“What does Xbox mean to Microsoft?”

A friend and I were chatting on the train. I told him I couldn’t see how Xbox fit into Microsoft’s vision of the future, and I wondered how much longer the division would stay around. And so, I posed that exact question to him: “What does Xbox mean to Microsoft?” The conversation happened over ten years ago, when we were still only about a year and a half into the eighth generation and about two summers removed from the Xbox One’s E3 debacle. After all that time, the question is even more relevant now than it was then. What began as Microsoft’s bid to control the living room now looks more like a superficial brand than a core strategic asset.

Most conversations about Xbox commonly trace the platform’s decline back to the disastrous reveal of the Xbox One. Thanks to the incredible success of the Kinect during the Xbox 360 era, and Microsoft’s overconfidence in media convergence, Xbox shifted away from its core audience’s interests to try to attract a wider audience. Unfortunately, the console’s focus on Kinect and live TV integration felt antiquated from the jump. The world largely moved on from motion control gaming by that point, and streaming services like Netflix and Prime Video had already begun to supplant live TV. Despite Microsoft’s attempts to course-correct after launch, the company never figured out a compelling pitch for the Xbox One, and that bore out in the console’s lifetime hardware sales. In the end, the Xbox One sold 58 million units, compared to the Xbox 360’s 84 million units¹ and the PlayStation 4’s 113 million units.²

The failures of the Xbox One cast a long shadow on Microsoft’s foray into the home console space. As Phil Spencer readily admits, the eighth generation was the worst one to lose.³ Every failure during the Xbox One era compounded, leaving the platform in a state of precarity. With retailers removing hardware from shelves,⁴ Microsoft bringing more of its games to other platforms, readers engaging less with Xbox coverage,⁵⁶ and the Xbox ecosystem becoming increasingly price-prohibitive to engage with,⁷ the situation looks dire. The Xbox Series will be lucky to sell anywhere near as many units as the Xbox One, much less seriously compete with the PlayStation 5.

There’s a natural inclination to pin this on Phil Spencer. After all, we’re about ten years into his reign; far, far removed from the Don “We have a console for you, it’s called the Xbox 360” Mattrick era. As much as I abhor Spencer and the “How do you do, fellow gamers?” image he has built for himself, Xbox’s downfall started long before he took the reins. It began back in 2007, when the Xbox brand was arguably at its peak.

As the story goes, Microsoft conceived of the original Xbox in response to the PlayStation’s explosive success in the 1990s and early 2000s.⁸ At the time, Microsoft wanted to be the central hub of computing in every family’s home. Every household electronic device would in some way connect to the family’s Windows PC. Executives at Microsoft saw the PlayStation 2 as a direct threat to their vision: if the PS2 was as powerful as Sony claimed, what if the game console became the home’s computing hub, relegating the family’s Windows PC to spreadsheet duty in the home office? The threat felt real enough for Microsoft to put its entire weight behind the Xbox. If Sony wanted to make a play for home computing, it wouldn’t be left uncontested.

The iPhone completely upended Microsoft’s vision for home computing. With the release of the first iPhone in 2007, people’s relationship to computers shifted. Everyone was essentially going to carry a computer around with them at all times. Moreover, much of the actual computation wouldn’t even happen locally. Instead, it would be handled elsewhere at a data center somewhere in the “cloud”. In this transition, the family computer wasn’t a hub anymore. Rather, it became another access point to the cloud. The battlefield completely changed in just a few years.

Although Microsoft made several plays to break into the smartphone market, none of them ever took off. Other than the Xbox and Surface, Microsoft never quite gained the traction it needed with its consumer hardware offerings. They did, however, strike gold in the cloud computing space with Azure around the same time. Over the next several years, Microsoft completely reimagined itself as a tech company focused almost exclusively on businesses. They always prioritized their business customers, but now more than ever, Microsoft’s consumer-facing ventures felt like a byproduct of their infinitely more lucrative B2B products and services. The pivot proved to be remarkably successful for them.

To get a better idea of where Microsoft’s priorities lie, consider how much of the company is even consumer-first anymore. Back when Microsoft was more serious about Xbox, they had entire hardware and software product categories specifically tailored to consumers. Other than Xbox, what’s left now besides Surface laptops? If this is the company’s new direction, why make a game console at all?

As it exists today, Xbox will never matter as much to Microsoft as PlayStation does to Sony. For both Sony and Nintendo, success in the games market is essential to their very existence. The stakes could not be higher. Xbox mattered quite a lot to Microsoft when the company cared more about directly targeting consumers, but not anymore. The drive from Microsoft’s corporate leadership to stay competitive in the game console space simply isn’t there. It never made meaningful money relative to Microsoft’s core businesses, and the company’s strengths were always elsewhere: first Windows and Office, now Azure.

Game Pass was an effort to make Xbox relevant to Microsoft again. It spoke to Microsoft’s executives in a way they could understand: here’s a recurring subscription service we can sell to consumers and an entire infrastructure that can be built on top of Azure. What if we could sell a white-label version of the service’s streaming platform to EA, Ubisoft, or even Sony? The possibilities were endless.

Unfortunately, it didn’t work out that way. People don’t play games the same way they watch shows or movies. No matter how many publishers and developers they pulled into the service’s orbit, players weren’t showing up in the numbers Microsoft’s leadership had hoped for.⁹ The big play to restore Xbox’s relevancy fell short.

Now, we’re here: a division belonging to a different era of Microsoft, growing less relevant by the day. Spencer bought them some time with Game Pass, but now that time has run out. You could put any executive in the same position and the result would have been the same. Eventually, the gap between Xbox and Microsoft’s vision of the future would grow too wide to keep Xbox around. Everything else is simply a debate of whether someone else would’ve gotten the division more time or less.

So what does Xbox mean to Microsoft? It was a lynchpin to owning every family’s home. Now? It’s a brand to license out to OEMs. It’s a brand to give Microsoft’s game publishing arm a recognizable name. In the end, that is all that will remain: a brand. Xbox, as we’ve known it, is gone. It has far outlived its original purpose. The grand experiment that began in 2001 is over.

Microsoft has moved on. It’s time that we do too.