The last statement of Spencer that they see Amazon and Google as their real competitor is completely baseless and stupid. If really hope they say this because they know they can only compete with them.
For gaming services, the market leaders in the short term future will be Sony, Valve / Nvidia (I see those 2 as a combined service, Valve providing the store, Nvidia the streaming tech). Those should be their real competitor, not Amazon (they have game services ?) and Google (LOL Stadia).
Reviewing Spencer's words:
Spencer said Microsoft was willing to cooperate with Nintendo and Sony on initiatives like allowing gamers on the various companies' systems to play with and against one another. He added: "I don't want to be in a fight over format wars with those guys while Amazon and Google are focusing on how to get gaming to 7 billion people around the world. Ultimately, that's the goal.
Is an important focal point as to why MS does not consider Sony or Nintendo their competitors anymore. If you look at other interviews with MS executives, they in particular, cite an important metric:
the most reach they could ever obtain in console land is 100M units. This is the upper end of what Sony has accomplished with PS2 and PS4, PS3 etc. If Sony is best in class, then best in class is approximately 100M.
In perspective there are 2.8 Billion gamers out their on mobile devices, 7 Billion world wide that will own a mobile phone. That is a 28x or 70x difference in scale in comparison to the absolute best that which you can accomplish with consoles.
In order to reach a number of 2.8B or 7B the infrastructure costs are so exuberant that even today at a spending rate of $1B USD / month MS still cannot reach everyone with their Azure service, far from actually.
Unless Nvidia or other players are willing to invest the amounts that Amazon, Google and MS are; I believe that Phil is correct in pointing out the realities that they are no longer real competitors as they are not competing for the same market.
The build towards XCloud is indeed shared with Azure. They have full reason to continue to exploit building SoCs for their own Azure use because Intel chips are incredibly too expensive. This is why MS continues to announce partnerships with AMD and their EPYC, and AMD again for their APU builds, to exert pressure on Intel to lower costs.
in terms of infrastructure costs, hardware isn't actually as expensive as one would think. Laying cables and building data centers: the cooling, real-estate, labour, time, and electricity costs may greatly (depending on the location) exceed hardware costs.
Consider which companies would be able to fund these types of endeavours and you'll arrive to the same conclusion.
The reason MS continues to compete in the console and PC space is fairly straight forward. It's still currently the largest ROI in gaming today. That's where the studios will make their money so that is where they will make their games. As long as the games are being made, MS has a library, and as long as MS makes the tools to move their games to xcloud, then there is a win for both studio and MS.
This is their game plan. They must stay in the console space either forever or until the console space is no longer relevant for studios to develop games for.