Will Microsoft launch free-to-play games on Xbox Live?

Embracing a new business model, Microsoft is expected to make free-to-play games available on its Xbox Live online gaming service next year.

The move isn’t yet confirmed, as IGN cited an unnamed source in its story. But if it’s true, it shows that the company is responding to competitive pressures that threaten its core business but also offer a chance for a dramatic growth of users.

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The move isn’t a huge surprise, since Microsoft said that its Joy Ride game was originally going to be a free-to-play game on Xbox Live. But the company changed the business model for that game later.

Over time, free-to-play games will likely be blended into a variety of business models for different games (although Microsoft has declined to comment on specifics). If they are, publishers and developers will be able to release games through the service for free. Users can then purchase virtual goods using Microsoft’s in-service currency, Microsoft Points. The players could use the points to buy weapons, experience points, in-game currency, and other perks.

Xbox Live allows Microsoft to evolve with the game industry. The company offers $60 console games on the Xbox 360. But on Xbox Live, it can offer cheaper games at around $10 or $15. This downloadable digital content has been a big growth business for the past couple of years and has allowed Xbox Live to grow past $1 billion in annual revenues. Microsoft gets a 30 percent of every transaction on the Xbox Live service.

Free-to-play games have taken off with online web games and have seen spectacular growth on Facebook. More recently, free-to-play games on the iPhone and Android have taken off. Big game companies such as Electronic Arts have embraced free-to-play games in recent months as rivals such as Nexon and Riot Games grow fast.