Microsoft’s strategy for the Xbox Series X / S has been to sacrifice sales numbers in order to invest in its cloud infrastructure and gaming content. Internal emails exchanged between Xbox chief Phil Spencer and Xbox CFO Tim Stuart in December 2020 shed light on the reasoning behind the lower console volumes during the launch period.
According to Spencer, the lower console volumes were not solely due to a “yield miss for Scarlett,” the code name for the Xbox Series X / S consoles, or the delay of the highly anticipated game, Halo Infinite. While Microsoft did reduce the compute units on its Xbox Series X silicon to improve production yield, the company still fell short of its hardware production target. Additionally, Microsoft had been prioritizing its cloud investments, which led to holding back chips for the consoles.
The email exchange reveals that Microsoft made a strategic decision to allocate resources towards cloud and gaming content over increasing console volume. Spencer states, “From a strategy perspective, I believe in our tradeoffs for Cloud and Content in Gaming over console volume.” He emphasizes that console volume will be constrained in order to support the company’s long-term ambitions.
Investing in cloud infrastructure has been a priority for Microsoft, especially as it is the foundation for Xbox Cloud Gaming. Due to the use of custom console components, Microsoft has had to invest significant funds into building out its cloud infrastructure. Spencer highlights the importance of these investments, stating, “I believe our investments in content and xCloud are critical to realizing our potential in gaming.” He also points out that competitors like Amazon Luna and Google Stadia lack the console strength that Microsoft possesses, giving it an advantage in terms of developer engagement, gaming community, and content catalog.
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While Microsoft was working on a separate “dedicated” version of Xbox Cloud Gaming, the launch of this dedicated SKU is not imminent. Sarah Bond, head of Xbox creator experience, mentioned during the FTC v. Microsoft hearing that they had a better understanding of the costs associated with Xbox Cloud Gaming and its popularity, so a dedicated version was not currently being developed.
Overall, Microsoft’s focus on cloud infrastructure and gaming content has affected its console sales numbers, but the company sees it as a necessary tradeoff to support its long-term goals. By investing in cloud technology and expanding its content offerings, Microsoft aims to leverage its console strength and secure its position in the gaming industry.
