Reports in the game industry have speculated that the current generation of consoles might be the last. While in the phone space, Microsoft has seemingly de-emphasized pricey phone hardware in place of low-cost Lumia devices running free Microsoft services, a free Xbox console, subsidized by services like game sales and Xbox Live Gold seems unlikely today.
On the other hand, Sony already offers PlayStation Now, which taps into the power of the cloud to allow PlayStation 4 users to play older PS3 games. And Microsoft has already touted the power of its Azure cloud as the brains behind Titanfall, one of the launch titles for the One. Consider marrying the power of Microsoft's cloud with a cut-rate version of the One with minimal hardware specs. It might not be a free console, but it could be close to it.
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