Microsoft CEO Satya Nadella is "looking forward," to the next Xbox — "We want to do innovative work on the system side, on both console and PC."

Xbox isn't going anywhere. For now at least.

Microsoft's gaming division has had a difficult few months. Competition from other forms of entertainment, tariffs from the Trump administration, mass layoffs, and a sprint of contradictory strategy changes has stressed the Xbox brand. Sony's PS5 has thoroughly smashed the Xbox in global sales, forcing Xbox to put its flagship franchise, Halo, onto its arch-nemesis' platform.

Yet, Xbox soldiers on. There are still tens of millions of Xbox customers, many of whom subscribe to Xbox Game Pass, delivering stable on-going revenue for the platform. Microsoft's acquisition of Call of Duty, World of Warcraft, and Candy Crush has boosted the division's profitability, and made it larger than Windows itself by revenue. We reported exclusively this week that Xbox is slated to deliver a more open console next-gen, powered by full Windows 11, opening up access to PlayStation and Steam games via other storefronts, too.

Xbox's lead is Phil Spencer, but he answers to Microsoft CEO Satya Nadella, who rarely speaks on Microsoft's gaming business. In a new interview with TPBN, Nadella responded to interviewer's jokes about the "console war being over," describing how he sees the future of the Xbox business.

"You've got to remember, Flight Simulator was the first product Microsoft ever built, even before — Dev Tools was first, Flight Simulator was second," Nadella said. "Remember, the biggest gaming business is the Windows business. Steam has built a massive marketplace on top of it and has done a very successful job. The way we are thinking about gaming, first of all, we're the largest publisher after the Activision [acquisition.] We want to be a fantastic publisher, but we want to take a similar approach to what we did with Office. We want to make sure, whether it's consoles, PC, mobile, or cloud gaming, direct on the TV — we just want to make sure games are being enjoyed by gamers everywhere."

Satya Nadella went on to echo previous comments from Xbox Game Studios' lead Matt Booty and PlayStation alumni Shawn Layden, noting that short form video was gaming's biggest competition, rather than other gaming platforms. He also said he was "looking forward" to the next Xbox console, and said that ensuring Xbox has "good margins" is what will help them drive innovation ... but stopped short of explaining exactly what that innovation might look like, for now.

Microsoft is known to be working heavily with AI to deliver at least some of that innovation, with things like NPU-powered Auto Super Resolution upscaling slated to hit the Xbox Ally X some time next year. The next Xbox will also be more open than ever according to our sources, incorporating decades of Windows and Xbox games on a single device. Satya says that he wants to bring benefits to both Xbox and Windows PC gamers alike.

"Second, we want to do innovative work on the system side, on both console and PC. It's kind of funny that people think of console and PC as two different things. We built the console, because we wanted to build a better PC, which could then perform for gaming. I kind of want to revisit some of that conventional wisdom. At the end of the day, console has an experience that is unparalleled. It delivers performance that is unparalleled, that pushes, I think, the system forward."

"I'm really looking forward to the next console," Nadella said, "[and] what's next for PC gaming, but most importantly, the gaming business model is where we have to invent some new types of interactive media as well. Gaming's competition is not other gaming. Gaming's competition is short form video. So, if we as an industry don't continue to innovate both how we produce, what we produce, how we think distribution, the economic model — the best way to innovate is to have good margins. That's how you can fund [innovation]."

Satya likes to talk, but his track record for consumer products is weak

I'm not particularly confident in anything Satya Nadella says when it comes to consumer products. Nadella famously once said he wanted people to go from "using Windows, to loving Windows," and Windows is arguably less popular amongst consumers than it has ever been.

The lofty hardware requirements for Windows 11, glut of data-harvesting telemetry, aggressive bundled apps and services has made the entire Windows platform into a global pariah — at least outside of B2B circles Satya Nadella and shareholders obviously care more about. Satya Nadella seems unaware that PC gamers use Windows because they have no choice, and absolutely not because they love it.

It's in this consumer-hostile gulf that Xbox finds itself adrift, struggling to connect with the audience it spent over 10 years trying to repair a relationship with. Price hikes, aggressive layoffs, ditching all forms of platform exclusivity — it's all engineered to boost those margins Satya Nadella claims will deliver "innovation." What exactly will that look like for customers?

Microsoft has what seems to be a strong vision for Xbox's future. An open Xbox that can run all video games from all storefronts could be the panacea Microsoft needs to maintain some form of differentiation from PlayStation and the inevitable Steam OS console from Valve. There's a huge "if" attached to that vision, though. Xbox faithful today want a console experience first. They don't want to jump through driver issues, use the Task Manager, or connect a mouse and keyboard to access basic functionality.

The Xbox Ally is Microsoft's canary in the goldmine for this vision, but it's a rough experience as of writing. The only reason I'm writing this right now is because Xbox Game Pass Ultimate entitlement seems to be broken, so instead of gaming, I ended up checking Slack and seeing what work needed to be done. There were no error messages on my Xbox Ally to say that Microsoft was having issues, things simply wouldn't load, buttons simply didn't work, and the UI was locking up as the APIs couldn't connect to Microsoft's servers properly.

Earlier, I discovered that you can't run Halo Infinite on the Xbox Ally because the client simply evaporates while compiling shaders. Games like Death Stranding have also been abandoned by publishers in a broken state on the Xbox PC ecosystem. This is absolutely not the experience any console gamer wants to have. Microsoft is working hard to improve the experience, but Windows is a difficult beast to build on top of ... will they actually manage to pull it off?

Is Nadella's confidence a sign that Xbox is on the right path, or is he blissfully ignorant of the risks this strategy might have for Xbox's future? Time will tell, but Microsoft's history with consumer "innovations" is arguably not on Nadella's side.

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