As the story goes, when Phil Spencer became head of Xbox in 2014, he got a call from newly-appointed CEO Satya Nadella. “I don’t actually know a whole lot about why we’re in gaming,” Nadella said to him.
Nadella’s remark at the time ought to have been unsurprising. The Xbox One had launched the previous holiday to strong initial sales but a slowing long tail compared to its direct competitor, the PS4. This was in no small part due to its emphasis on being a general living room entertainment box rather than a gaming console, and it was exacerbated over the years by a dearth of strong first-party exclusives. There are other reasons, sure, but at the core of it all was a company, Microsoft, that didn’t seem to have any idea what to do with the promising gaming division it had in Xbox.
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So Spencer, only a few weeks into his new job, spent some time puzzling out a response to his boss candidly admitting he didn’t know why Microsoft even had the division Spencer had just been appointed head of. And when he called Nadella back, he had decided to go big or go home with his pitch:
“If we’re going to stay in the gaming space, then let’s make sure we’re all-in,” Spencer said. “The last thing I wanted to do was run the gaming organization here as kind of an afterthought of the company and kind of half-in, half-out. Let’s go fix who we are.”
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It’s been seven years since that conversation, and it’s now abundantly clear that Spencer’s “all-in on gaming” pitch did not fall on deaf ears. In fact, Spencer appears to have been so successful in his bid that Microsoft and Xbox have unified themselves in a cross-company strategy that is primed to shed the need for a gaming box at all.
Today, Nadella and Spencer have announced a number of both reflective figures and future plans cementing this. There’s the obvious success of Game Pass, of course, which Xbox has consistently pointed at for years as a business model that encourages players to play more games and more genres, as well as spend more money on games. Without specific numbers its actual success can be hard to quantify, but Xbox has offered Square Enix’s Outriders as a recent example of a title launched into Game Pass, that also sold very, very well on Xbox in no small part thanks to Game Pass. There have been enough similar stories over the years of even indie games seeing benefits from Game Pass, as well as the deals associated with it.
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But a games subscription service does not an “all-in” gaming strategy make; not on its own. There have been rumors on the wind for years now that Xbox was going to do something to move beyond hardware generations, beyond the same old churn of console wars every six years or so. Those ideas coalesced a bit further as Spencer began talking openly about trying to get Xbox Game Pass on every device, not just Microsoft-made ones, in an effort to turn Xbox gaming into an ecosystem that wasn’t tied to an exclusive box. And in his announcements with Nadella today, Spencer and Xbox seem to be on the verge of leaping at last. Xbox, they say, is now working with global TV manufacturers to embed Xbox gaming directly into internet-connected TVs. All you’d need to use it is a controller. No Xbox console required.
What’s more, the two have promised to continue to spread this overall Xbox gaming experience even further, emphasizing breaking down as many barriers as possible. Geographical barriers, for instance, which Xbox is now looking at overcoming with different types of subscription offerings, different pricing models, and expanded reach of its cloud gaming offerings. Then there’s cloud gaming itself, which further dissolves challenges of requiring any specific device to get involved in gaming to begin with, especially now that Xbox is getting ready to bust open its cloud gaming offerings on web browsers and PCs. And particularly on the cloud gaming front, as Spencer points out, this is all only possible because it has buy-in from Microsoft proper and its Azure cloud computing technology.
Why is all this necessary? No, it’s not because Xbox was behind on the console unit sales game a generation ago, at least not to hear Spencer tell it. It’s because he foresees that console gaming as it is now is eventually going to hit a barrier of accessibility; or may even already have. He sees the rise of mobile gaming in particular not as an obstacle, or something to be dabbled in merely for the microtransaction money by making mobile spin-offs of Xbox IP, but as an opportunity Xbox can take advantage of through technology.
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“We’re doing this because we’re trying to reach the three billion people on the planet who in some sort of way play an electronic game,” Spencer said in the full video interview. “The thing is, there are only about 200 million households in the world, maybe 250, that are interested in consoles at all. Either way, that’s less than 10% of the three billion players out there. So we need to meet players where they are, which is mobile and on other screens and devices.”
All this wouldn’t matter much if Xbox didn’t have the gaming software ecosystem to make that cool technology worthwhile, but it has that too, and with more to come. Game Pass is already stuffed with games, and thanks to partnerships like it has with EA Play and heavy-hitting acquisitions like Zenimax, it increasingly has more than the library to back it up. And that’s all ignoring the fact that timing-wise, we’re likely only a few years out from a big wave of first-party releases from Xbox’s internal studios it’s bought up over the years. COVID may have slowed that down somewhat, but the floodgates seem primed to open.
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Were Xbox gaming still the island on the edge of Microsoft’s kingdom that it was in 2014, none of this would have been possible. Sure, some elements like Xbox Game Pass might still be a thing, but the pricey acquisitions, the powerful partnerships, the cloud buy-in, and the aggressive global interconnectivity would likely be little more than a pipedream without the full force of the company backing it. In fact, much of what Microsoft appears to be gearing up for is reminiscent of the company’s turnaround after it fell behind competitors in the 2000s during the advent of smartphones.
Then as now, Microsoft recognizes its success lies not in chasing the same thing everyone else is already doing very, very well. Instead, it wants to create something bigger, unifying, and different. Years ago, that was Microsoft’s cloud computing technologies. Now, it wants to make a unified gaming ecosystem that is accessible, affordable, fast, full, and powerful no matter who you are or how you’re using it. It wants to loop in content creators, too, with Nadella and mentioning in their interview the importance of integrating creators into this ecosystem they’re building. There’s less detail here, with Nadella bringing up the obvious connection with Minecraft and a less-apparent but still interesting mention of Microsoft Mesh. In this, Nadella is playing the long game it seems. “We’re very excited about what creators can do going forward with the platform shifts that we are going to have in the next ten years,” he said.
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It’s clear that Microsoft has moved beyond seeing gaming as a mere fun pastime, a profitable blip on its financial results. Instead, it appears to be gearing up to turn gaming into a new connective tissue that stands to be very profitable, of course, but also potentially very powerful in its reach and accessibility. We’ve been seeing the beginnings of it for years. And to be clear, there are still plenty of ways it could stumble or even fail as it progresses, especially in a world of aggressive moneyed tech competitors and metaverse daydreamers. But it’s now immediately clear that these plans are no longer just an Xbox initiative: they’re a Microsoft initiative. And that’s far, far more powerful.
In the published interview between Spencer and Nadella, Spencer prompts Nadella by asking why gaming is a priority for Microsoft now. Nadella’s answer references gaming’s importance from the early days of the company. The particular flavor of importance Nadella is referring to here is debatable given his 2014 comments and Xbox’s struggles to find its identity over the years. But then, he echoes Spencer’s own words back to him in a confirmation that the Xbox head’s bid to him seven years ago was far, far from in vain:
“As a company, Microsoft’s all-in on gaming,” Nadella said. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment, quite frankly, at scale…I’m really excited about the opportunity in gaming.”
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Rebekah Valentine is a news reporter for IGN. You can find her on Twitter @duckvalentine.