Xbox a 'multi-billion dollar' profitable business, more first-party investment on the way

We've heard rumors for years about Microsoft "selling off" the Xbox business, usually started by investors or firms with an agenda, who'd rather Microsoft focus on less volatile, less risky sectors instead. Thankfully, those investors ignorant of Xbox's importance won't be getting their way.

In a financial presentation, Microsoft CEO Satya Nadella and Xbox head Phil Spencer explained how their gaming business is critical to the company's future.

Nadella defended Xbox to Microsoft's Wall Street investment block (via Dualshockers), who seemingly lack an understanding about how Xbox, Windows 10, and the Universal Windows Platform are converging as a centralized entertainment offering.

"Most of you view gaming as 'Microsoft has Xbox business.' I think you understand the console economics. But it's a much broader thing for us."

Microsoft's Chief Financial Officer Amy Hood described how Xbox is a multi-billion dollar profitable business, and is positioned well to grow further (also via Dualshockers.)

Phil Spencer went on to discuss how being at the forefront of gaming helped the company's understanding of the next wave of computing solutions, namely mixed reality and holograms, which make extensive use of 3D assets.

Microsoft detailed how Xbox Live is also the most prolific gaming social network on the web. Critically, Xbox Live is also the most profitable gaming social network on the web, where gamers remain subscribed to Xbox Live, will make use of upcoming subscription features like the Xbox Game Pass, and purchase goods from Microsoft's various service-driven games, like Gears of War 4 and Halo 5.

Phil Spencer stated an intent to invest in first-party exclusive games to accelerate Xbox adoption, including the announcement of the "next big hits" at E3 in June.

Spencer also discussed a world where Xbox Live could be a virtual space, where gamers meet and even couch co-op on a shared virtual screen. The company demonstrated this using a slide we saw at Build this week, during the mixed reality presentations.

It's encouraging to hear how intrinsic Xbox has become to Microsoft's strategy for platform engagement, as a deeply integrated aspect of Windows, rather than a separate side-project.

Sony might be leading the race in terms of console units sold, but there are tens of millions more Xbox Live subscribers out there, in a world where platform engagement is becoming increasingly important. Things like PlayStation Now and Xbox's Game Pass are likely to disrupt the industry further in the future, and Xbox is well-placed to weather the storm. E3 2017 is going to be a special one.

Jez Corden
Managing Editor

Jez Corden is the Managing Editor for 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 caffeine. Follow on Twitter @JezCorden and listen to his Xbox Two podcast, all about, you guessed it, Xbox!

  • I think they once said mobile was critical to their future. Look how that's going currently. Look, when the goal is long-term, then literally anything can happen in the short term. Changes can be made at any time.
    So in that sense, you can't trust these statements with respect to any decisions you make with your money.
  • Dude you are smart 👌🏾
  • Mobile is still critical to their future, they're just using other mobile platforms instead of their own. Xbox has games on iOS and Android, FYI.
  • And when was the last time one of those was published?
  • That won't get big numbers
  • Exactly, They never said they gave up on Mobile, just take a look a Build, there's many things about Mobile, they just don't say it's for Mobile for now. But if you're not blind and completly stupid, you will see it's relate to their futur Mobile Devices... The futur of Mobile Devices for Microsoft, it's no matter which devices you will use, Android or iOS or Win 10, there's always a Microsoft App for you. We will be able to start reading something on an iPhone and finish it later on a destop running Windows or why not Linux? This is a far more interesting futur than the actual Smartphones, peoples don't understand Smartphones are going to die and Mobile doesn't mean Smartphones anymore... Move on guys, if you're not happy with what's Microsoft doing, just go to Apple or Android, nobody blames you...
  • "Smartphones are going to die and mobile doesn't mean smartphones anymore". O.o
    Couple of billion android and apple phone fans don't agree.
    I'm an avid WP fan but that is just blind fanboy BS.
  • It's naive to think smartphones are going to remain forever. They're not.
  • Smartphones are likely just a stepping stone.  But MS isn't ignoring them and is repositioning Windows 10 to be a hub for devices that can make all the devices be better for the user.   I doubt that there are a couple billion smartphone fans.  Most have them out of necessity at this point and most Android users aren't fans.  In fact, very few Android phones are even run on quality hardware.  Android controls around 25% of the premium phone market while Apple is over 70% and the most popular Android phone on the planet is the Samsung Galaxy Core Prime running a Snapdragon 410 with 1GB of RAM and only 8GB onboard storage that will never be upgraded beyond Lollipop.   Most people using Android are not blown away by it because their hardware stinks and you need better specs to run it due to its nature.   iPhones are definitely a different story.  I've played musical phones and moved from W10M to Android (Nexus 6P) to iPhone (7 Plus).  Android is frustrating, even in its pure Google form.  It slows down quickly.  Battery life is unpredictable. It's hard to get a hold on rogue apps that are eating up your battery.  I know a lot of Android users, but very few of them love it.  Most tolerate it.  
  • "they're just using other mobile platforms instead of their own" So what?, The same could be said if Xbox was sold and MS Studios creates games for other platforms instead. Not a very strong rationale.
  • I do think mobile is actually doing ok. Not great but not bad. If you think mobile is just phones then its horrible. But mobile is more than phones and more than hardware for Microsoft. But xbox and xbox live has actually been a huge success for Microsoft and they have to have it to move into the living room. So I am 95% sold that they wont sell xbox at all. That said, 5% of me always wonders this time of year if this is just a play to pump up the value of xbox so they can sell it ;).
  • The difference is that Xbox has been a success for all the many years its been available and actually has a large userbase. Each console (from either 3), fails one generation and wins another ...its part of competition, you cant be on top all the time. Comparing it to Windows Mobile is like comparing apples and oranges ...regardless of whether they own one or not, everyone knows what an Xbox is ..Windows Mobile on the other hand is like a myth, where only WM users talk of this amazing platform.
  • No, Xbox was not successful at all. Userbase is not important in this case, because they were sold below cost. And then they have large hardware problems in the past. Only Ballmer's persistence saved Xbox from fail. If Nadella was there he would abandon Xbox long time ago...
  • Actually your wrong. The 360 finished profitable. And the Xbox one is profitable already. The original Xbox wasn't. Sony on the other hand lost every single piece of profit the PS2 made with the PS3 launch. The PS4 is selling at a profit though. But PSVR is apparently losing money. The R&D cost way to much and just isn't selling nearly fast enough.
  • WRONG. It was a money pit, but they threw more money at it and actually tried their hardest to move II forward. You have no clue what you are talking about
  • The 360 pit your referring to was rrod. That was in the first year batch. The 360 had an 8 year life cycle and slim made a massive profit as well.
  • Only the first year batch? lol
  • Hate to say it but it was more likely up till 08 consoles that had the falcon boards. Anything before that was more than likely to fail. And even then the falcons did have a bit of a failure rate but not as bad. By 2009-10 Jasper came out (before the looks of the console changed) and that ended the who issue with red light.
  • Mobile is still critical to Microsoft's future, but your limited mindset only understands mobile to be cellphones. Microsoft has positioned themselves well in mobility by simply disrupting the iPad and Galaxy Tab business.  They remain top ten in much of the software that people download on their mobile devices. In terms of success, their phones from a hardware standpoint was not the failure, it was lack of developer support.  But in case you are missing it, Microsoft hasn't given up on the cellphone market. They've merely paused it and are regrouping to bring about something... possibly wonderfully next level.. Their mobile game is taking shape YOU just can't see it.
  • Oh my, the level of ignorance
  • Mobile isn't a multi-billion dollar profitable business. At least not the mobile people in the comments here talk of.
  • I'm a Nexus user but I think win10 ARM is a thing.
    Full win10 on a 5" tablet + sim support will make me jump. (simply, more useful) WinPhone couldn't take off because it was a separate ecosystem imo. Now everything is full Win10... I carry New Xbox Wireless Controller and Surface Pro 4 (sometimes Alienware) with me all the time. A 5" surface? Why not? A lotta easier to dock it on my controller and enjoy my XPA games~
  • 5" is to small.
  • Way Google does the os on tablets yah Microsoft has them beat by a long shot
  • You are right to a point but at least with Xbox they have a strong market sales and users and windows never had that at any point so your statement is only true for mobile phones
  • Not to forget serious gaming, amongst others for education!
  • If Nadella was there in the beginning of Xbox, it would be long gone...
    And if Ballmer was still here, he would make Windows Mobile successful to date.
  • Lol, Have you seen the stock lately...
  • The same Ballmer that ignored and mocked the iPhone until it became a missed opportunity for MS? Ballmer had his time to fix mobile and he didn't or couldn't though I admit that he tried what he could but it was already a difficult task at that point; at least Nadella doesn't ignore emerging trends, you should give him credit for identifying major growth areas - cloud, opening up MS services to all possible and potential users on any platform. It is safe to say Nadella has practically secured and grows MSs position as the number one office productivity suite anywhere you are on any major platform. Cloud is also growing rapidly which is where the mobile first world is headed. He is doubling down on where their strengths are, covering their bases so to speak. Though it's hard to accept the WM situation, I think we must admit that Nadella's mobile strategy of embracing while working to leap ahead is the only real chance MS has at mobile today. They need to change the game and make their own rules Surface-style with mobile, it's the only way.
  • Ballmer did not mock the iPhone, that quote is an excellent example of how words can be yanked out of context. His comments were with regards to the pricing model Apple intended to apply for their phones which at the time certainly was not realistic. Apple proceeded to negociate a clever and at the time very new model with carriers and even then, the first two iPhone models were really not great nor were they ever going to be profitable. Only after Apple opened up iOS to 3rd parties and adopted the store model in a similar wasy to what Nokia was doing at that time did the phone truly take off and only after two more models did the phone actually becomes usable (iPhone 4)   The words Ballmer spoke in the context they were spoken were at the time certainly true and valid.  
  • If ballmer wasn't tone deaf he would of had the chance for mobile phone to become awesome. However he blew it more than once. I mean heck I've had a windows 6.5 device and I think it was 5 before that. Very handy almost did everything a PC could do at the time. However when Apple released the iPhone ballmer just blew it off as if nothing was gonna happen.
  • If you combine PC and xbox, MS has over half of gaming marketshare. Clearly the scorpio intend to merge those more intimately. Gaming is a HUGE industry. And AR/VR while nascent is very rapidly growing.
  • Very smart observation.
  • I'm a game programmer in a major firm. Don't think VR is meant for home entertainment. MR and AR is. VR is better in amusement park environment. (e.g. Sega's Joypolis). Arcade... and you will have hygiene problems to consider.
  • Holograms and vr is two different things. Vr no doubt prob isn't gonna be very useful in the home however holograms could end up replacing the tv if not more.
  • What's really great that Microsoft understands better than any company, is that their ecosystem is symbiotic. One MSA account can attach you to multiple services like Skype, Office, Xbox, etc. Gaming with Xbox is a great spectrum of services. I can see the direction headed with Xbox right now where investing heavily into 3rd party titles is a great move to improve social status, console adoption, and revenue. I believe that Xbox is dominating the gaming social network, because it's so heavily intergrated with software on not just the console, but website, iOS and Android apps, and even PC. I personally don't use the Xbox app as a main source of connecting to other players on my PC, as Discord handles that much easier, but I think Microsoft knows that. They've really pushed social connectivity with the Social Feed by allowing users to view their own gameplay and others. They host weekly "top player" posts which is a great way to highlight your own community. I created a fairly decent Minecraft world, and the Minecraft page shared that video. I roughly got around 3k likes and 100 shares with the video, with so many people (mainly kids) who wanted to play MC with me to help them build. This kind of social connectivity is a great service to provide users that showcase that Xbox LIVE is no longer just a matchmaking service. It's much broader than that. I'm really stoked for what the VR space has to hold. I think that it will really bring together a much more connected player space with VR actually telling users that it's not just an immersive experience, but a social one too. Facebook is doing this right now, but only for business. Xbox VR "where gamers meet and even couch co-op on a shared virtual screen." That's comparable to the PlayStation Home experience where you can customize your avatar, and walk around to talk to people. Gamers love to interact, but in a world where I'm hours, miles, states, and even countries apart, this is possibly the next revolution of game connectivity since Xbox LIVE. Can't wait for E3. I'm always excited to hear about games, but I want to see Below make a release date, and as well as Sea of Thieves and Cuphead! Xbox needs more games like The Last of Us, and platformers like Mario! Bring back, Conker!
  • If only Nadella defended the phone side of things as he is with Xbox. It isn't that hard if they just get the WinOnARM and create a decent device or two, then market it correctly. Not hard at all really.
  • That's exactly what is possible but that's probably for next year as there is no CShell yet.
  • "Isn't that hard." Except yes, it is that hard. Clearly. Xbox is a multi-billion dollar profitable business for Microsoft. Mobile has cost them probably as much.
  • Even if they sell their Xbox business, who will buy it? Sony, Steam? If they want to sell it, they won't buy Beam and Minecraft, Microsoft is in the game Industry and they will stay untill it really doesn't make sense anymore for them to hold such business, for now it integrates perfectly in their futur plan. Xbox has always been pretty successful and they make money with it now, it's moving into something bigger, VR. Now it will be interesting if Microsoft buy Steam... Investors are just morons looking for money, they don't care what is the business they invest in, they only see graphics. They manipulate the market because they have money, if you listen to investors we won't have anything interestings anymore.
  • Over at VGChartz some Sony fans a crying about how MS are lying that Xbox Live is the biggest most profitable gaming service. Claiming the monthly active userbase is some made up figure. The reality is these are official Financial numbers. And its been widely known for years for whatever reason Sony won't confirm their active monthly userbase. ( I wonder why not ). And in financial reports PSN always makes less profit than Xbox Live. You can buy 360 games, original Xbox games and Xbox One games on Xbox live. You can buy PC games on Xbox live and PC, 360 and Xbox One users all converge on Live together. Whereas with PSN every console you buy from Sony you lose your previous digitally bought games. So no wonder people don't spend money on PSN digital games. The fact is Xbox Live and its catalog of games is much more consumer friendly. And means we can all take our entire digital catalog forward with is forever like PC players do.
  • Sony fanboys are funny.
  • The sad thing is I used to be a part of VGC. And check in every now and then. The community there always take the piss out of Windows Central editors. Claiming they get dodgy information etc etc. That site has turned into a massive Sony jerk circle. With the forums full of so much unfactual information its crazy. Even when WC predictions etc come true they sweep it under the carpet into the " we didn't say a thing ". They also completely did miss Digital sales. It's gone downhill since 2012 that site.
  • 1) MS used to communicate about sales number. But started communicating on active Xbox live users when they started including win 10 + mobile users. So it went from 28m to around 50 when MS provided the "free" Win10 update.
    All these numbers are coming of MS's FY press release. 2) You must also understand whats the meaning of "active users". From the definition I got from MS, that figure includes the number of users that have logged in to Microsoft's service at least once within the last month of the quarter. When I tried out solitaire on my Win10 PC I was probably counted as a XBL active user for that quarter. 3) You can't use the word "fact" when you are making subjective statements.
  • Alot misinformation here. MS have been stating monthly active users since 2007. Way before Windows 10. They haven't made comments on console sales since 2011. Because shareholders don't care for units sold. They care for profit margins and active users purchasing stuff monthly on their service. Barely any money is made from console sales of any manufacturer. Sales of a console only fuel console wars. Fanboys fighting over a number of units. Before the Xbox one even came out their was 32 million monthly active users on just the 360 alone in 2012. So where tour getting this false information on Windows 10 making some big difference from 28 million is total and utter rubbish. Another fact certain people like to throw around is Halo 5 has sold poorly. Based on physical sales numbers. This generation MS confirmed Halo 5 had a 50% digital buy rate. Allowing for some drop off on that at let's say its gone down 10% to 40. That means Halo 5 has sold 8 million + copies. Halo isn't dying at all. More people are invested in buying from MS digitally. They have great sales like steam and as an Xbox gamer you know buying a digital game any gen means you will still be able to play that game on a newer console as opposed to a Sony machine.
  • This. ^
  • Good to see people that have done their homework!
  • Thanks guys. It just frustrates me sometimes in the internet that literally anything MS related Xbox or Windows is attacked by false info across the board by fanboys. Don't get me wrong I am a fan of MS. And enjoy their services and products. But I don't go around onto others websites spouting unfactual info to make myself feel better about products I like. That's just sad.
  • Don't be an hypocrite. You're one of the biggest fanboy & liar here. You have been caught lying so often, it's unbelievable...
  • I'm talking about this generation. Everything is in the FY press release by MS. They used to communicate a lot on the number of consoles sold and sometimes added a positive PR spin. The last time they communicated about sales was the FY15 Q2 (which covered the end of 2014).
    After that they stopped talking of sales numbers The first time they started talking about Xbox Live monthly active users was in FY 2016 Q1 which covered July-September of 2015, just when Win 10 was released. And for 3 quarters they talked about year-to-year growth.
    FY 2016 Q1 (July-September of 2015)
    Xbox Live monthly active users grew 28% to 39 million. So it went from 28m to 39m probably thanks to Win 10 users. FY 2016 Q2 (October-December of 2015)
    Xbox Live monthly active users grew 30% year-over-year to a record 48 million. FY 2016 Q3 (January-March of 2016)
    Xbox Live monthly active users grew 26% year-over-year to 46 million FY 2016 Q4 (April-June of 2016)
    Xbox Live monthly active users grew 33% year-over-year to 49 million FY 2017 Q1 (July-September of 2016)
    47 million FY 2017 Q2 (October-December of 2016)
    55 million FY 2017 Q3 (January-March of 2017)
    52 million We can clearly see the rise during the year they had the "free" windows 10 update. It went from 28m to 49m during that time. It's been around 50m ever since. Hardware numbers are important because hardware numbers and the number of games/exclusives mostly linked. Bigger installed base mostly means more games/exclusives, content...  I have NO idea why you are talking about Halo 5 here. What you wrote is irrelevant here. But I'm curious do you have actual link where MS said 50% of copies of Halo 5 sold were digital? Or are you again making something up? "They have great sales like steam and as an Xbox gamer you know buying a digital game any gen means you will still be able to play that game on a newer console as opposed to a Sony machine." You are overselling XB1 BC. It is limmited to about 20-25% of mostly arcade XB 360 games.  
  • Your falsifying numbers and reasons for increase. Firstly in 2015 the active userbase monthly was 30m. Not 28m. Your claim it was due to Windows 10 that it jumped to 39m is i