Billions of dollars later and no one still knows what an Xbox is

The last few years for Xbox have been very expensive. Under Phil Spencer’s leadership, Microsoft has spent billions of dollars trying to build an ambitious future for gaming much like Netflix. Although the Game Pass subscription service started out as a good deal for gamers (Although now not so much), this spending spree led to disastrous layoffs, studio closures, and confused and inconsistent messaging about what Xbox actually stands for. and With Spencer preparing to retire as new leadership takes overThe 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, Microsoft’s former head of product for CoreAI, while Xbox Game Studios head Matt Booty has been promoted to EVP and CCO. As part of the restructuring, Sarah Bond, head of Xbox, will leave Microsoft. One of Sharma’s commitments is “the return of Xbox,” she wrote in a note. But given the uncertain status of the brand at the moment following Spencer’s tenure, what that actually means is anyone’s guess.

Spencer took over the Xbox division in 2014, a year after the launch of Xbox One. Although he was popular among fans for being the rare CEO who also seemed passionate about gaming, his legacy will ultimately hinge on the transformative changes that occurred around Game Pass and cloud gaming.

Despite being a relatively latecomer, Microsoft has made rapid progress in the console race against Sony and Nintendo, due in large part to its visionary focus on online play through Xbox Live. With the Xbox 360 following, Microsoft found itself competing closely with the PS3, but that momentum was lost with its third console, the Xbox One, Which never recovered from the chaotic launch and ultimately sold less than half of what the PS4 sold.

Around this time, signs pointed to the console paradigm changing, with the every five-year cycle of releasing a new device giving way to something more flexible, where hardware was less important and games were ported between devices. Meanwhile, streaming services like Netflix were turning the world of film and television upside down. A service like Game Pass was an opportunity for Microsoft to break out of third place by getting an early presence in the gaming industry He could Be on top. At that point, Game Pass was still nascent but exciting, offering players a variety of all-you-can-eat games at a reasonable price. But its uncertain potential seems to have made Xbox rethink its entire strategy: If it can’t compete for console sales, maybe it can win subscribers?

In reality, Early in 2019, Spencer told me that console sales don’t really matter in the long run. “I don’t need to sell any specific version of the console in order for us to achieve our business goals,” he said. “Business is not the number of consoles you sell.” This is a positive development when you don’t sell 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 games as they could. Firstly, Microsoft spent $7.5 billion to acquire BethesdaAnd with it perks such as He falls and Elder Scrollsfor the express purpose of getting more exclusives that it can offer through Game Pass. Then it spent a whopping $68.7 billion on Activision Blizzardthe world’s largest publisher, giving him 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.)

The problem is that even with all these games, Game Pass has plateaued; Microsoft announced that it will reach 34 million subscribers in 2024but there has been no update since then. 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 large as Microsoft had anticipated. again in 2022, Spencer hoped to reach 100 million subscribers by 2030. This seems increasingly unlikely now.

At the same time, the takeover wave had devastating effects. Thousands have been laid off from their jobs as part of Activision’s integration with Microsoft, While two of Bethesda’s studios have been closed forever. Games have been cancelled Even successful studios like Forza The developer of Turn 10 was hit hard. Meanwhile, on the business side, the focus on Game Pass has also gutted one of the most consistent revenue sources in video games: selling Call of duty every year. Putting the shooter series on Game Pass reportedly resulted in a loss of $300 million in sales. Game Pass continues to gain ground for consumers, and it’s not clear whether it offsets losses from selling games directly.

This shift also significantly weakened the brand. At first, the Xbox’s sales pitch was clear: it was a powerful video game console from Microsoft. But with Game Pass and cloud gaming, the messaging has changed. “This is Xbox” advertising campaign. I tried to position the Xbox not as a console, but as a device — whether it’s a PC, a smart TV, a Windows mobile device, or your phone — that can play Xbox games. While these efforts struggled, Microsoft went a step further and made bringing games to competing platforms a pillar of its strategy. Maybe Activision and Bethesda bought the exclusiveBut now it is One of the biggest publishers on PlayStation. It seems that Xbox is now a state of mind.

Criticism has already been leveled against Sharma because, unlike Spencer, she is 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 heads of Nintendo and Sony Interactive Entertainment aren’t known for being gamers, and they’ve managed to stay on top of Xbox (Even with their own stumbles). And being a gamer didn’t necessarily help Spencer, who saw some of the direction the industry was headed but wasn’t able to change Xbox enough to meet that moment. Sharma could represent a major shift in how Microsoft does business in gaming, but it’s also exactly what the company needs right now.

This means that “Xbox is back” could mean a lot of things, because Xbox now means a lot of things. In her note, Sharma describes this as a “renewed commitment to Xbox starting with console” while also noting that “as we expand across PC, mobile and the cloud, Xbox must feel seamless, immediate and worthy of the communities we serve.” Which is very similar to the state of things right now.

We’ll probably never find out what Xbox really is.