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Discover how Microsoft pivoted their focus from Xbox Series X console sales towards xCloud and content in their pursuit of long-term success.
Key Takeaways:
- Microsoft intentionally restrained Xbox Series X sales to invest in cloud technologies and gaming content, as revealed in an internal email exchange between Xbox Chief Phil Spencer and CFO Tim Stuart.
- The company experienced a “yield miss” for its Xbox Series X / S consoles, codenamed ‘Scarlett.’ However, this shortfall, along with the delayed launch of Halo Infinite, was not the primary cause of Xbox console scarcity during the initial launch.
- Microsoft’s strategic focus is now on cloud and content, as they believe these areas are critical for realizing their potential in the gaming industry and competing effectively against rivals such as Amazon Luna and Google Stadia.
Microsoft’s Strategic Play: Favors Cloud and Gaming Content Over Xbox Series X Sales
As recent email exchanges uncovered during the FTC v. Microsoft hearing suggest, Microsoft has been consciously limiting Xbox Series X sales in exchange for increased investments in cloud technologies and gaming content. This calculated trade-off was revealed in a series of correspondences between Xbox Chief Phil Spencer and CFO Tim Stuart, which dates back to December 2020.
Delving Deeper: The Long-term Vision and ‘Scarlett’ Challenges
In the email conversations, Phil Spencer acknowledges a “yield miss for Scarlett,” the internal codename for Xbox Series X/S consoles. Yet, this shortfall and the delayed launch of Halo Infinite were not the primary causes of Xbox console scarcity at the initial launch. Microsoft chose to downscale the compute units on its Xbox Series X silicon from 56 to 52 to enhance production yield. Nevertheless, hardware production goals for the console were not met.
The Strategic Bet on the Cloud
The emails unveiled a strategic pivot towards cloud-based solutions, hinting that Microsoft might have reserved chips for this transition. Barely a year after the launch of the Xbox Series S / X, Microsoft had already begun upgrading its Xbox Cloud Gaming servers with custom Xbox Series X hardware. This move was aimed at enhancing frame rates and load times.
Making Hard Choices: Xbox Console Volume or Cloud and Content Investment
The email threads expose a calculated compromise, a choice between spending on Xbox console volume and betting on cloud and content. “I believe in our tradeoffs for Cloud and Content in Gaming over console volume,” stated Spencer. His belief in this strategy, despite potentially constraining console volumes, is driven by their long-term vision for growth and success in the gaming industry.
Microsoft’s decision to prioritize cloud capabilities and gaming content over Xbox console sales underscores a forward-thinking strategy. It’s a calculated gamble that reflects their understanding of the changing gaming landscape and a commitment to long-term success over short-term gains.
