It’s unsurprising to see Xbox fully embrace a multi-platform strategy. Lagging behind Sony and Nintendo in hardware sales and user base, Microsoft can ensure far larger revenue streams by porting its first party games to PS5 and Switch. It’s a strategy that reflects broader industry trends, as escalating development costs and a stagnating console market push publishers like Square Enix and even PlayStation away from long term exclusivity.
However, Microsoft’s Xbox ecosystem — comprising Xbox hardware, Game Pass, and the Windows PC Xbox app — is where they generate maximal revenue and retain full editorial control. Intra ecosystem Xbox keeps the full share of revenue from their own products, while taking a 30% cut from every non-Microsoft purchase. It’s also for now the only space where Microsoft can sell Game Pass and have the technical leverage to integrate a cloud centric, cross platform solution to suit their needs.
Yet the Xbox ecosystem itself feels increasingly under threat. Game Pass subscribers have plateaued, and Xbox Series S and X hardware sales are dropping precipitously.
Xbox’s ecosystem can struggle with mainstream visibility and appeal. Sony’s and Nintendo’s first-party lineups (e.g., The Last of Us, God of War, Mario, Zelda) easily overshadow Microsoft’s offerings. Additionally, Microsoft’s aggressive multi-platform strategy ensures would be gamers can invest into other rival platforms from Sony, Nintendo, and Valve while still eventually getting new Xbox games that port over. Those other platforms provide the benefit of more visible exclusive output (Sony, Nintendo) or a much larger library than Microsoft with deeper sales discounts (Valve).
And two likely events this year could bring a lot of new players that should create further headwinds for Microsoft’s ecosystem. The launch of GTA VI will ensure, given the game is only available for the PS5 and Xbox Series machines, a spike in console sales to play what will undoubtedly be one of the biggest games of all time. But based on hardware sales trends, the visibility of Sony’s exclusives lineup, along with the network effects of friends and past digital libraries on PSN, I suspect the overwhelming majority will go with PS5. Also, when Nintendo launches the Switch 2 it will spike tremendous interest Nintendo hardware and software.
Granted, there are benefits by staying within the Xbox tent, like cross platform support through Xbox Anywhere, cloud gaming, and Game Pass. Over the long run, as younger generations of gamers increasingly turn to a multi device, post console future, Microsoft’s cloud infrastructure is the foundation for potential dominance over its competitors. Nobody else has the same capital or infrastructure to compete. Nor do I expect Microsoft leadership to be worried on a bit of a backslide in their own ecosystem, given the sheer revenue they’ll enjoy being one of the industry’s largest multi platform publishers.
But I think many of Xbox’s selling points remain fringe benefits for many today, especially newcomers to the gaming space. Even Game Pass, for me and many others providing a substantiative value, isn’t for everyone.
So the most pressing challenge for Microsoft’s gaming division is to thread the needle to bridge this transitional phase towards a cloud-centric future while keeping its ecosystem healthy. They should reinvest into major ecosystem investments alongside innovative cross-platform hardware.
The recent “This is an Xbox” ad campaign underscores the platform’s weaknesses. The ad puts smartphones, TVs, and VR headsets front and center, all devices that rely on cloud streaming for play. But today the service suffers from heavy latency and low resolution, with only a tiny subset of the Xbox library (mostly those that rotate in and out of the Game Pass library) available. Cloud streaming is also only available through Game Pass Ultimate at $20 a month, an exorbitantly expensive proposal for cloud-only users. If Microsoft is serious about a web browser being another Xbox, Microsoft should improve its cloud platform with network infrastructure upgrades and a cheaper, cloud-only subscription option.
Additionally, an innovative PC-console hybrid with a new Xbox OS could bridge the gap between PC and consoles. Such a device would combine the simplicity of an Xbox console with the flexibility to run console and Windows PC games natively under a single piece of hardware. By streamlining compatibility and configuration details (e.g., drivers, graphics settings) commonplace within PC gaming, it could be an approachable device for newcomers while allowing power users the ability to install other PC storefronts like Steam and the Epic Game Store.
While any such hybrid device may not sway hardcore Nintendo, Sony, or PC devotees overnight, it could attract younger gamers with an easy to use interface and an unrivaled library in terms of size and scope. Especially when paired with cloud access to open this new Xbox OS up to mobile, it provides players with a fresh alternative to traditional console or PC gaming.
So for 2025, Xbox’s long term strategic planning around cloud gaming and hardware innovation is key. Otherwise, after a tumultuous 2024, I expect Xbox to have a predictable year. We’ll see a decent first party lineup with many solid Game Pass additions. Series S and X hardware sales will continue to tank, while leadership will likely maintain a low PR profile. It’s the kind of quiet, transitional period that I suspect will continue to worry many Xbox gamers, incensed at a console without exclusives. However, I wouldn’t completely rule out another big pivot once the dust settles from the Switch 2 and GTA VI. With solid publishing revenue and a declining base looking for something different, Microsoft has little to lose by trying something bold.