Ben Thompson, the founder of Stratechery. He's been on an absolute tear during a slow news cycle. Does it feel like a slow news cycle to you? >> I don't know. It It And the summer's always slow. Um I, you know, I take a couple days or I slow down a little bit myself. >> I feel like you've done a good job of like providing really insightful and interesting pieces during a slow time where I didn't know that I wanted to >> I'm doing you a favor? Is that what you're saying? >> I didn't know I wanted you to adopt the voice of Mark Zuckerberg for 20 minutes and go on a tear. But it's not like that was driven by like a specific Okay, there's a Wall Street Journal article where like Bloomberg has a scoop and like we need to know this. It's more just like resetting on the meta narrative. I want to talk about the meta narrative, but can we start with Xbox? >> Sure. >> I want to know First, let's go back in time a little bit and I want you to reality check me on the the the story I tell myself about how Microsoft wound up in the situation it wound up in with Xbox. And I think it stems with DirectX. The It's the graphics layer that allowed games to be run on multiple graphics cards. So that was a Microsoft licensed piece of property. So you This is why we don't have the Chrome box. >> You want to go You want to go really far far back. >> Like Like because we did we didn't get an Amazon gaming console. We didn't get a a Google gaming console. Ready? >> Right. Yeah, DirectX is interesting. So you We go back way back I mean we can go really far back here. >> Please. >> Um I mean back in the day the main technology for doing 3D when it was coming along was OpenGL. And OpenGL had various pluses and minuses. It was, you know, we're way back in history, but there This is the origin of the Nvidia story, making cards to do 3D graphics. You had like the Riva, the 128, then you had the TNT, then you had the GeForce, and like we're talking back in the '90s when I was, you know, you guys' age or whatever it was >> >> in college. And you know, making the first you know, Quake comes out like the real first 3D game, you know, there was actually a really interesting Twitter back and forth with the old ID people talking about Quake and how basically they obliterated the company by burning everyone out by watching it. But super fun super fun back and forth. But Microsoft comes out with Direct 3D as an alternative to OpenGL that was I think and this is a little out of my area of expertise, but I think it was a little easier to use, had more niceties, was more tied into the platform. But this is all sort of PC gaming. The Xbox, the way I think about it and a lot of gamers kind of get annoyed and riled up about the gaming stuff cuz I don't really care about the game part of it. I'm more interested in like this the strategy and how that fits in the overall company. >> your review? >> Can we get a GTA 6 review? >> No. Well, I feel I feel compelled number one, I feel Rockstar I think is charging way too little for this game. They're charging what, $80? >> Yes. Oh, you're this is you're going to get canceled for this. This is a nuclear take. >> No, they should be charging like $200 for this game. >> should. >> I know. >> GTA 6 is like the last great game. Like you think about every it was built mostly all made pre-AI. Like it is the pinnacle of this >> craftsmanship >> Yeah. >> craftsmanship, years and years and years of blood and sweat and tears to the extent where you have like the Twitter analysts like counting cigarette butts outside of the offices to see like how much crunch are they in right now. >> I don't even think he's trading the stock. I don't even think he's trading the stock. I think he just wants to know what GTA >> the love of the game. Literally the game. The GTA >> Gamers are insane. So I always tread in this water like very very carefully. But uh no, so I feel compelled to buy GTA 6 just in honor of it existing even if I'm don't know if I'm ever going to play it. So I'm definitely going to do that and I'd be happy to pay Yes, I $200. Like $80 is ridiculous. They should charge more. Anyhow, >> Yeah, we had what the youngest person on our team was commenting on people online complaining about the price and said something like you didn't have you 10 years you couldn't save up 80 bucks. >> I know, seriously. >> It's like whoever whoever you are like like I know kids that do lemonade stands and they clear like a 100 bucks. >> Yeah. >> Oh, absolutely. I want you know the old $20 I'll keep the change. Nothing will make a kid's day better than that. Although unfortunately with inflation I think now it's sort of like expected. It's unbelievable how expensive things are these days. But it's bad. Um so anyways, I don't know how I got to GTA 6. But we're we're back Oh, so the the console the console era. So the way I think about Xbox is you go back to Microsoft and Microsoft had this whole thing This is pre-iPhone. This is idea of their corporate strategy was three screens in the cloud. And the idea that we're going to we already own the desk via the PC. We're going to own the pocket via the phone. And people always used to say that Microsoft missed mobile. Microsoft did not miss mobile. They like they came out with a Windows CE in like 1999. Like they were in mobile. They just had the totally wrong conceptual model because they were basing it around, you know, as an extension of the PC. But then the third screen was the living room. How do we get in the living room? Well, people have consoles plugged in their TVs. If we can get in and own the console, we can own sort of the gateway to the living room and we need to earn permission to be in the living room. We will do that by creating a game the Xbox the game console. And what's interesting about this is uh this is a strategy that totally failed. And it failed for a a kind of an obvious reason in retrospect, which is first and foremost people buy consoles to play games, not to have a portal to the internet in their living room. And so you're selling a multi-hundred-dollar sort of console to people who want to play games, but people who don't want to play games aren't going to randomly start buying consoles. What actually ended up taking it over was things like the Fire Stick or, you know, Apple TV beta play this. I still think it's like probably the best solution, but it's way too expensive. Now, the Apple TV's poor price got jacked to the moon with this recent memory increase. Uh but the Fire Stick is probably a big one. You had the Chromecast. You had Roku TV. Uh you had all you know, these which ended up being It's not that It's a classic Microsoft thing. They were actually right. There was this new front page to online services to be built. They just took totally the wrong approach with Xbox. And what's funny is that this approach actually became the ouroboros of self-mutilation because the Xbox didn't succeed in achieving this because the games console was way too expensive to achieve this, but then also they killed the Xbox where Xbox 360 was pretty competitive. And it's that generation is actually the most interesting console generation. I'm happy to expand on that if you want to. But they come out after with the Xbox One, I think, which was super expensive because it had the Kinect built in, that sort of like wave your hands around sort of thing. And it had all much more like restrictive DRM things. It's going to be more digital. It was basically that console was designed around we're going to realize our vision and own the living room. And gamers hated it. So they rejected it. So their vision, which they didn't achieve, also killed their console. And so and the So my I wrote over a decade ago. And the whole Xbox saga is filled with regrets, I think. First and foremost for Microsoft, but also for me because I from the beginning is like they need to kill this program. They need to spin it out or get rid of it. The stated goals which made sense from a corporate perspective were not achieved and it is continuing to exist because it exists. And I was actually sympathetic to that. I worked at Microsoft from from 2011 to 2013 when when Microsoft was in the dumps and you know, they were still had a great business, but their stock had been like $40 for like a decade. And and the one thing the employees has like well, at least you have Xbox. All the cool kids over there. Like that it was such a important thing to corporate culture to have Xbox even though this was a totally failed division in terms of achieving corporate goals and also was sort of self-immolating because it was trying to achieve corporate goals that it was not going to achieve. >> What do you think the naming scheme says about that project? I always found it very odd that they went from Xbox to Xbox 360. That sounds like the third. It's actually the second. Then Xbox One is the third, but it's one and then now they're on Series X, which feels like the 10th, but it's the fourth and then they have a bunch of sub names. It feels like they just didn't they never leaned into just like Xbox 2, Xbox 3, Xbox 4. >> Yeah, well, you're asked I mean maybe it shows that I work at Microsoft. You're asking the wrong guy about naming things, I think. But yeah, total mess. They called it the 360 because it was coming out the same generation as the PlayStation 3. And so they wanted to Well, they wanted to be on the same level. Like you both have sort of a three or name. So what's interesting about the PlayStation 3 is the PlayStation 3 was Sony's big misstep in terms of the whole PlayStation era. What they had this crazy processor called the Cell processor that had all these capabilities and they had up to that point consoles were differentiated by hardware. And so Sony famously helped one of the reasons they beat Nintendo was they had discs so they could have much larger like media and things on those lines. And whereas Nintendo was sticking with cartridges and there was like other like they were much more favorable to third-party developers just in general that they they had sort of taken over in PlayStation 1 and 2. PlayStation 3 comes along they produce this Oh, they wanted to get >> Blu-ray off the ground. >> That's another example of consoles getting screwed up by a trying to attempt to other corporate priorities. They It worked Blu-ray did win. >> and and didn't Xbox go with HD DVD and they lost? >> They did but at the end of the day what happened was the PlayStation 3 was way too expensive. I think it ran super hot if I remember and all these extra capabilities were not used. >> Mhm. >> And the reason they weren't used is that was the first HD generation and you had this shift to 3D games and high definition graphics. And what happened was it used to be games differentiate themselves by how well they wrote the game like how did it perform on your Super Nintendo on your Nintendo? Now we move to a world of actually all the actual game was offloaded to engines game engines like you know it had one obviously where Epic got super big with their Unreal Engine. And so you no longer did that what a game company did was actually design the game and then asset creation. And asset creation at HD was way more difficult way more expensive than it was for for standard definition TVs. And so the economic imperative for developers came we can't just be on PlayStation. We need to be on everything. And so that was the ultimate generation and almost every game was made to run everywhere. Run on PS3 run on Xbox 360 and run on the PC. And that was also the Xbox 360's best best generation. That was the one they were the most competitive on because they had all the games, because all developers were making them sort of run everywhere. They had a very simple to develop for architecture. The 360 was very PC like, even more so than the one sort of previously. And that was their best generation. And then they come back the the next generation shoving connect down people's throats, we're going to own the TV. And meanwhile, Sony learned their lesson. They're like, "Okay, we can't differentiate on hardware. We need to create sort of generic hardware that is easy to develop for. And the way we will differentiate is through exclusives." They bought a bunch of small studios, in contrast like buying Activision. So you can get to it a little bit. They bought a bunch of small studios and pushed all those studios to developing killer games for the upcoming PS4. And so you got things like like the Spider-Man, like uh that was a huge game. >> Naughty Dog, Last of Us, that type of stuff. >> Exactly. I mean, and so the PS4 was an unbelievable generation. >> Yeah. >> And in in a lot of the reasons it was unbelievable was because it had these exclusive games, and they just crushed Microsoft. Because for all the cross-platform games, the Call of Duty's, the Madden's, things like that, those are always ran everywhere. And so what you do is you limit the economic potential of your studios, cuz you're only building for your platform, and you make it back by all the licensing fees you get off the EA's of the world and the Activisions of the world, because 80% of gamers are on your console, not on the other guy's console. >> Mhm. >> And so they just wiped out Microsoft in that generation. Um and that really just continued to the PS5. Uh and this is where we sort of get to the the the Game Pass disaster. >> Okay. Yes. So, uh yeah, I want to yeah, let's just jump forward to that. How is it that >> I didn't want to ramble too long. I was going to give you a chance to jump in, but >> No, we love it. >> Yeah, I have a bunch of other I have a bunch of other questions not related to gaming, but I love I like I love I love this history of >> the console >> console history is fascinating. It's really interesting how sort of cuz it tracks technological change to such a large extent and it totally shifted sort of strategy. So >> And yeah, I think you can draw I think you can draw a lot of real parallels even just model releases over the last couple years how you know >> The number of models >> model sets you back a certain number you know, they're they're iterating a lot faster. >> Yeah. >> But I'm I'm seeing parallels. >> Yeah, the sort of development of the of yeah, it's interesting. You could always sort of draw draw draw lessons. So you get to Microsoft at this point again, I think I wrote at the time, okay, time to give up. >> >> I wrote multiple times over the years they should give up on Xbox. And at this point Microsoft stock is doing much >> an option after they bought Activision just to make Call of Duty a console exclusive or would that have been an FTC problem? >> well, we can we we'll get to that cuz that's part of the story here. So Microsoft decides, okay, uh what we we're going to actually try a new business model. It's true Xbox sort of selling a console >> Mhm. >> selling you know, licensing it. We kind of do that, but we're actually moving to being a services company. The stock's doing much better now, you know, like we have Azure, all these all these things. What we need to do and the way we compete with Sony is we need to have the exact opposite of the Sony strategy and we need to lean into services, lean into subscriptions. We're going to do Xbox Game Pass. And the idea of Xbox Game Pass is instead of buying every individual game for $60, $70, $80. Gaming pricing by the way really has stayed suppressed probably far longer than it should have been particularly for these AAA games, but we already got to that with Rockstar. So they're they're they're like you pay one price per month and you get access to all the games in Game Pass. Well, of course no publisher wants to partake in this because they make all their money up front by selling games to their biggest fans. You You know, it's kind of like the movie model. You make a bunch of money up front and yeah, in the long run >> were they looking at like at at what happened to the music industry as an example of saying like yeah, it's cool to make your product more accessible. You get, you know, more listeners by bundling and streaming and like >> was the bet. You had to make it up in volume, right? And so this old This why the Series S came about. There's the Series X and the Series S. The Series S was a more underpowered, but much cheaper model. I think it launched at $300 versus the X was I think $600 or maybe $500. And that was also a problem because you're kind of neutering the X because developers build to the lowest common denominator. Not not sort of the highest one. So, that was one problem. But, the idea was we're going to expand the market. And they had these package deals where you get an S and you get Game Pass for a year and it's this sort of thing. And we will make it up in The problem is no no independent developer is going to go for that. So, they had some of their own games, but they went out and started buying a bunch of developers. So, they bought Bethesda, which included I think it at that point and and ZeniMax. I I don't know the uh >> Yeah, they they they they they they have a bunch of like great IP libraries. They have Activision deal. Those uh but those developers just aren't releasing like incredible titles annually except for Activision, which does have a lot of releases. >> 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. And their existing business was selling single copies of games to all platforms. 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. But, what we think's going to happen is gamers are going to realize I could be paying $70 a pop on PlayStation, or I could go to Xbox and I could pay $20 a month and I can get all these games and that's it. It would be a better deal. And by the way, we'll get new gamers. People are going to come in and rise, "Wow, I can get all these games for $20 a month." Uh 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. And they I think they you know, the recent reporting was they expected to have 75 million Game Pass subscribers by this year. They have like 30 million and that number is actually decreasing. It's not going up. And so, it's just been Uh and so, that that that's sort of the context of what's happened here. Uh Phil Spencer got uh retired, which uh if you retire at that level of a company, um you're probably canned. Uh probably too late. The whole strategy was a disaster. They brought in new leadership and now there's sort of like a reset going on. They're they're laying off few thousand people. They they say all games production are going to 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 it doesn't work. >> Mhm. What uh what did you read into their approach of laying off 1,600 people now and keeping a 1,600 person riff? >> it's a terrible idea >> >> because they don't like everyone there for the rest of the year is >> Like a VC like like every VC would tell you to like cut hard, cut deep. >> And then move forward with the team. If you're on the ship, we're going to Valhalla together >> I think I I do have some sympathy because uh the reality is I appreciated the note because they are in big trouble. And if 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 kind of knows they're going to be cutting more people, right? So, I think they're just in a bad spot. So, of course it's not great. It's going to destroy morale. It's going to destroy everything for the next year cuz 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 can 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. Like like people in general are more They're just not going to bail. Microsoft, you know, they're going to want to keep their job. And so, they can probably, hopefully, fingers crossed, do better cuts by virtue of doing them in the open. But, I don't know. I mean, I don't envy I don't envy Xbox's leadership at all. It's going to be a very tough thing, but I I I I I can totally understand how they are where they are. >> Probability of a spinout? >> 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. Like, okay, fine. Xbox Game Pass that kind of seems kind of interesting. Let's go for it. I should have stuck to my guns. Like, no, stop. This is going to be a disaster. Um I think yeah, I don't I I I don't get it. Um 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. I don't see it now. I mean, I think it does give me pause they hired Matthew Ball who I've had on Stratechery multiple times >> as their chief strategy officer. I have a lot of respect for, you know, his takes. So, I'm curious what he's thinking about. This gets to the question before is there a bit where they just write off these acquisitions and say actually all this stuff's going to be exclusive now. We're like Call of Duty buy an Xbox. Like basically giving into the FTC's worst fears which uh but they those fears didn't make sense at the time in the context because it's by writing off acknowledging we lost billions and billions of dollars. >> Yeah, and it would it would test 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 because if people have a PlayStation and then they'll try something new. Switching gears a little bit. Uh 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 of revenue and are doing a crazy up round. And it's this weird thing where like even, you know, historically, you know, there's power laws everywhere but I feel like in this moment we're seeing more and more examples where like the 10th best company in the category is still having the financial performance that a company that would have been the leading company in their category 5 years ago. What do you make it What do you make of that? >> This is just a thing in tech in general that that has always sort of stuck out at me. I mean I think I >> Has it been Has it been though but like like CRM for example? Like if you go back to like 2015 was like the 10th best CRM company like actually >> No, of course not. No, no. The the the the example I always go back to is I think it was 2014 or so when Apple bought Beats. And they bought Beats for $3 billion and everyone's going 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 billion like Apple is a $500 billion company. What is $3 billion matter? And what's funny about that take is number one it was right. Who cares about $3 billion? That's under couch cushions. Like people were spun up about something that didn't really matter. Number two, Apple was only a $500 billion 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 there 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. Um 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. >> Um on mergers and acquisitions, there's this news today about Getty Images calling off Shutterstock deal after UK regulators said that they would have to sell the editorial business for the merger to be approved. And it seemed very odd to me that a merger would be blocked by a regulator when that industry that is consolidating and is maybe becoming more monopolistic is under such insane attack from generative AI. I can't imagine a better defensive move than putting Getty Images and Shutterstock together. >> Yeah. This happens this is this is happens every single time. Like the the natural response to your overall category being threatened by an external force is consolidation. Like it's the only way to defend yourself to sort of, you know, you get synergies. Like and like all these companies are pretty established. So, it's actually fairly easy to price. You know exactly what things are. It's a much like we have growing companies you want to merge them or acquire them. It's really unclear cuz how do you sort of price out the future? These companies are declining. So, it's very easy like you could do a discounted cash flow and understand exactly how much they're worth. It's a very straightforward negotiation. It makes total sense for them to consolidate date, but precisely because they're knowable and understandable, it's very easy for regulators to block them. And you see this happen again and again. You see like pushback on you saw this with TV and like like different networks getting together and the various pushbacks happen to that or in telecoms. Like the this happens this is a natural pattern. The moment that a company an industry wants to consolidate, needs to consolidate, is the moment regulators are most likely to stop them consolidating. And whereas the actual time when action would matter, like when it when it's growing and a company is making the right acquisitions to take over an industry, regulators don't do anything and also rightly don't do anything because you're dealing with the future and it's unknown. You don't want to screw it up. Um it raises the question of what use do regulators sort of do anyway in broad broad strokes? I used to be I've sort of you know, I think that they probably do more harm than good as far as a lot of these sort of blocking mergers and things go. But um I don't know. I'm the one that just said maybe Microsoft should take Call of Duty exclusive. So, so who knows? Uh maybe I'll have a different >> Well, yeah, we had a funny moment cuz we were looking at the $3.7 billion deal, but I'm like how is this a $3.7 billion deal? Both these are two $300 million ish market cap companies. And it was cuz they pri- the deal was like priced back in January of 2025. And so both companies had declined so much over the last over the last 18 months. >> I mean it could be worse. You could be Netflix and have the stock market sort of like make a bid for Warner Brothers that the stock market hates abandoned the deal, but they already decided you did the deal because you're desperate and you're >> >> you're screwed anyway. So yeah, you don't even get what you bid for. So maybe that's what happened here. I don't know. >> Oh well. Well, thank you so much for taking the time to come chat with us. Have a have a great summer. Enjoy the break and we'll see you soon. >> Yeah, good luck with the lemonade stands. >> Yes. Try to try to make it through the summer. >> >> You're going to run up on a kid that has Claritin. >> Raise some money. Yeah, I know. Claritin and a lemonade stand. >> Claritin and a lemonade stand. Five easy payments. Interest free. It might. Well, thank you so much and have a great rest of your >> Great to see you. >> We'll talk to you soon, >> Yeah, talk to you later. >> Have a good one.