Xbox is losing the console race by miles. It's part of Microsoft's big gaming pivot

Microsoft's Xbox has had a tumultuous year.

A slew of layoffs, price hikes and workplace closures person led galore to state — not for the archetypal clip — that the Xbox is dead.

Laura Fryer, erstwhile enforcement shaper astatine Microsoft Game Studios, said successful June that the institution seems to person "no tendency oregon virtually can't vessel hardware anymore."

Former Microsoft enforcement and ex-Blizzard Entertainment president Mike Ybarra slammed Xbox's "confusing" strategy successful a now-deleted X station successful October, saying the institution is perchance heading for a "death by a 1000 needles."

The company's wide gaming gross decreased 2% year-over-year, with a 29% dip successful Xbox hardware sales, according to Microsoft's first-quarter net for fiscal 2026.

The broader console manufacture has been successful a large slump, with hardware spending down 27% year-over-year successful November, which is typically a engaged buying month, according to a caller study from probe steadfast Circana.

It was the worst November successful 2 decades, IGN reported, citing Circana data.

Combined Switch and Switch 2 portion income were down much than 10% during the period and PS5 income were down much than 40%, IGN said. But the Xbox Series hardware took the biggest beating, with a melodramatic 70% driblet successful sales.

In console sales, Xbox tin hardly spot the leaders this year.

Nintendo's Switch 2 has sold 10.36 cardinal units since its debut successful June, the institution said successful its latest earnings report. Sony's PlayStation 5 had 9.2 cardinal units sold successful 2025, according to its astir caller fiscal results.

Microsoft's Xbox Series S and Series X, astatine 1.7 cardinal units, couldn't outsell the archetypal Nintendo Switch, which launched successful 2017 and has sold 3.4 cardinal units truthful acold this year, data from crippled income tracking tract VGChartz estimated.

Microsoft declined to remark connected Xbox income oregon numbers.

The institution stopped reporting console portion shipments successful 2015 arsenic the spread betwixt Xbox and PlayStation widened.

The Series S, Series X and PS5 each primitively released successful 2020, with immoderate updates being released since then.

In November, Valve made a splash with its next-generation Steam Machine, which is acceptable to motorboat adjacent year.

The uncover of its console-PC hybrid generated buzz crossed the gaming landscape, with The Verge declaring that "Valve conscionable built the Xbox that Microsoft is dreaming of."

The mini cube volition beryllium capable to tally Windows PC games done Valve's ain Linux-based SteamOS arsenic a tv console oregon arsenic a gaming computer. Gamers volition person entree to Steam's extended room of thousands of games.

But Microsoft doesn't look excessively disquieted astir falling behind.

"We're not successful the concern of out-consoling Sony oregon out-consoling Nintendo. There isn't truly a large solution oregon triumph for us," Microsoft Gaming CEO Phil Spencer said successful a 2023 podcast.

In congratulating Valve connected the release, the Xbox brag gave a motion to the question to grow gaming entree "across PC, console and handheld devices."

As Sony and Nintendo person firmly established themselves arsenic hardware companies, Microsoft is pushing toward Bill Gates' original vision of an all-encompassing amusement hub successful the surviving room.

"Ultimately, the addressable marketplace is anybody who wants to play games, and Microsoft wants to service that market," Wedbush expert Michael Pachter told CNBC.

Microsoft CEO Satya Nadella said successful a caller interrogation with the TBPN podcast that the company's gaming concern exemplary volition look to beryllium "everywhere successful each platform," from consoles to TV to mobile.

His comments besides hinted that the adjacent Xbox whitethorn relation much similar a PC.

"It's benignant of comic radical deliberation astir the console and PC arsenic 2 antithetic things," Nadella said. "We built a console due to the fact that we wanted to physique a amended PC, which could past execute for gaming. So I benignant of privation to revisit immoderate of that accepted wisdom."

Xbox President Sarah Bond echoed the idea, saying successful a caller interrogation with Mashable that the company's next-generation console volition person "some of the thinking" seen successful the Xbox's caller handhelds, which were built by hardware shaper Asus successful concern with Microsoft.

Launched successful October, those devices enactment cross-platform gaming and tin tally PC games bought from Epic Games, CD Projekt and Valve stores.

Xbox has already incorporated that attack into the latest Backbone Pro, which rolled retired successful November. 

Designed successful concern with Backbone Labs, the portable gaming controller offers entree to unreality gaming connected mobile, PC, astute TV and different streaming devices.

So what volition Microsoft's new-gen console look like?

Little is known astir wherever the institution is astatine successful its development. 

A root acquainted with Xbox strategy told CNBC that the institution is looking astatine creating an unfastened strategy that enables players to leap betwixt console, PC and unreality gaming — and immoderate signifier of amusement beyond gaming.

Pachter said that portion Microsoft is not wholly abandoning hardware, the institution is splitting its assemblage into existing buyers funny successful specialized consoles and everyone else.

In a 2019 interview with The Verge, Spencer said that helium was not acrophobic with focusing connected console income arsenic overmuch arsenic making games accessible.

"I bash deliberation arsenic we look astatine the adjacent decennary of gaming, arsenic we deliberation astir reaching the implicit 2 cardinal radical connected the satellite who play games, galore of those radical won't beryllium buying consoles and gaming PCs," Spencer said.

Xbox Game Pass subscription service, which gives subscribers entree to games from a assortment of publishers, is simply a wide illustration of this strategy.

Microsoft has been steadily expanding its rubric offerings connected the service.

The platform's astir basal tier, Game Pass Essential (previously Game Pass Core), which costs $9.99 and launched successful 2023 with 36 games, present offers implicit 50 titles.

Ultimate tier members person entree to implicit 500 titles.

The maturation successful unreality gaming has been blistering.

Xbox reported a grounds 34 cardinal Game Pass subscribers successful 2024 and a full Game Pass gross of astir $5 cardinal implicit the past fiscal year. 

Xbox said successful a November blog post that the fig of unreality gaming hours from Game Pass subscribers was up 45% compared to the aforesaid clip past year. The Microsoft subsidiary besides said console players are "spending 45% much clip unreality streaming connected console and 24% much connected different devices."

In announcing the benchmark, the level added that Xbox Cloud Gaming is present successful 30 countries with the enlargement into India, which it called "the fastest-growing gaming marketplace successful the world," location to much than 500 cardinal gamers this year.

Although Microsoft faced dense disapproval from subscribers aft expanding the outgo of its Ultimate tier by 50% from $19.99 to $29.99 successful October, the institution is reportedly investigating an ad-supported mentation of Xbox Cloud Gaming.

Omdia elder main expert George Jijiashvili told CNBC that a escaped Game Pass tier would apt enactment arsenic a user-acquisition tool, particularly for gamers who person not invested successful consoles yet.

However, owed to the precocious costs associated with unreality gaming, an ad-supported tier would apt not beryllium capable to really thrust a meaningful magnitude of revenue, helium said.

Cloud gaming is inherently hard to standard since it needs to equilibrium computing powerfulness and operating costs with idiosyncratic affordability.

"With console-grade unreality gaming, you request to fundamentally tally each azygous lawsuit of the crippled successful a server," Jijiashvili said. "You request a dedicated hardware for each azygous idiosyncratic that's streaming the game, meaning it conscionable doesn't scale."

Despite gaming's scaling limitations, Microsoft seems committed to doing what it has done with the remainder of its products — moving it to the cloud. 

"They've evolved into a chiefly unreality services company," Pachter said. "So everything they've done since they started acquiring studios astatine Xbox has been toward the connected acquisition successful the location to presumption entertainment."

Microsoft has spent the past fewer years gathering retired its amusement hub with a catalog of archetypal games done an acquisition blitz.

In 2018, the bundle elephantine much than doubled its crippled studios with a drawstring of acquisitions that included Ninja Theory, inXile Entertainment and Obsidian Entertainment.

Two years later, Microsoft bought ZeniMax Media, which owned Bethesda, for $8.1 billion. It was the company's largest gaming acquisition until its 2023 acquisition of Activision Blizzard for $75.4 billion.

Pachter said that the bundle giant's gaming spree was besides a determination to cod "enough content" to bolster its unreality gaming services. 

Yet Microsoft's attack to utilizing its roster of exclusive titles has seen a stark displacement recently.

As Xbox exclusives inactive struggled to vie with wildly palmy PlayStation games similar "Marvel's Spider-Man" and "God of War," the institution has made a definitive pivot distant from its original-content strategy.

Bond precocious said successful an interrogation with Mashable that the thought of exclusive games is "antiquated" arsenic the institution has leaned into cross-platform gaming.

Microsoft announced successful October that the upcoming "Halo" crippled volition beryllium disposable connected Sony's PlayStation 5, marking the archetypal clip the large franchise has go accessible connected a competing console.

In 2024, Xbox opened 4 formerly exclusive games to different consoles.

Spencer said astatine the clip that the determination did not bespeak a alteration successful Xbox's exclusive strategy, but the institution has since continued to bring respective erstwhile exclusives to rival platforms.

In a January interview, Spencer said that the institution won't "put walls up" wherever users tin prosecute with Xbox games.

"What we've learned is enactment the games first, marque definite the games tin beryllium arsenic large arsenic they can," helium said. "We emotion the acquisition connected our ain hardware, connected our ain platform, but our games volition amusement up successful much and much places."

Microsoft laid off 1,900 workers, astir 9% of its gaming division, successful January and slashed different 650 jobs from Xbox successful September.

In May, the institution besides unopen down respective studios nether crippled steadfast Bethesda, including "Redfall" maker Arkane Austin and "Mighty Doom" developer Alpha Dog Games.

The gaming portion was deed again erstwhile company-wide layoffs successful July led to Microsoft shelving "Perfect Dark" and "Everwild," games that person reportedly been successful improvement for astatine slightest 7 years, arsenic good arsenic multiple unannounced projects.

Some person attributed the cost-cutting measures to mounting unit to deed lofty nett goals.

The institution reportedly asked its gaming part successful 2023 to people nett margins of 30%, according to Bloomberg, which cited radical acquainted with the matter.

The extremity was a important leap from the 12% nett borderline Xbox reached successful 2022, arsenic revealed successful tribunal documents, and good supra the mean video-game manufacture modular of 17% to 22%, analysts told Bloomberg.

Microsoft told CNBC that portion the institution does acceptable ambitious goals, the reported 30% nett borderline people was incorrect.

Microsoft has raised prices connected its aging lineup of flagship consoles doubly implicit the past year. Nintendo and Sony besides announced terms hikes for their respective consoles successful August. 

The PS5 presently starts astatine $549.99, and the archetypal Nintendo Switch and Nintendo Switch 2 outgo $399.99 and $499.99, respectively.

Xbox's caller ROG Xbox Ally and ROG Xbox Ally X were priced astatine $599.99 and a staggering $999.99, respectively.

With a increasing fig of consoles and handhelds successful the market, contention is fierce for a dedicated radical of customers that volition ever beryllium funny successful owning hardware.

But Xbox is betting that unreality and cross-platform gaming are the future.

For a decade, claims person been made astir the decease of the Xbox, and what comes adjacent could afloat spell the end, oregon bring a metamorphosis.