Microsoft Prioritized xCloud And Sacrificed Consoles For “Long-Term Strategic Bet On Cloud Gaming”

Microsoft has been clearly focusing heavily on its Xbox Cloud Gaming servers and Game Pass. Email conversations between Xbox chief Phil Spencer and Xbox CFO Tim Stuart revealed that the company has been betting on its xCloud service and was willing to sacrifice short-term success with the Xbox consoles.

To fuel its growing investment in cloud and gaming content, Microsoft scaled back console manufacturing, internal conversations between the CEO and CFO revealed. Let’s take a look at the latest revelations, which could have a significant impact on the ongoing legal tussle between Microsoft and the US FTC.

Disclosed Email Offers Insights Into Xbox Gaming Console Growth Trajectory

Microsoft has been intentionally holding back the rapid growth of its Xbox Series X / S sales numbers since its launch. While several hardware manufacturers skillfully manage supply to keep demand high, Microsoft did it to invest in its cloud gaming endeavor.

An internal email exchanged between Xbox CEO Phil Spencer and Xbox CFO Tim Stuart in December 2020, revealed the pair discussed the reasons behind lower Xbox console volumes. The email has been revealed as part of the FTC Vs. Microsoft hearing for the Activision Blizzard acquisition.

Microsoft had cut the Compute Units (CUs) on its Xbox Series X chipset down to 52 from 56 merely to improve production yield. However, despite the reduction the company still missed a target for hardware production of the console. This was because Microsoft wanted to rapidly scale up its Xbox Cloud Gaming platform.

Microsoft bet big on Cloud Gaming for which it had been holding back chips. The company’s plans were revealed when less than a year after the Xbox Series S / X launched, Microsoft upgraded its Xbox Cloud Gaming servers with custom Xbox Series X hardware.

This move significantly improved frame rates and load times for graphics-intensive games. It helped bring cloud gaming closer in experience to console gaming. The only aspects then holding back the platform were users’ access to reliable, high-speed internet, and the number of subscriptions, both of which, have been steadily growing.

Is Microsoft Killing Its Consoles To Prop Up Xbox Cloud Gaming?

Microsoft has certainly reduced spending money on Xbox console volume. The company diverted some of the funds to developing content and improving cloud gaming infrastructure, revealed Spencer:

“From a strategy perspective, I believe in our tradeoffs for Cloud and Content in Gaming over console volume. With our strategy and opportunity console volume will still be the thing we constrain to grow our long-term ambition.”

“I believe our investments in content and xCloud are critical to realizing our potential in gaming. Amazon Luna and Google Stadia do not have the console strength we have giving us developer engagement, gaming community, and content catalog.”

Simply put, Microsoft invested money into building out its cloud infrastructure for Xbox Cloud Gaming. What’s concerning is the fact that part of the funds is intended for hardware and sales of the Xbox Series X|S hardware were used for propping up the cloud gaming platform. This should make Microsoft’s long-term priorities amply clear.

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