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Does the Xbox still make sense in a mobile gaming world?

Xbox head Phil Spencer speaks on stage at the Microsoft Xbox E3 2017 briefing at the Galen Center in Los Angeles on June 11. (Robyn Beck/AFP/Getty Images)
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LOS ANGELES — Microsoft pulled out all the stops this week  — flashing lights, pounding music, fake smoke — to debut its new $500 game console, aimed at the kind of hardcore gamer who appreciates a good glamour shot of a microprocessor. But how many will actually buy it?

That's the question looming around Microsoft's launch, as the technology giant touts its most powerful console ever to an audience that increasingly is becoming more casual.  Mobile games now make up 42 percent of the game industry's revenue worldwide, according to a report from game industry analysis firm Newzoo. It is expected to pass the 50 percent mark by 2020. Console sales have continued to grow, but at a much slower pace — keeping more or less steady with 20 percent of revenue for the industry.

“It's a fairly limited market,” said analyst David Cole of DFC Intelligence, of the group of gamers the Xbox One X is reaching. Mobile, Cole said, is where there is real growth potential for the market. But Microsoft, with no mobile device and no mobile distribution channel, isn't well positioned to tap into the rise of the casual gamer, he said.

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The increased importance of mobile games is apparent from the firms at the game industry's Electronic Entertainment Expo this year, with more than 100 mobile and social game companies coming to the floor, up from 70 two years ago. Big publishers including Electronic Arts and Bethesda took time in their keynotes to speak about mobile titles. Nintendo is expected on Tuesday to heavily play up its portable Switch console, which has been a runaway hit.

“I've been looking for [Microsoft] to use gaming as a way to break out into new and emerging markets,” said Andrew Tonner, an analyst at the Motley Fool. “Not seeing them do that here was a bit of surprise.”

The mobile trend is also being reflected beyond our borders.

A global audience has declared its allegiance, said International Game Developers Association Executive Director Kate Edwards. “In a lot of countries, the mobile platform is the default platform — that is where games are played,” she said. Internationally, the mobile gaming is a $46.1 billion industry, according to Newzoo, driven largely by Asia. In the United States, it is a $6.9 billion industry, according to Unity, a developer platform.

But in this corner of the Electronic Entertainment Expo, you would never know. Microsoft's presentation was entirely focused on the new console and what it could do with its platform, including providing graphical updates and compatibility for old games. Those are crowd-pleasing announcements, but analysts noted that the crowd it pleases isn't as large a part of the overall market as it used to be. Plus Sony has a sizable sales lead over the Xbox, leaving little maneuvering room for the Washington state-based tech giant. Globally, Sony has sold 58 million units of the PlayStation 4, whereas Microsoft has sold 29.6 million units of the Xbox One, according to console sales tracker VGChartz.

So why is Microsoft still betting big on the console? Money is one key reason, analysts said.

“Console profits are higher than all the others, too, so the ecosystem is making a lot of money and in the end, this is what keeps everything moving,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Therefore, I think this upgrade was a necessary one.”

Others said Microsoft may also be trying to position itself in front of the next wave of expected growth in the game industry: the yet-unproven success of virtual reality and augmented reality.

“Xbox needs to separate themselves from the others,” said Brian Blau, an analyst at Gartner. “Traditionally, performance has been one way developers can make their content look its best and one that gamers value.” Consoles, he said, will need to evolve to support these different experiences.

Microsoft doesn't have its head in the sand completely. After all, it surprised many by spending $2.5 billion to pick up Minecraft developer Mojang in 2014. Other publishers have taken a similar tack. Activision bought “Candy Crush” maker King in 2015, giving it short-term cash and mobile developer talent.

As for Microsoft, it is still offering consoles because it wants to offer choices to gamers rather than a single option, said Mike Ybarra, corporate vice president of Xbox and Windows.

“Now's a great time for anyone to come into the Xbox family,” he said.

But not everyone is buying it.

The Xbox One X — while technically impressive — isn't a sensible choice for the company as it faces a shifting industry, Tonner said. “Microsoft is kicking the can down the road for some of the new platforms that people are hoping for with this console.”

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