It seems Microsoft sacrificed Xbox Series X sales to build Xbox Cloud Gaming servers

Microsoft Azure servers
(Image credit: Microsoft)

What you need to know

  • Microsoft is battling the FTC in court over its acquisition of Activision-Blizzard-King (ABK) for Xbox. 
  • ABK would give it control of Call of Duty, something Xbox's main competitor, PlayStation is heavily lobbying against. 
  • As part of the proceedings, a mountain of documents exposing Xbox practices has been unearthed. 
  • Within, it was seemingly confirmed that the reason Xbox Series X|S consoles are in such short supply is the bet Microsoft made on Xbox Cloud Gaming. 
  • Xbox Cloud Gaming servers use Xbox Series X chipsets to run, reducing the amount of consoles available to purchase at home. 

The Xbox vs. FTC court case rolls on, and lots of potentially embarrassing secrets are emerging about big ol' Microsoft. This latest one is quite a doozy, though. 

Microsoft is attempting to acquire Activision-Blizzard-King for $69 billion dollars. The acquisition would give it control of Call of Duty, World of Warcraft, and Candy Crush, giving it a huge amount of leverage over Google and Apple's mobile dominance in the process. Microsoft has been aggressively exploring ways it can grow Xbox beyond the console under your TV, seeking to gain a foothold in Windows PC gaming as well as on mobile devices, via the cloud. Xbox Cloud Gaming is a decent attempt by Microsoft to bring console-quality titles to tablets and phones, but the technology is fraught with issues from high-latency gameplay, to text scaling too small to read on handheld devices. Regardless, the pursuit of cloud was something Microsoft very clearly believed in, in documents recently shared by the FTC court hearing (via The Verge). 

(Image credit: Microsoft)

In the document, Xbox lead Phil Spencer discusses issues with Xbox Series X|S console supply. The Xbox Series X in particular has notoriously been unavailable to purchase across the world, while PlayStation 5 surged ahead in demand. I'd always suspected that allocating chip supplies to Xbox Cloud Gaming was the culprit, and now we have some evidence. 

Spencer notes that Xbox Series X|S chip yields missed targets, while also lending his backing to the strategy of growing Xbox Cloud Gaming's server footprint as part of a long-term goal. Xbox Cloud Gaming servers, also known as xCloud, are powered by Xbox Series X chipsets. As such, those are essentially server blades that could have been Xbox Series X consoles available for sale. Microsoft instead opted to grow its cloud gaming footprint, which has by its own admission, yielded mixed results. 

The discussion between Spencer and Xbox finance chief Tim Stuart is several years old, and I think if we fast forward to 2023, I have a feeling some of the decisions made about cloud back then might not have been made if they had known what they know now. Microsoft previously revealed that it was working on a cloud-only gaming device known as Keystone, although it was shelved in favor of developing the platform further. Xbox Cloud Gaming remains in "beta" according to its respective apps, and has been questioned for its very situational use cases. 

Analysis: Was this a smart strategy?

Xbox Series X covered by a no entry sign signifying blocking ads from the console

(Image credit: Windows Central)

Recently, I got my hands on the cloud-powered Logitech G Cloud, and found myself incredibly impressed with the hardware. It's lightweight, the sticks and triggers are great, and the display is large and clear. The customized Android experience is suitably excellent for handheld gaming, and the battery life leaves the Steam Deck and ASUS ROG Ally in the dust. The problem, sadly, is Xbox Cloud Gaming. 

Comparing Xbox Cloud Gaming side by side against NVIDIA's GeForce Now is night and day, making me question whether Microsoft's decision to go all-in on Xbox Series X-based servers was a smart decision. NVIDIA is the world's leader in server chip building, and nowhere is that more obvious at a consumer level than GeForce Now, which feels lightyears ahead of Xbox Cloud Gaming for speed and latency. Xbox Cloud Gaming undoubtedly has an edge over competitors owing to Xbox Game Pass' massive content library, but, one has to wonder if those Xbox Series X chips wouldn't be better used in people's homes, rather than thousands of miles away in a Microsoft data center. 

The discussion is from emails back in 2020, and I do wonder if, knowing how poor Xbox Cloud Gaming adoption and interest has been thus far, if Microsoft now regrets its decision-making. Xbox Cloud Gaming cannot grow with Apple and Google blocking microtransactions on its respective platforms, nor can it grow while offering a cramped experience on tiny devices not designed for console gaming. Xbox Cloud Gaming is ironically best served on Xbox consoles themselves right now, which creates a bit of a headache when console supplies are so constrained. 

Microsoft previously announced that Xbox Series X|S supplies have improved, but it remains wholly to be seen if it can keep pace with the PlayStation 5, which looks set to dominate yet another console generation. 

Jez Corden
Co-Managing Editor

Jez Corden is a Managing Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by tea. Follow on Twitter @JezCorden and listen to his XB2 Podcast, all about, you guessed it, Xbox!