Grammy Winners Hogwarts Legacy Review 'Last of Us' Episode 5 Coming Early Frozen Yogurt Day Freebies Super Bowl Ads Super Bowl: How to Watch Popular Tax Deduction Wordle Hints for Feb. 6
Want CNET to notify you of price drops and the latest stories?
No, thank you

Why Xbox Live gaming should be free for all

Don Reisinger thinks Microsoft needs to increase hardware sales by offering Xbox Live gaming for free. Should it?

Over the weekend, I spent some time playing online. I did so on Xbox Live and through games on both my PS3 and Wii. All the while, I was thinking about the one simple fact that kept sticking out in my head: for now at least, I can play online with my Wii and Playstation 3 and the experience is basically the same.

And considering Microsoft keeps losing ground to both Sony and Nintendo, why not find a new way to offer a more compelling alternative out of the company's most popular service?

Sure, it sounds radical and losing $50 per year from the millions of Xbox Live subscribers may be a major sticking point here, but it needs to be done. Microsoft's latest NPD numbers have been less than stellar and the Wii, DS, Playstation 3, and the PSP all sold better than the company's console in July. And if you want to compete in the hardware business, that's simply unacceptable.

To make matters worse, the big lead Microsoft had over Sony in the third-party sphere is practically eliminated and it doesn't look like Nintendo will slow down anytime soon, nor will the Xbox 360 become a force in Asia.

So what does Microsoft need to do to right the ship and really turn things around? Announce that all Xbox Live memberships will be free and all gamers can play online without a hitch. It's radical, for sure, but it's the best move Microsoft can make right now.

It's about the size

Making Xbox Live free to all gamers allows Microsoft to boast that it has the largest network of multi-platform users in the world. Right now, Microsoft is trying to become the world's leader in multi-platform gaming. And although it has done relatively well considering Xbox 360 sales have not matched competitors and Games for Windows Live is shaky, while Zune ownership is suspect, it will immediately put Microsoft into a position where developers can truly create a "Microsoft Experience."

Is there a need to do so?

Invariably, this argument will go to the argument that if people are willing to pay now, why should Microsoft tell them they don't have to? Why buy the cow if you can get the milk for free?

But that argument is extremely short-sighted and fails to truly address what's going on in the market. Xbox Live is the cornerstone of Microsoft's broader gaming strategy. Without it, the Xbox 360 wouldn't be half as popular as it is today and it's still the only real benefit that still looms over Sony's head.

Realizing that, Sony has consistently said that it plans on rolling out a major online initiative that revolves around its trust in Home and its aims are firmly planted on Microsoft. But in order to compete, Sony will need to pull out all the stops and try to create an experience that either matches or eclipses the ease with which we play games on Xbox Live. And to be honest, I think Sony can do it eventually.

But why should Microsoft let that happen? Why should Microsoft give Sony an advantage or at the very least, let it into the online space? By making Xbox Live free, the company adds every Xbox owner to the list of potential users and immediately puts Sony back on its heels. Sony has invested so much as it is, can it really justify a free online service?

Now I realize the same can be said for Microsoft, but with Xbox Live, the company has an installed base of users and content that could make up for that loss. Sure, Microsoft will lose $50 per year in revenue at first, but how many of those gamers would be willing to throw that back into the service by buying movies, adding online maps to their games, or generally expanding the amount of content on their consoles? I'm willing to bet that the majority would.

Silver membership users can do that now, but many of those individuals have balked at paying the $50 each year for online play and generally don't spend the amount of time you would expect them to on the service. But once online gaming is free and they get into the fold, a whole new group of people will be able to acquire online maps and play with friends, which should help Microsoft recoup some of that lost revenue.

But it can't quite end there. Xbox Live would also need some advertising to make up for the lost revenue. But by being able to boast that Microsoft has hundreds of millions of users, the company can sell advertising to companies at a rate that could even eclipse the amount of revenue it's already incurring with membership.

Hardware sales

But simply offering Xbox Live online play for free won't just have an impact on Xbox Live revenue, it'll also have a major impact on hardware sales.

Let's face it--opening online play to all Xbox 360 owners will see a huge influx in the number of people that will want to play online. And in the process, they'll start talking and make it clear to all those fence-sitters that they can play with them online without a charge on something that's already proven. Sure, Sony might do the same thing and the Wii is already free, but neither service can contend with Xbox Live in terms of raw users and usability--so far.

Right now, Microsoft needs to increase hardware sales in any way it can. It's not enough anymore to simply wait and hope that Sony won't sell consoles as well as it has or Nintendo will suddenly fold. Instead, it needs to be proactive and try to find ways to stop its competitors in their tracks. And although a price drop was a good place to start, Xbox Live is what Microsoft beats every other vendor on and it needs to make it even more compelling to coax more people to its console.

And if that drop in Xbox Live pricing increases hardware sales--and it should--more developers will jump onboard and exploit Xbox Live as much as possible. And in the process, it'll become a veritable bonanza where you'll be able to buy extra maps, pick up some movies along the way, and enjoy ad-supported online gaming for free.

Making Xbox Live online gaming free is radical, I know. But at this point, Microsoft is starting to look like the also-ran and it's not exploiting the key component in its business model that could separate it from the pack. If Microsoft wants to catch up quickly, making Xbox Live free and changing the way it makes money on the service is the first step.

Check out Don's Digital Home podcast, Twitter feed, and FriendFeed.