The future of Xbox depends more on its software than its hardware. A strong update of Xbox’s Windows-based gaming app — let’s call it “XboxOS” — is essential for the Xbox brand to survive beyond its massive game publishing reach.
This is a sobering reality that contradicts many recent hardware-specific rumors. Microsoft could make the smartest handheld or console ever, but it will likely appeal only to a small segment of core enthusiasts. The main problem is shrinking market share. Xbox Series S and X sales are declining rapidly. The upcoming Switch 2 will only accelerate Microsoft’s hardware losses. Many previously loyal Xbox customers have already shifted to PC or PS5. History shows that third or fourth place hardware ecosystems rarely rebound in sales.
Additionally, because Microsoft can’t rely on the same volume of sales as Sony or Nintendo, which means the company likely has to seek higher profit margins per device. This suggests Microsoft hardware will cost more than a potentially than similarly powered alternatives. I expect any next-generation hardware will be more of an experiment for Microsoft — effectively a Surface device for gamers.
Despite these small hardware ambitions, XboxOS’s addressable market remains immense. Nearly all Windows PCs with capable enough hardware — from enthusiast gaming handhelds to lower powered productivity laptops — will likely receive XboxOS as part of a Windows update. Based on the existing Windows Xbox app and industry rumors, XboxOS will be Microsoft’s centralized PC platform for buying, managing, and playing Xbox games.
Screen and interface adoption is a must. XboxOS should only require a controller for input. It should also be easy to navigate across a wide variety of screen sizes, from PC monitors to small handhelds and TVs. XboxOS also needs to fold in games from other PC libraries like Steam and Epic Game Store. This would create a strong starting point for gamers, similar to GOG’s approach. Ideally, game patches, friends lists, stats, and achievements integrate to minimize multitasking outside of XboxOS.
I expect interface adoption and multi library support to be included in the first public release of XboxOS, which is rumored to be part of an upcoming Asus powered handheld later this year. XboxOS should spread afterwards to other Windows PC handhelds like the ROG Ally and traditional Windows PCs.
However, XboxOS needs more functionality to differentiate against Steam, the dominant market leader for PC gaming. A compatibility layer enabling Xbox console to run on Windows PCs would help set XboxOS apart. This would work similar to how the Steam Deck runs Proton to make Windows based PC games playable on the Deck’s Linux OS. Microsoft could build a similar technical bridge to bring Xbox Series, Xbox 360, and original Xbox games to Windows. While there are significant technical and legal hurdles, such a feature ensures future Xbox hardware and software can rally around a single PC-based platform. This transition would streamline work for Xbox game developers, who usually target PC anyway. It would also give existing Xbox owners a graceful transition to future PC-based hardware that can still play their existing digital libraries.
XboxOS games should also include verification to clarify how well a game might play on specific hardware. At its most basic, verification would be a similar to Valve’s Steam Deck Verified system, clarifying which games have the right input and API support to be playable within XboxOS. Verification should also indicate which general devices — traditional desktop PC, handheld, TV — the game supports in terms of text legibility and resolution support. Like Steam Deck, I’d expect the XboxOS store and game launcher to highlight or filter games by their verification level.
I could eventually see verification expanding into proper performance tiering. Based on a game’s recommended hardware, every game would get an easy to digest tier ranking by letter, color, or number. Similarly, Xbox players know which performance tier their hardware supports when they buy XboxOS compatible hardware. Perhaps the Windows kernel could run hardware analysis to auto classify on what tier the XboxOS device’s performance tier.
The interface could then recommend playing and buying games from hardware’s performance tier or lower. Granted, it’s a challenging simplification of PC gaming hardware that doesn’t account for the quirks of CPUs, device drivers, or graphic cards settings. Yet Microsoft, with its ownership and deep knowledge of Windows and Windows PCs, is uniquely qualified to orchestrate such a feature.
Executed well, XboxOS could combine the flexibility of PCs with the simplicity of consoles. Because XboxOS is built on top of Windows, gamers can customize hardware and upgrade piecemeal. They can also buy and play games from Steam, the Epic Game Store, Itch.io, or any other PC-based store. With solid game verification, performance tiering, and Xbox console titles, XboxOS could become more approachable for casual PC players.
If XboxOS catches on with PC users, Microsoft’s high investment in cloud gaming could further extend its reach. Imagine an XboxOS that’s accessible over cloud on phones and tablets. Paired with an affordable cloud-only streaming subscription, XboxOS titles could stream practically anywhere.
But moving from hype to reality, my suggested feature set of this future XboxOS is extensive. Microsoft is also starting well behind competitors from all sides. Even with millions in investments and pitch perfect execution, this work will take years to complete. With multiple economic headwinds, along with sustainability questions across AAA gaming studios, Satya Nadella might just as easily pull the plug on Xbox entirely. Game publishing revenue should continue to increase, and being the next Activision may be sufficient. We should have a clear answer on where Microsoft is heading within the next year or two.