Xbox is encountering significant setbacks, lagging behind rivals like PlayStation and Nintendo Switch, with each quarter bringing increasingly alarming numbers.
The gaming landscape is filled with whispers of a potential decline for the Xbox brand. Laura Fryer remarked back in June that it appears Microsoft has “no desire or literally can’t ship hardware anymore.”
In a deleted post, Mike Ybarra described the strategic shifts as “confusing,” cautioning of an impending “death by a thousand needles.”
Total gaming revenue at Microsoft saw a 2% decline year-on-year. Hardware sales investors were even grimmer, down by 29%. Furthermore, the general console market is experiencing a downturn, with reports of a 27% dip in November — typically a bustling month for sales — marking the worst November performance in two decades. Unfortunately for Xbox, it was hit the hardest, experiencing a staggering 70% decrease in Series console sales.
In contrast, Nintendo’s Switch 2 recorded impressive sales figures, hitting 10.36 million units since June. Sony also made waves, reporting 9.2 million sold PS5s in 2025. While Xbox Series S and X struggled with just 1.7 million sales, even the 2017 Nintendo Switch exceeded this year’s totals with its own 3.4 million sales.
Since 2015, Microsoft has ceased the practice of publicizing their console shipments, and the cliffs are widening further since the launches of Series S, Series X, and PS5 in 2020. Enter Valve, promising a new competition with a revamped Steam Machine expected next year.
The Verge has pointed out that Valve has essentially created the Xbox that Microsoft dreams of, a compact device that can efficiently run Windows PC games via SteamOS, granting users access to the full Steam library.
Microsoft’s New Direction: Embracing Cloud and Cross-Platform Strategies
Phil Spencer addressed this transformative direction last year, explaining that Microsoft isn’t putting efforts into “out-consoling Sony or Nintendo.” He acknowledged that this hardware war doesn’t present any glaring wins. Instead, he praised Valve for their innovation and shifted focus toward gaming experiences that flow seamlessly across various platforms, including PC, console, and handheld devices.
Meanwhile, Sony and Nintendo continue their commitment to hardware development, while Microsoft is pivoting towards an entertainment ecosystem reminiscent of an old Bill Gates vision for a comprehensive home hub. Analyst Michael Pachter stated that Microsoft aims to cater to everyone who plays games.
CEO Satya Nadella indicated that their gaming model will function seamlessly across all platforms—from traditional TVs to mobile devices. He hinted that the forthcoming Xbox may function similarly to a PC. Sarah Bond noted that this next console will incorporate “some of the foundational ideas” from Xbox handhelds previously developed in collaboration with Asus.
These devices allow users to enjoy PC titles from stores like Epic Games, CD Projekt, and Valve, paving the way for greater gaming flexibility. Just last month, Xbox facilitated that vision further with the release of the Backbone Pro controller for mobile gaming that works across platforms like phones, PCs, and TVs.
Details about the next Xbox remain fuzzy. However, insider reports suggest Microsoft is pursuing a more open model that will empower players to seamlessly switch between consoles, PCs, and the cloud for a more integrated entertainment experience. Spencer previously stated that the vast majority of the approximate two billion gamers worldwide might never invest in dedicated hardware.
Game Pass epitomizes this new direction, launching the lowest tier with 36 games and now boasting over 50 titles available. The Ultimate tier provides access to over 500 games and recently reached a milestone of 34 million subscribers, generating nearly $5 billion last year.
Subscribers have also reacted positively, with cloud gaming hours soaring by 45%. Console users have dedicated 45% more time to game streaming, while non-console users increased their streaming activities by 24%. Fortunately, Xbox Cloud Gaming is now available in 30 countries, including India, which holds an estimated 500 million gamers.
In light of a 50% increase in its Ultimate tier pricing, Microsoft has started testing an option supported by ads. While analysts suggest a no-cost version could attract fresh players, they also caution that these approaches might not bring substantial revenue, given the expensive server-side requirements essential for cloud gaming.
A game collaborator needs a dedicated machine for an optimal experience, making scalability tricky.
Amid Layoffs, Studios Close, and Pressures Increase for Microsoft
Over past years, Microsoft has acquired numerous gaming studios — Ninja Theory, inXile, and Obsidian in 2018, alongside ZeniMax’s $8.1 billion purchase in 2020, as well as the blockbuster Activision Blizzard acquisition in 2023 for $75.4 billion.
According to Pachter, the goal was to amass sufficient content to support cloud gaming effectively. However, their plans surrounding exclusive gaming content have evolved. Bond expressed that exclusivity is “antiquated,” with the upcoming Halo title set for release on PS5, as well as four former exclusives mapped for cross-platform launches in 2024.
Spencer stressed neither exclusivity nor barriers are on the agenda for Xbox’s future; the desire is to provide gamers with access to Xbox games regardless of the platform they choose.
The culling within the company has been considerable, reflected by hefty layoffs impacting 1,900 employees in January and an additional 650 in September. Arkane Austin and Alpha Dog Games officially closed their doors in May, and several unannounced projects were shelved as layoffs continued in July.
Reports from Bloomberg claimed that Microsoft pressured its gaming division towards achieving a lofty 30% profit margin for 2023, wiring that expectation well above the 12% margin shown in court documents for 2022. While rebuffing the 30% target, Microsoft acknowledged the necessity for tough objectives.
Additionally, 2023 has witnessed two price hikes for consoles. Rest assured, Sony and Nintendo have joined in on raising pricing strategies with a bumped up PS5 price starting at $549.99, Switch now at $399.99, and Switch 2 debuting at $499.99.
For the ROG Xbox Ally, customers will find it priced at $599.99, while the Ally X ramps up to $999.99. With such competition in this hardware space, securing buyers has never been more intense.
Currently, Xbox is redefining their paradigm by turning emphasis from hardware to cloud and cross-platform initiatives. Alarm bells about Xbox’s fate have rung out for over a decade, and this imminent transition could either water old models down or reinvigorate them into striking new ventures.
