The last few years of Xbox have been expensive. Under Phil Spencer’s leadership, Microsoft has spent billions of dollars in an attempt to build 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 (although now not so much), that spending spree has led to catastrophic layoffs, studio closures, and confused and inconsistent messaging about what Xbox actually stands for. And with Spencer set to retire as new leadership takes charge, the future of Microsoft’s gaming efforts looks increasingly unclear.
Spencer announced his retirement last week, after over a decade leading the Xbox division and nearly four at Microsoft. He’ll be replaced as CEO by Asha Sharma, formerly 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 be leaving Microsoft. One of Sharma’s commitments, she wrote in a memo, is “the return of Xbox.” But given the brand’s uncertain status right now following Spencer’s tenure, what that actually means is anybody’s guess.
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 exec who also appeared to really be passionate about games, his legacy will ultimately hinge on the transformative changes that took place around Game Pass and cloud gaming.
Despite being a comparative latecomer, Microsoft made up ground quickly in the console race against Sony and Nintendo, due in large part to its prescient focus on online play 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 of what the PS4 sold.
Around this time, signs pointed to the console paradigm 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 carried over between devices. Meanwhile, streaming services like Netflix were upending the world of film and television. A service like Game Pass was a chance for Microsoft to get out of its third-place position by being early to where the games industry could be headed. At that point, Game Pass was still a nascent but exciting prospect, offering players an all-you-can-eat assortment of games at a reasonable price. But its unproven potential seemed to make Xbox rethink its entire strategy: If it couldn’t compete on console sales, maybe 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 run. “I don’t need to sell any specific version of the console in order for us to reach our business goals,” he said. “The business isn’t how many consoles you sell.” That’s a positive spin 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 in order to do that, Game Pass needed games, and Microsoft went out and bought as many as it could. First, Microsoft spent $7.5 billion to acquire Bethesda, and along with it franchises like Fallout and Elder Scrolls, for the express purpose of getting more exclusives it could offer through Game Pass. Then it spent a whopping $68.7 billion on Activision Blizzard, the biggest publisher in the world, giving it access to everything from Call of Duty to Candy Crush to World of Warcraft. (These genre-defining franchises never became Xbox exclusives due to antitrust concerns.)
Problem is, even with all of those games, Game Pass hit a plateau; Microsoft announced that it hit 34 million subscribers in 2024, but there hasn’t been an update since then. Even while offering the service at a subsidized price that made Game Pass relatively affordable, it became clear the audience for a subscription like this wasn’t as large as Microsoft had anticipated. Back in 2022, Spencer hoped to hit 100 million subscribers by 2030. That seems increasingly unlikely now.
Meanwhile, the acquisition spree has had devastating effects. Thousands have been laid off as part of Activision’s integration into Microsoft, while a pair of Bethesda studios were shuttered for good. Games were canceled, and even successful studios like Forza developer Turn 10 were hit hard. Meanwhile, on the business side, the focus on Game Pass also messed up one of most consistent streams of revenue in video games: selling a Call of Duty every year. Putting the shooter series on Game Pass reportedly led to $300 million in lost sales. Game Pass keeps getting more expensive for consumers, and it’s unclear if it’s recouping the losses of selling games directly.
This shift 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 messaging changed. The “This is an Xbox” ad campaign tried to position Xbox not as a console, but any device — whether it’s a PC, smart TV, Windows handheld, or your phone — that could 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 Activision and Bethesda for exclusives, but now it’s one of the biggest publishers on PlayStation. Xbox is now a state of mind, it seems.
Criticisms have already been levied against Sharma because, unlike Spencer, she’s not a “gamer,” and instead has a background 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 where the industry was going but wasn’t able to change Xbox enough to meet that moment. Sharma could represent a huge shift for how Microsoft operates in gaming, but that’s also exactly what the company needs right now.
Which is all to say that “the return of Xbox” could mean a lot of things, because Xbox now means a lot of things. In her memo, Sharma describes it as “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 state of things right now.
Maybe we’ll never find out what an Xbox really is.
Source: www.theverge.com
