Xbox Business Update Podcast | Xbox Everywhere Direction Discussion

[Johnny Awesome]

This is in general addressed to the thread. I just quoted your post.


Competitive how? History shows power, usp (unique selling point), games means nothing for Microsoft. Nobody exploits what's unique about an Xbox. Sony has the mindshare, install base and overall clout to continue dominating.

So what? In a world where MS is selling 40 million boxes with GP and Sony is selling 80 million boxes to people who buy Indiana Jones, Call of Duty, Fable, Forza Horizon etc.... MS is rolling in money.

The point is that the console war is over. Sony won. Long live Xbox Gaming anyway. In fact, MS crowding out PS games on PS might be pretty bad for Sony depending on how good the MS games are. If someone buys Fable instead of The Last of Us 3, then MS wins in the end. Not saying this will happen, but it's an interesting thing to think about.

This is a barrier, and the touchy feely marketing is clearly against barriers. So how long before they get called out on this double standard and have to simultaneously release content.

It's a consideration eventually, but they might always have the "it takes time to port, let them cook" excuse to delay.

Also, a delay doesn't work so well for story driven games. What's the point of playing the game if the story has been spoiled on social media?

Yeah, The Last of Us Part 2 should have halted all sales after the 1st month, because the story was spoiled on social media. LOL

I've still yet to pay for gamepass since its inception, and pay for it using their own rewards points. Anybody can do this if they take the time. I've been a gamepass member since its inception. How am I and others like me a sustainable business model? I am talking about the Xbox console itself. As I've posted before, the cratering console sales don't seem to be accounted for in the push to make everything an Xbox, especially since currently the majority of game pass revenue comes from the Xbox console. Microsoft has a penchant for putting the cart before the horse.

None of us have the data that MS does, but their behavior suggests that most people stay subscribed and pay for it. It's like a gym membership. You probably never got roped into that one either.

The grumbling is because of history showing the trajectory. I know a user here was lambasted from pointing out the similarity to Sega a while back, but it indeed is very similar. It's a combination of Sega and 3DO's (and maybe steam machine) strategy. Sega got out of hw, 3DO is no more, and Steam is mainly sw (an app and SteamOS) but slowly re-entering hw (VR, steam deck). Now even Shawn Layden is making the Sega comparison, so does the claim still warrant the derision? Again, not directed at you, it's a general question. Now even Nintendo is stressing the importance of exclusives for Nintendo Switch 2 to make that hardware successful. Because why get a Switch 2 when everything runs on Switch 1, and Switch 2 just nets you higher resolution/framerate? Take Nintendo's stance, replace Switch 2 with the next Xbox console, and replace Switch 1 with PC/PS5/Switch1/TV/toaster....

It could be like Sega, but it doesn't have to be. Time will tell. Maybe it's all bullshit from Phil and the gang and this is the stealth exit from hardware, but their recent statements suggest otherwise.

Yes MS is making tons of money with their current plan, there's no dispute. Their largest Game Pass customer though is the Xbox console user. What happens when console dries up, as it's already doing by selling less than even Xbox One? Why would that PC user still using Game Pass for both console/PC bother when they can just get the same content on a Steam sale, or a SteamOS device? Seems like Microsoft would need the Game Pass app on everything to make that worthwhile for the user and still sustainable for their business. Which would then complete the pivot.

There are many ways to succeed if you have the content and they certainly have the content now.

I know people don't like to hear this, but eventually console hardware is going away. It's all going cloud at some point. It might be 20 years from now, but hardware is too expensive and mostly sitting idle. Good luck getting more power into a tiny box when you can't shrink transistors anymore. It'll all be massive server farms with super cooling etc...

In the meantime, MS will play the console manufacturing game long enough to keep their fans.

 

[Charlietus]

Honestly, no exclusives for Xbox will hurt the platform, but I don't think that is really the biggest problem right now. What is is that they are limiting shipments to all countries that aren't called UK and USA.

They also aren't going to subsidize hardware anymore if we go by what Nardella has said in the last investor call, so that's another nail. I don't see how they can sell enough to make it worthwhile for developers to support their hardware.

If the leak that's been right so far keeps being so, than developers aren't even going to support the hardware directly, it's just going to be the PC exe's.

 

[Johnny Awesome]

This is one thing I'm really looking at as well. Because the growth they've had recently was due to acquisitions (particularly Activision) which are going to now slow down. There will be pressure from investors to hit or exceed eps targets. The mismanaged console business wont drive growth in the next few years as console sales are declining for Xbox, and regulatory pressures will prevent them from more large scale acquisitions in the next 5 years. These conditions I think will push MS Gaming to focus on a multiplatform 3rd party developer approach at its core while telling its core fan base it still cares about Xbox. In the same way they initially told their core fan base they were just sending a few titles to Playstation before saying no red lines. Phil is carrying out a process of gradual socialization or acclimatizing the core fan base in case they need to kill their own hw. Its why you see the marketing campaign to make anything an Xbox, its simply because there is a chance they wont be making a new Xbox as we know it so they need to redefine what an Xbox is. If its something made by Lenovo, Valve, Nintendo, Playstation and it plays games made by Microsoft Gaming then its an Xbox.

I've been here and other forums for 25 years and I've heard the "investors might pull the plug on Xbox" argument so many times it's ridiculous and it might yet happen, but so far I've been right.

I do think that Phil and Nadella rightly have realized that this time it's different. Xbox can't pry PS fans away from the Sony ecosystem. They're too entrenched. There's not enough new entrants to console gaming because of mobile and PC surge. So the console war is over. The ONLY reason to keep Xbox hardware going is because of GP users that spend $200 on GP and MTX every year. That's about $1200 during the lifetime of the console. That's why it's worth it to keep the hardware going. If that changes then it'll be bye-bye hardware and who can blame them? They really did lose the war during the X1/PS4 era.

 

[Dominik D]

Yes MS is making tons of money with their current plan, there's no dispute. Their largest Game Pass customer though is the Xbox console user. What happens when console dries up, as it's already doing by selling less than even Xbox One?

And PS5 sells fewer units than PS4 did. In this generation, like in the previous one, MS is selling roughly one console for 2 consoles sold by Sony. And both are selling worse than they did in previous generation. If the conclusion is that Series stagnates compared to Xbox One, then the same argument could be made for PS5 vs PS4. But not only is this argument absent, it would be pretty silly to claim that Sony is in trouble.

 

[QPlayer]

This is one thing I'm really looking at as well. Because the growth they've had recently was due to acquisitions (particularly Activision) which are going to now slow down. There will be pressure from investors to hit or exceed eps targets. The mismanaged console business wont drive growth in the next few years as console sales are declining for Xbox, and regulatory pressures will prevent them from more large scale acquisitions in the next 5 years. These conditions I think will push MS Gaming to focus on a multiplatform 3rd party developer approach at its core while telling its core fan base it still cares about Xbox. In the same way they initially told their core fan base they were just sending a few titles to Playstation before saying no red lines. Phil is carrying out a process of gradual socialization or acclimatizing the core fan base in case they need to kill their own hw. Its why you see the marketing campaign to make anything an Xbox, its simply because there is a chance they wont be making a new Xbox as we know it so they need to redefine what an Xbox is. If its something made by Lenovo, Valve, Nintendo, Playstation and it plays games made by Microsoft Gaming then its an Xbox.

The truth is that MS's gaming division has significant revenue not only from acquired studios, but also from Game Pass. They want to keep the more than 30 million subscribers. That's why it's important for them to have hardware for GP in the future, since it can't be used on other platforms. It is safe to say that they are making a gradual transition from their current console to the next, which could even be the rumored PC-based console series.

I wouldn't be surprised if they presented their plans at this year's Showcase and even started releasing their new hardware for the GP this November. It can be easily solved if there will be plug and play PCs trimmed into console form, with PC games.

That plus a redesigned Game Pass could be a strategic potential alternative.

 

[Dominik D]

It can be easily solved if there will be plug and play PCs trimmed into console form, with PC games.

The primary strength of Xbox not being a PC is that it's a closed platform, which makes it much harder for people to e.g. cheat in online games. I wouldn't be surprised if MS did something like Xbox Surface, but it would surprise me to happen this gen (or next gen, rather).

 

[Johnny Awesome]

Honestly, no exclusives for Xbox will hurt the platform, but I don't think that is really the biggest problem right now. What is is that they are limiting shipments to all countries that aren't called UK and USA.

They also aren't going to subsidize hardware anymore if we go by what Nardella has said in the last investor call, so that's another nail. I don't see how they can sell enough to make it worthwhile for developers to support their hardware.

If the leak that's been right so far keeps being so, than developers aren't even going to support the hardware directly, it's just going to be the PC exe's.

The hardware they bring out next has to sell itself. The games will be everywhere. Can they do it? I believe there is tolerance for a $599 box in the Xbox community. What can they get into that box for cost? Time will tell. Being out of sync with Sony will be smart so that it's harder to compare offerings. That's why I like the idea of a 2026 Xbox Prime. They have the developers to showcase new hardware with 3 or 4 games if they want. Cost reduce X to $399 and S to $199. Support 3 SKUs. "Here's our new box that plays GTA6 better than a PS5 Pro for less money" is a pretty strong sales argument IMO.

 

[QPlayer]

The primary strength of Xbox not being a PC is that it's a closed platform, which makes it much harder for people to e.g. cheat in online games. I wouldn't be surprised if MS did something like Xbox Surface, but it would surprise me to happen this gen (or next gen, rather).

Despite this, the popularity of PC games is growing more than the stagnant console market. Where does MS invest? Where you can experience an increase in income. I emphasize once again, they need their own hardware or their own ecosystem where they can transfer GP users and then increase their numbers. In the traditional console space, this is almost impossible, which is how the PC remained. But it also requires XboxOS, which works great. This operating system designed for gaming can be released to other OEM PCs in addition to your own hardware, for everyone.

If another closed console comes out now or tomorrow, it will be in no better position than the current one.

If tomorrow they throw in the plug and play XboxPC and put an Xbox OS on top of other PCs, they have practically nothing to lose, only to win. Hardware made and sold in-house starting at $500 and up.

I would add that for this to really work, a very good redesigned Game Pass strategy is also needed.

 

[Dominik D]

Despite this, the popularity of PC games is growing more than the stagnant console market. Where does MS invest?

If it's growing by itself, why would they invest in it? What's the benefit of doing that? If they can attach GP to most consoles sold, even if they sell just 20 million units next gen, it's still money well spent. It's not like all those hardware engineers can work on the next Halo. The biggest problem, I think, is that finally after 20 years of "this is the year of Linux on the desktop, bro, trust me" there's enough support (from Valve) to make it a reality soon. At least for some gamers. MS has no mote on PC left and no amount of investment is going to change that.

Or to put it in other terms: they should invest in PC *how*? What exactly is the strategy you're suggesting and how is it going to make more money than another closed console would?

If tomorrow they throw in the plug and play XboxPC and put an Xbox OS on top of other PCs, they have practically nothing to lose, only to win.

How would that even work? Why would anyone buy a PC that can't run Excel?

 

[QPlayer]

If it's growing by itself, why would they invest in it? What's the benefit of doing that? If they can attach GP to most consoles sold, even if they sell just 20 million units next gen, it's still money well spent. It's not like all those hardware engineers can work on the next Halo. The biggest problem, I think, is that finally after 20 years of "this is the year of Linux on the desktop, bro, trust me" there's enough support (from Valve) to make it a reality soon. At least for some gamers. MS has no mote on PC left and no amount of investment is going to change that.

Or to put it in other terms: they should invest in PC *how*? What exactly is the strategy you're suggesting and how is it going to make more money than another closed console would?


How would that even work? Why would anyone buy a PC that can't run Excel?

Why can't you run? Dual OS. Or a much faster and more user-friendly gaming hub within Windows.

I'm fine with them releasing a strong and modern traditional console, but from a business point of view it would make much more sense to merge Xbox with PC. In this way, games have no additional development costs due to porting, at least for their own part, and the hardware can be sold more safely without loss.

What is better for us gamers who want dedicated Xbox hardware? An expensive powerful console? or a consoled PC targeting several price segments, in several variations?

Games aren't much better optimized on consoles anymore, so doesn't it matter?

 

[rntongo]

The truth is that MS's gaming division has significant revenue not only from acquired studios, but also from Game Pass. They want to keep the more than 30 million subscribers.

Investors care about one thing, beating eps targets! Having significant revenues from GamePass but with no growth and no proper projected growth can be a problem. iirc Activision's revenues were primarily not from Gamepass this year, maybe next year. My point was any earnings growth from the Gaming division came from the Activision acquisition without which there would have been a decline in revenues and earnings within the division. MS could be looking at Game Pass growth as being insufficient which is why they are considering putting their games on every platform regardless of whether they are on Game Pass or Playstation Store.

That's why it's important for them to have hardware for GP in the future, since it can't be used on other platforms. It is safe to say that they are making a gradual transition from their current console to the next, which could even be the rumored PC-based console series.

I wouldn't be surprised if they presented their plans at this year's Showcase and even started releasing their new hardware for the GP this November. It can be easily solved if there will be plug and play PCs trimmed into console form, with PC games.

That plus a redesigned Game Pass could be a strategic potential alternative.

I think you're right, but the question remains: what exactly do we mean by "hardware"? It seems Microsoft is defining it broadly—as any device capable of running Game Pass or playing games developed by MS Gaming qualifies as an Xbox. Whether this open approach will be as effective as maintaining a closed Xbox hardware system remains to be seen, but that appears to be the direction they're taking.

This shift has significant implications for optimization, software reliability, and user experience. The closed Xbox hardware ecosystem has provided benefits for both consumers and developers (though developers working with the Series S have experienced these benefits to a lesser extent). I can envision a scenario where consumers become acclimatized to playing Xbox games on devices like the PlayStation while MS Gaming, under Phil Spencer, gradually abandons the traditional Xbox hardware model in favor of having OEMs handle it.

There's little doubt that this is the current plan—especially with the messaging in the "This is an Xbox" campaign—even if the core fan base still hopes for dedicated Xbox hardware. Of course, things might change between now and 2028, and Microsoft could eventually release another piece of closed Xbox hardware, likely in a niche form similar to the Surface line of laptops. But by 2028, I expect MS Gaming under Phil will ensure that any Xbox game is available on PlayStation—a strategy that directly contradicts the idea of building custom hardware. Perhaps Phil is comfortable with MS Gaming functioning more like a third-party developer as long as his division contributes to positive eps earnings.

 

[QPlayer]

Investors care about one thing, beating eps targets! Having significant revenues from GamePass but with no growth and no proper projected growth can be a problem. iirc Activision's revenues were primarily not from Gamepass this year, maybe next year. My point was any earnings growth from the Gaming division came from the Activision acquisition without which there would have been a decline in revenues and earnings within the division. MS could be looking at Game Pass growth as being insufficient which is why they are considering putting their games on every platform regardless of whether they are on Game Pass or Playstation Store.


I think you're right, but the question remains: what exactly do we mean by "hardware"? It seems Microsoft is defining it broadly—as any device capable of running Game Pass or playing games developed by MS Gaming qualifies as an Xbox. Whether this open approach will be as effective as maintaining a closed Xbox hardware system remains to be seen, but that appears to be the direction they're taking.

This shift has significant implications for optimization, software reliability, and user experience. The closed Xbox hardware ecosystem has provided benefits for both consumers and developers (though developers working with the Series S have experienced these benefits to a lesser extent). I can envision a scenario where consumers become acclimatized to playing Xbox games on devices like the PlayStation while MS Gaming, under Phil Spencer, gradually abandons the traditional Xbox hardware model in favor of having OEMs handle it.

There's little doubt that this is the current plan—especially with the messaging in the "This is an Xbox" campaign—even if the core fan base still hopes for dedicated Xbox hardware. Of course, things might change between now and 2028, and Microsoft could eventually release another piece of closed Xbox hardware, likely in a niche form similar to the Surface line of laptops. But by 2028, I expect MS Gaming under Phil will ensure that any Xbox game is available on PlayStation—a strategy that directly contradicts the idea of building custom hardware. Perhaps Phil is comfortable with MS Gaming functioning more like a third-party developer as long as his division contributes to positive eps earnings.

Apparently, the current situation cannot be clearly judged to such an extent that only continuous question marks arise in everyone's mind. That is why they need to clarify the future role of the Xbox console as soon as possible. If they don't do this at this year's Showcase, due in four months, they may end up in a similar situation as last spring, the people will force it. It's still about entertaining tens of millions of people, remember! Especially if you take into account that quite a few people still have Xbox One because of the games that are coming out.

So questions:

What would you do if, let's say, 50-50% of your income comes from your console-bound subscription service and multiplatform game releases? How can you ensure that the income related to your own hardware, which is at least half of the total income, is still secured? Are you throwing it out the window or making new hardware for this model?

 

[arandomguy]

You'd need way more data. If that 50% say brings in $1b profit but to make hardare for it incurs $1.2b in costs that's a completely different cost/benefit analysis. You may even forecast a scenarion in which that 50% drops to $500m profits but the hardware side is reworked to $200m in profits even if revenue is way lower. Just using random numbers for illustrative purposes.

 

[Charlietus]

The hardware they bring out next has to sell itself. The games will be everywhere. Can they do it? I believe there is tolerance for a $599 box in the Xbox community. What can they get into that box for cost? Time will tell. Being out of sync with Sony will be smart so that it's harder to compare offerings. That's why I like the idea of a 2026 Xbox Prime. They have the developers to showcase new hardware with 3 or 4 games if they want. Cost reduce X to $399 and S to $199. Support 3 SKUs. "Here's our new box that plays GTA6 better than a PS5 Pro for less money" is a pretty strong sales argument IMO.

If they could cost reduce x and s to those prices, they would have a chance. But I don't think Microsoft has the drive to do it (and) I don't think they can without losing even more money than what they are losing now.

Cutting edge nodes just aren't bringing cost reductions anymore.

 

[QPlayer]

You'd need way more data. If that 50% say brings in $1b profit but to make hardare for it incurs $1.2b in costs that's a completely different cost/benefit analysis. You may even forecast a scenarion in which that 50% drops to $500m profits but the hardware side is reworked to $200m in profits even if revenue is way lower. Just using random numbers for illustrative purposes.

You're right, we need more data. That's clear.

However, we can see that they keep pouring money into Game Pass. All their big games come out Day1, CODs come out Day1, more and more multiplatform AAAs too. From this it can be concluded that it is worth it for them and that they see the future in this. That's all we have certain data about.

 

[arandomguy]

The thing is the hardware model and platform side of where they may go.

I think one of the speculative lines is they drop the conventional subsidized hardware model. This would likely incur much lower "xbox" hardware adoption in the traditional sense. But hypothetically you'd instead approach it instead with a model that incurs much less costs and perhaps even a true profit on the hardware (not just BoM profit). So even if the userbase potentially declines from that side it might overall be better in terms of the numbers.

The other aspect of this is if they are going to change the Xbox model and basically alienate current buyers at least in that aspect I do think it's likely they'd want to push back any concrete announcements as far as possible.

 

[rntongo]

Apparently, the current situation cannot be clearly judged to such an extent that only continuous question marks arise in everyone's mind. That is why they need to clarify the future role of the Xbox console as soon as possible. If they don't do this at this year's Showcase, due in four months, they may end up in a similar situation as last spring, the people will force it. It's still about entertaining tens of millions of people, remember! Especially if you take into account that quite a few people still have Xbox One because of the games that are coming out.

So questions:

What would you do if, let's say, 50-50% of your income comes from your console-bound subscription service and multiplatform game releases? How can you ensure that the income related to your own hardware, which is at least half of the total income, is still secured? Are you throwing it out the window or making new hardware for this model?

The standard practice is to project out earnings to determine present value—that’s why investors focus so heavily on EPS estimates. In that light, your example of a 50%-50% split means little without solid growth projections. This brings me back to my core point: MS Gaming is pushing growth through a multiplatform approach, even if that means undercutting their own custom hardware. As it stands, any new Xbox game will be available on other platforms—including PlayStation—and investors will be thrilled if that drives growth. I believe this is precisely what Phil is aiming for.

Of course, consumers and fans care less about EPS and more about the experience—they want great games, smooth performance, and immersive ecosystems. It seems Phil is effectively de-emphasizing Xbox custom hardware while assuring fans that nothing is changing, all while preparing the market for an “Xbox everywhere” future. Your TV, your phone, your PC—all could be part of the Xbox ecosystem. The only hurdle is that platforms like Steam, Nintendo, and Sony are unlikely to allow Game Pass on their proprietary hardware. With that constraint in mind, MS Gaming might end up operating more like a third-party developer as its proprietary hw business shrinks. As things stand, they're practically giving up on their own hardware, possibly handing that over to OEMs. To me, the "This is an Xbox" campaign makes that very very very very clear.