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The Xbox booth during the Gamescom video games trade fair at the Trade Fair Center in Cologne, Germany, Aug. 20, 2025. Ina Fassbender | Afp | Getty Images
Microsoft's Xbox has had a tumultuous year. A slew of layoffs, price hikes and studio closures have led many to declare — not for the first time — that the Xbox is dead. Laura Fryer, former executive producer at Microsoft Game Studios, said in June that the company seems to have "no desire or literally can't ship hardware anymore." Former Microsoft executive and ex-Blizzard Entertainment president Mike Ybarra slammed Xbox's "confusing" strategy in a now-deleted X post in October, saying the company is potentially heading for a "death by a thousand needles." The company's overall gaming revenue decreased 2% year-over-year, with a 29% dip in Xbox hardware sales, according to Microsoft's first-quarter earnings for fiscal 2026. The broader console industry has been in a major slump, with hardware spending down 27% year-over-year in November, which is typically a busy shopping month, according to a recent report from research firm Circana. It was the worst November in two decades, IGN reported, citing Circana data. Combined Switch and Switch 2 unit sales were down more than 10% during the month and PS5 sales were down more than 40%, IGN said. But the Xbox Series hardware took the biggest beating, with a dramatic 70% drop in sales. In console sales, Xbox can barely see the leaders this year. Nintendo 's Switch 2 has sold 10.36 million units since its debut in June, the company said in its latest earnings report. Sony 's PlayStation 5 had 9.2 million units sold in 2025, according to its most recent financial results. Microsoft's Xbox Series S and Series X, at 1.7 million units, couldn't outsell the original Nintendo Switch, which launched in 2017 and has sold 3.4 million units so far this year, data from game sales tracking site VGChartz estimated. Microsoft declined to comment on Xbox sales or numbers. The company stopped reporting console unit shipments in 2015 as the gap between Xbox and PlayStation widened. The Series S, Series X and PS5 all originally released in 2020, with some updates being released since then. In November, Valve made a splash with its next-generation Steam Machine, which is set to launch next year. The reveal of its console-PC hybrid generated buzz across the gaming landscape, with The Verge declaring that "Valve just built the Xbox that Microsoft is dreaming of." The mini cube will be able to run Windows PC games through Valve's own Linux-based SteamOS as a television console or as a gaming computer. Gamers will have access to Steam's extensive library of thousands of games.
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But Microsoft doesn't seem too worried about falling behind. "We're not in the business of out-consoling Sony or out-consoling Nintendo. There isn't really a great solution or win for us," Microsoft Gaming CEO Phil Spencer said in a 2023 podcast. In congratulating Valve on the release, the Xbox boss gave a nod to the movement to expand gaming access "across PC, console and handheld devices." As Sony and Nintendo have firmly established themselves as hardware companies, Microsoft is pushing toward Bill Gates' original vision of an all-encompassing entertainment hub in the living room. "Ultimately, the addressable market is anybody who wants to play games, and Microsoft wants to serve that market," Wedbush analyst Michael Pachter told CNBC. Microsoft CEO Satya Nadella said in a recent interview with the TBPN podcast that the company's gaming business model will look to be "everywhere in every platform," from consoles to TV to mobile. His comments also hinted that the next Xbox may function more like a PC. "It's kind of funny people think about the console and PC as two different things," Nadella said. "We built a console because we wanted to build a better PC, which could then perform for gaming. So I kind of want to revisit some of that conventional wisdom." Xbox President Sarah Bond echoed the idea, saying in a recent interview with Mashable that the company's next-generation console will have "some of the thinking" seen in the Xbox's new handhelds, which were built by hardware manufacturer Asus in partnership with Microsoft. Launched in October, those devices support cross-platform gaming and can run PC games bought from Epic Games, CD Projekt and Valve stores. Xbox has already incorporated that approach into the latest Backbone Pro, which rolled out in November. Designed in partnership with Backbone Labs, the portable gaming controller offers access to cloud gaming on mobile, PC, smart TV and other streaming devices. So what will Microsoft's new-gen console look like? Little is known about where the company is at in its development. A source familiar with Xbox strategy told CNBC that the company is looking at creating an open system that enables players to jump between console, PC and cloud gaming — and any form of entertainment beyond gaming.
Gaming in the cloud
Pachter said that while Microsoft is not completely abandoning hardware, the company is splitting its audience into existing buyers interested in specialized consoles and everyone else. In a 2019 interview with The Verge, Spencer said that he was not concerned with focusing on console sales as much as making games accessible. "I do think as we look at the next decade of gaming, as we think about reaching the over 2 billion people on the planet who play games, many of those people won't be buying consoles and gaming PCs," Spencer said. Xbox Game Pass subscription service, which gives subscribers access to games from a variety of publishers, is a clear example of this strategy. Microsoft has been steadily expanding its title offerings on the service. The platform's most basic tier, Game Pass Essential (previously Game Pass Core), which costs $9.99 and launched in 2023 with 36 games, now offers over 50 titles. Ultimate tier members have access to over 500 titles.
Sarah Bond, head of Xbox partnerships, speaks about Xbox Game Pass during the Microsoft Corp. Xbox event ahead of the E3 Electronic Entertainment Expo in Los Angeles, June 9, 2019. Patrick T. Fallon | Bloomberg | Getty Images
The growth in cloud gaming has been blistering. Xbox reported a record 34 million Game Pass subscribers in 2024 and a total Game Pass revenue of almost $5 billion over the last fiscal year. Xbox said in a November blog post that the number of cloud gaming hours from Game Pass subscribers was up 45% compared to the same time last year. The Microsoft subsidiary also said console players are "spending 45% more time cloud streaming on console and 24% more on other devices." In announcing the benchmark, the platform added that Xbox Cloud Gaming is now in 30 countries with the expansion into India, which it called "the fastest-growing gaming market in the world," home to more than 500 million gamers this year. Although Microsoft faced heavy criticism from subscribers after increasing the cost of its Ultimate tier by 50% from $19.99 to $29.99 in October, the company is reportedly testing an ad-supported version of Xbox Cloud Gaming. Omdia senior principal analyst George Jijiashvili told CNBC that a free Game Pass tier would likely act as a user-acquisition tool, especially for gamers who have not invested in consoles yet. However, due to the high costs associated with cloud gaming, an ad-supported tier would likely not be able to actually drive a meaningful amount of revenue, he said. Cloud gaming is inherently difficult to scale since it needs to balance computing power and operating costs with user affordability. "With console-grade cloud gaming, you need to essentially run every single instance of the game in a server," Jijiashvili said. "You need a dedicated hardware for every single person that's streaming the game, meaning it just doesn't scale." Despite gaming's scaling limitations, Microsoft seems committed to doing what it has done with the rest of its products — moving it to the cloud. "They've evolved into a primarily cloud services company," Pachter said. "So everything they've done since they started acquiring studios at Xbox has been toward the connected experience in the home to view entertainment."
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