Microsoft sacrifices Xbox Series X sales for “long-term ambition” in the cloud

Microsoft has been sacrificing increasing sales numbers of its Xbox Series X/S since launch as a tradeoff for investing in cloud and gaming content. In an internal email exchange between Xbox chief Phil Spencer and Xbox CFO Tim Stuart in December 2020, the pair discussed the reasons behind low Xbox console volumes. disclosed as part of the email FTC vs Microsoft Hearing.

Spencer acknowledged that Microsoft had reduced the compute units on its Xbox Series X silicon from 56 to 52 in order to improve Xbox Series X production, but the company still missed the console’s hardware production targets. Microsoft also made a strategic bet on the cloud for which it held the chips.

The email exchange references a tradeoff on spending money on Xbox console volume or content and cloud bets. “From a strategy perspective I believe in gaming over console volume, in our tradeoffs for cloud and content,” says Spencer. “Console volume will still remain a constraint to our long-term ambition to scale up, along with our strategy and opportunity.”

Microsoft has had to invest money in building its cloud infrastructure for Xbox cloud gaming, especially because it is based on custom console components. “I believe our investment in content and xCloud is critical to realizing our potential in gaming,” says Spencer. “Amazon Luna and Google Stadia don’t have the developer engagement, gaming community, and console strength that catalog of content has.”

Microsoft was also working on a separate “dedicated” version of Xbox cloud gaming last year. But that “dedicated xCloud SKU” isn’t going to launch anytime soon. in testimony during FTC vs Microsoft At last week’s hearing, Sarah Bond, head of Xbox Creator Experience, said that Microsoft was “more forthright on the costs” related to Xbox cloud gaming and the popularity of the service, so a dedicated version was not currently being worked on.