they come out and they've like added hundreds of millions of dollars in revenue and are doing a crazy up round. And And it's this weird thing where, like, even, you know, historically, you know so there's power laws everywhere. But I feel like in this moment, we're seeing more and more examples where, like, the tenth best company in the category is still having the financial performance that a company that would have been the leading company in their category five years ago. What do you make it what do you make of that? [01:24:13] S8: This is just a thing in tech in general that that is always sort of stuck out at me. I mean, I I think I Has it [01:24:19] S0: been has it been though, but like like CRM, for example. Like, if you go back to like 02/2015 was like the 10 best CRM company, like, actually printed it.
01:24:19 · Jordi Hays, Ben Thompson
[01:24:19] S0: been has it been though, but like like CRM, for example. Like, if you go back to like 02/2015 was like the 10 best CRM company, like, actually printed it. [01:24:30] S8: No. No. The the the the example I always go back to is the the I think it was 2014 or so when Apple bought Beats. And they bought Beats for $3,000,000,000, and everyone's got the tech press is going crazy. Everyone's writing thought pieces about it. And I'm like, you know, of course, writing about it. I'm like, $3,000,000,000. Like, Apple is a $500,000,000,000 company. What does $3,000,000,000 matter? And what's funny about that take is number one, was right. Who cares about $3,000,000,000? That's in our couch cushions. Like, people were spun up also. Didn't really matter. Number two, Apple is only a $500,000,000,000 company. Like, the the astronomical increase in valuation and numbers around this is absolutely crazy. So to your point, yeah, a 2019 CRM company, number one, they probably wasn't a number 10 even then. But, yeah, the numbers are not even remotely tied to, like, any I just sort of let them go and be like, I write down the numbers, and they don't really mean anything to me. But it's very hard to keep track of. Like, the inflation in tech numbers specifically, you know, you think that what was I complaining about pricing before? Oh, yeah. Lemonade stands are bad. The Silicon Valley lemonade stand inflation is absolutely the worst in the world.