Windows Central Insider
The Xbox Showcase has wrapped up, and if it feels like the start of a new era ... that's because it well and truly is.
It's the first Xbox Showcase with the full and shiny new leadership layer, including Matt Ball on strategy, Matt Booty on content, and Asha Sharma at the top overseeing it all. But it's honestly more than that.
Xbox has received new branding and a lot of flowery language and promises already. Everyone from the biggest cynics to repeatedly-burned fans are wondering if Xbox is well and truly in it to win it this time ... myself included.
That was top of mind for me as I met with Xbox fans, developers, engineers, and executives at Summer Games Fest and the Xbox Showcase proper. Here's what I learned about Xbox's strategy.
New and incoming Xbox execs asked Satya Nadella directly if he is truly serious
I spoke to a variety of Xbox executives throughout the week about what the state of play is for Microsoft's gaming operation. CEO Asha Sharma hasn't been shy about the problems facing Xbox either. In a Fortune interview just yesterday, she once again described an Xbox that doesn't exactly have a healthy business, despite rocking up with revenues that now supplant Windows itself.
Asha noted in the interview that Xbox has executed in "days, but it will take years for it to show up on the scoreboard." For anyone paying attention, Microsoft under Satya Nadella hasn't really shown itself to be a company that thinks in terms of "years," moreover, quarters. That has been problematic for a core gaming business, where the best products take several years to develop.
It felt to me as though CEO Satya Nadella and CFO Amy Hood were under the assumption that Call of Duty would solve all of Xbox's woes somehow. The opposite happened; Call of Duty was disrupted by Xbox Game Pass, Xbox Game Pass was disrupted by Call of Duty, and hardware continued its free-fall decline. Xbox, like the rest of the industry, is on fragile ground owing to a variety of factors, and it's interesting to see how Xbox is framing that under Asha Sharma.
Microsoft acquired a ton of studios specifically to deliver exclusive content for Xbox in previous years, but a misguided 30%~ accountability margin target from the top forced Xbox to give up its own ecosystem in attempts to sell more software. It underlined Satya's penchant for short-termism, spreading their content out over a broader array of platforms and robbing the Xbox ecosystem of its raison d'être in the process. Fans and detractors alike questioned Microsoft's commitment to its own ecosystem as a result, and the negative impact speaks for itself.
I asked every incoming Xbox leader about the current strategy, noting that Xbox fans and onlookers find the constant tactical changes to be exhausting. I specifically wanted to know if Gears of War: E-Day and Clockwork Revolution shifting to Xbox-exclusivity would be a short-lived experiment, until CFO Amy Hood comes knocking for boosted margins.
What they told me was encouraging, and it echoed Satya Nadella's previous internal Town Hall comments about being "long on gaming." One exec told me they wouldn't have been so eager to come on board were it not for direct talks to Nadella himself about Microsoft's long-term commitment to its ecosystem. They left convinced and immediately took the job.
Someone in the chain seems to have changed Satya Nadella's mind on Xbox's future; Xbox cannot function like a simple software vendor peddling utilitarian content. Culture is the driving factor for gaming, and the way Xbox has been showing up over the last few years has fractured what was previously a very passionate and tightly-knit community.
Given how close the platforms are in terms of functionality, exclusive content has become a central purchasing factor for console ecosystems. One exec referred me to a recent study by Circana, which suggests that exclusive games are still the primary driving force behind purchasing decisions.
It's illogical on paper. Netflix, Spotify, etc., are not hardware-specific platforms. The idea of content being locked to specific devices is uniquely a gaming thing — but it is a thing, and ignoring that cultural reality has been to Xbox's detriment.
Another staffer suggested to me that, indeed, the current Xbox leadership does not view exclusive games as a restrictive fiscal problem to be overcome. Instead, they see it as a strength, and even a "privilege" to use their words, that users are willing to invest in their hardware ecosystem on the basis of love for these worlds — and their positive association with the Xbox brand. They now see it as an opportunity to create culture and community around the Xbox brand, with a dedicated hardware ecosystem at its core, and games, brands, merchandising, movies, TV shows, and the rest of it emanating out from that. For Xbox now, the driving unit is culture.
Indeed, culture is a tricky thing to showcase in a spreadsheet for your Chief Financial Officer, but it's pretty obvious to any human paying attention how much brand damage Microsoft's previous strategy has created for Xbox. What truly underscores this is the fact that Xbox had planned for Halo Campaign Evolved to show up in Sony's State of Play event, only for Asha Sharma to come in and pull it at the last minute.
Xbox's previous leadership had their hearts in the right place. In a perfect world, no games would be locked to any platform. But, not only do we simply not live in that world, PlayStation, Nintendo, and increasingly Valve are actively rejecting that idea. Xbox won't survive if it's the only competitor playing "nice guy" ... and someone, somehow, has finally convinced Satya Nadella of that.
"The next 25 years of Xbox" was very intentional language
When I brought up this concept of Microsoft changing its mind ... one exec mentioned to me that this is one reason they keep referring to the "next 25 years" of Xbox. They know that people feel burned by Microsoft over some of its products (ahem, Windows Phone), and want to impress upon people that Xbox and gaming is now a pillar for Microsoft — alongside Windows, Office, and Azure.
They see Xbox as leading Microsoft's entire consumer-facing operation, casting a halo effect (pun) over the Microsoft brand all up. I was referred to stories by which Microsoft won major corporate contracts for Azure and Office 365 on the basis of clients' love for Xbox, rather than server tech. And indeed, Xbox and gaming more broadly is fun, and it connects with people on a fundamentally hard-to-measure level that could almost be described as spiritual.
I have been among the most cynical and negative people about Microsoft's direction as of late, and I'm daring myself to find some optimism right now. There will be tough times ahead. Memory costs are still up 700% since the start of the generation. Games take longer to make than ever. Geopolitics is making it difficult for U.S. brands to globalize. And crucial parts of Xbox's back end, such as dev tools, marketing, and publishing layers, have been critically underfunded for years. But like Asha said, Xbox and Microsoft seem to have accepted that it'll take "years" for their moves to show up on the "scoreboard."
It's clear to me that the current Xbox executive layer knows exactly what needs to be done, but more importantly, it seems that Microsoft corporate is giving them the large runway necessary to actually execute that strategy. That latter point is the most important takeaway I brought back from LA this week.
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