Billions of dollars later and still nobody knows what an Xbox is
Xbox’s last few years have been costly. Under the leadership of Phil Spencer, Microsoft has spent billions of dollars trying to build an ambitious future for gaming that looks a lot like Netflix. And while its Game Pass subscription service started out as a good deal for gamers (although it’s not so much anymore), this spending spree has led to catastrophic layoffs, studio closures, and confusing and inconsistent messaging about what Xbox actually stands for. And with Spencer set to retire as new executives take the helm, the future of Microsoft’s gaming efforts looks increasingly uncertain.
Spencer announced his retirement last week, after more than a decade leading the Xbox division and nearly four at Microsoft. He will be replaced as CEO by Asha Sharma, former president of Microsoft’s CoreAI Product, while Xbox Game Studios boss Matt Booty has been promoted to EVP and CCO. As part of the restructuring, Xbox President Sarah Bond will leave Microsoft. One of Sharma’s commitments, she wrote in a note, is “the return of Xbox.” But given the brand’s uncertain status following Spencer’s tenure, it’s anyone’s guess what that actually means.
Spencer took over the Xbox division in 2014, a year after the launch of the Xbox One. And while he was popular among fans for being the rare executive who also seemed genuinely passionate about gaming, his legacy will ultimately depend on the transformative changes that have taken place around Game Pass and cloud gaming.
Although a latecomer, Microsoft has quickly caught up in the console race against Sony and Nintendo, thanks in large part to its prescient focus on online gaming through Xbox Live. With the Xbox 360 that followed, Microsoft found itself in close competition with the PS3, but that momentum was lost with its third console, the Xbox One, which never really recovered from a messy launch and ultimately sold less than half of what the PS4 sold.
Around this time, there were signs that the console paradigm was changing, with the cycle of releasing a new device every five years giving way to something more fluid, where hardware was less important and games transferred between devices. Meanwhile, streaming services like Netflix were shaking up the world of film and television. A service like Game Pass was a chance for Microsoft to break out of third place by being ahead of the video game industry. could be directed. At that time, Game Pass was still a nascent but exciting prospect, offering players an unlimited assortment of games at a reasonable price. But its unproven potential seemed to prompt Xbox to rethink its entire strategy: if it couldn’t compete on console sales, perhaps it could win with subscribers?
In fact, as early as 2019, Spencer was telling me that console sales didn’t really matter in the long term. “I don’t need to sell a specific version of the console for us to achieve our business goals,” he said. “Business doesn’t depend on how many consoles you sell.” It’s a positive twist when you’re not selling a lot of consoles. So the goal was to reach players where they were via Game Pass and the cloud.
But to do that, Game Pass needed games, and Microsoft bought as many games as possible. First, Microsoft spent $7.5 billion to acquire Bethesda, as well as franchises like To fall And Ancient scrollswith the express purpose of getting more exclusives that it could offer through Game Pass. Then he spent a whopping $68.7 billion on Activision Blizzard, the world’s largest publisher, giving it access to everything from Call of Duty has Crushed candy has World of Warcraft. (These genre-defining franchises never became Xbox exclusives due to antitrust concerns.)
The problem is that even with all these games, Game Pass has plateaued; Microsoft announced that it would reach 34 million subscribers in 2024, but there has been no update since. Even while offering the service at a subsidized price that made Game Pass relatively affordable, it became clear that the audience for a subscription like this wasn’t as broad as Microsoft had anticipated. In 2022, Spencer hoped to reach 100 million subscribers by 2030. That seems increasingly unlikely now.
Meanwhile, the acquisition spree has had devastating effects. Thousands of people have been laid off as part of Activision’s integration into Microsoft, while two Bethesda studios have been permanently closed. Games have been canceled, and even successful studios like Forza Developer Turn 10 has been hit hard. Meanwhile, on the business side, the focus on Game Pass has also spoiled one of gaming’s most consistent revenue streams: the sale of a Call of Duty every year. Putting the shooter series on Game Pass reportedly resulted in a $300 million loss in sales. Game Pass continues to become more and more expensive for consumers, and it’s unclear whether it directly recoups losses from game sales.
This change also significantly watered down the brand. Initially, the sales pitch for an Xbox was obvious: it was a powerful video game console from Microsoft. But with Game Pass and cloud gaming, the message has changed. The “This is an Xbox” ad campaign attempted to position the Xbox not as a console, but as any device – whether a PC, a smart TV, a Windows handheld or your phone – that can play Xbox games. And while those efforts ran into difficulties, Microsoft went further and made releasing games to competing platforms a pillar of its strategy. It may have bought Activision and Bethesda for exclusives, but it’s now one of the biggest publishers on PlayStation. Xbox is now a state of mind, it seems.
Criticism has already been leveled at Sharma because, unlike Spencer, she is not a “gamer” and instead has experience in Microsoft’s AI efforts and at companies like Instacart and Meta. But then again, the current presidents of Nintendo and Sony Interactive Entertainment aren’t known for being gamers either, and they’ve managed to stay ahead of Xbox (albeit with their own stumbles). And being a gamer didn’t necessarily help Spencer, who saw some of the direction the industry was going but wasn’t able to change Xbox enough to meet that moment. Sharma could represent a huge change in how Microsoft operates in gaming, but it’s also exactly what the company needs right now.
Suffice it to say that “the return of the Xbox” could mean a lot of things, because Xbox now means a lot of things. In his memo, Sharma describes it as “a renewed commitment to Xbox, starting with console” while also noting that “as we expand across PC, mobile and cloud, Xbox should feel seamless, instant and worthy of the communities we serve.” Which sounds a lot like the current state of affairs.
Maybe we’ll never know what an Xbox actually is.
