The past few years for Xbox have been expensive. Under the leadership of Phil Spencer, Microsoft has spent billions of dollars trying to create an ambitious future for gaming that looks a lot like Netflix. And while its subscription service Game Pass started out as a good deal for gamers (though not so much anymore), that spending spree has led to disastrous layoffs, studio closures, and confusing and inconsistent messaging about what Xbox actually is. And with new leadership taking over and Spencer set to retire, the future of Microsoft’s gaming efforts is looking increasingly unclear.
After more than a decade at the Xbox division and nearly four decades at Microsoft, Spencer announced his retirement last week. She will be replaced by Asha Sharma, former head of Microsoft’s CoreAI products, as CEO, while Xbox Game Studios boss Matt Booty has been promoted to EVP and CCO. As part of the restructuring, Xbox president Sarah Bond will be leaving Microsoft. One of Sharma’s commitments, he wrote in a memo, is “the return of Xbox.” But what exactly this means, given the uncertain state of the brand right now after Spencer’s tenure, is anyone’s guess.
Spencer took charge of 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 appeared genuinely passionate about games, his legacy will ultimately depend on the transformational changes that occurred around Game Pass and cloud gaming.
Despite being a comparative latecomer, Microsoft quickly took off in the console race against Sony and Nintendo, largely due to its forward-looking focus on online gaming through Xbox Live. With the follow-up Xbox 360, Microsoft found itself competing closely 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 as much as the PS4.
Around this time, signs indicated a changing console paradigm, with the cycle of releasing a new device every five years giving way to something more fluid, where hardware was less important and games moved between devices. Meanwhile, streaming services like Netflix were disrupting the world of film and television. A service like Game Pass was a chance for Microsoft to move out of the third-place position by getting into the game industry early can To be led. At the time, Game Pass was still an emerging but exciting prospect, offering players all kinds of games worth consuming at a reasonable price. But its unproven potential forced Xbox to rethink its entire strategy: If it couldn’t compete on console sales, maybe it could win with customers?
In fact, as early as 2019 Spencer was telling me that console sales don’t really matter in the long run. “We don’t need to sell any specific version of the console to reach our business goals,” he said. “Business is not how many consoles you sell.” This is a positive thing when you’re not selling a lot of consoles. So instead the focus was on reaching players where they were, through Game Pass and the cloud.
But to do that, Game Pass needed games, and Microsoft went out and bought as many games as possible. First, Microsoft spent $7.5 billion to acquire Bethesda and the franchise along with it. Controversy And Elder ScrollsThis may be offered through Game Pass for the express purpose of gaining more exclusive information. Then it spent $68.7 billion on Activision Blizzard, the world’s largest publisher, giving it access to everything. Duty To candy crush To world of Warcraft. (These genre-defining franchises never became Xbox exclusives due to antitrust concerns.)
The problem is that, even with all those games, Game Pass reached a stagnant level; Microsoft announced that it will have 34 million customers in 2024, but there has been no update since then. Even while offering the service at a discounted price, which made Game Pass relatively affordable, it became clear that the audience for such a subscription was not as large as Microsoft had anticipated. In 2022, Spencer expected to reach 100 million customers by 2030. Now this seems less likely.
Meanwhile, the acquisition spree has had a devastating impact. Thousands of people have been laid off as part of Activision’s integration into Microsoft, while a pair of Bethesda studios have been shuttered forever. Games were canceled, and successful studios were canceled too forza Developer Turn 10 suffered huge losses. Meanwhile, on the business side, the focus on Game Pass also messed up one of the most consistent streams of revenue in video games: the sale of a Duty every year. Putting the shooter series on Game Pass reportedly resulted in a loss of $300 million in sales. Game Pass is becoming increasingly expensive for consumers, and it’s unclear whether it is recouping the losses from selling games directly.
This change also weakened the brand considerably. Initially, the sales pitch for the Xbox was clear: it was a powerful video game console from Microsoft. But with Game Pass and cloud gaming, the messaging changed. The “It’s an Xbox” advertising campaign attempted to position Xbox not as a console, but as any device – whether it’s a PC, smart TV, Windows handheld, or your phone – that can play Xbox games. And as these efforts struggled, Microsoft went a step further and made bringing games to rival platforms a pillar of its strategy. It may have bought out Activision and Bethesda for exclusives, but it is now one of the biggest publishers on PlayStation. It seems like Xbox is a state of mind now.
There have already been criticisms against Sharma because, unlike Spencer, he is not a “gamer” and instead has a background in Microsoft’s AI efforts and companies like Instacart and Meta. But still, the current presidents of Nintendo and Sony Interactive Entertainment aren’t known for being gamers, and they’ve managed to stay ahead of Xbox (albeit with obstacles of their own). And being a gamer didn’t help Spencer, who saw where the industry was going but wasn’t able to change Xbox enough to meet the moment. Sharma could represent a major change for how Microsoft approaches gaming, but it’s just what the company needs right now.
That is to say, “the return of Xbox” can have a lot of meanings, because Xbox has so many meanings now. In his memo, Sharma described it as “a new commitment to Xbox starting with console,” adding that “as we expand into PC, mobile, and cloud, Xbox must feel seamless, instant, and worthy of the communities we serve.” Which seems similar to the situation now.
Maybe we’ll never find out what Xbox really is.
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