‘Sacrificing Xbox Series X Sales, Microsoft Prioritizes Long-Term Cloud Ambition’

Since its launch, Microsoft has made a deliberate choice to prioritize investment in cloud and gaming content over increasing the sales numbers of its Xbox Series X / S consoles. In December 2020, an internal email exchange between Xbox chief Phil Spencer and Xbox CFO Tim Stuart revealed the reasons behind the lower volumes of Xbox consoles. This email has now come to light as part of the FTC v. Microsoft hearing.

Spencer acknowledges that Microsoft faced challenges with their Xbox Series X / S consoles, codenamed Scarlett, but these issues and the delay of Halo Infinite were not the primary factors contributing to the scarcity of consoles during the initial launch period. Microsoft reduced the computing units on its Xbox Series X silicon from 56 to 52 to improve production yield, but the company still fell short of their hardware production target. Additionally, Microsoft had strategically allocated resources to their cloud endeavors, resulting in limited availability of console chips.

The email exchange highlights the decision to allocate resources towards cloud infrastructure, gaming content, and Xbox Cloud Gaming instead of focusing solely on increasing console volume. Spencer believes in these tradeoffs as part of their long-term ambition, stating, “With our strategy and opportunity, console volume will still be limited in order to fuel our growth.”

Microsoft has invested significant resources in building its cloud infrastructure for Xbox Cloud Gaming, especially since it relies on custom console components. Spencer believes that these investments in content and Xbox Cloud Gaming are crucial for realizing their potential in the gaming industry. He also highlights the competitive advantage Microsoft holds over platforms like Amazon Luna and Google Stadia, with their stronger console foundation, developer engagement, gaming community, and content catalog.

Microsoft had also been working on a separate version of Xbox Cloud Gaming, but a dedicated release is not currently in the works. In the recent testimony during the FTC v. Microsoft hearing, Sarah Bond, head of Xbox creator experience, stated that Microsoft has a better understanding of the costs and popularity of Xbox Cloud Gaming, leading to the decision to not pursue a dedicated version at the moment.