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

Core Insights - Microsoft's Xbox division has faced significant challenges, including layoffs, price increases, and studio closures, leading to speculation about its viability in the gaming market [1][25][28] - The overall gaming revenue for Microsoft decreased by 2% year-over-year, with Xbox hardware sales plummeting by 29% [1] - The broader console industry is experiencing a downturn, with hardware spending down 27% year-over-year in November, marking the worst performance in two decades [2] Sales Performance - Xbox Series hardware sales saw a dramatic 70% drop, while combined sales for Nintendo's Switch and PS5 also declined significantly [2] - Xbox Series S and Series X sold only 1.7 million units, failing to surpass the original Nintendo Switch's sales of 3.4 million units this year [4] - Nintendo's Switch 2 and Sony's PS5 have sold 10.36 million and 9.2 million units respectively since their launches [3] Strategic Direction - Microsoft is shifting its focus from traditional console sales to a broader gaming ecosystem, emphasizing cross-platform access and cloud gaming [8][9] - The company aims to serve a wider audience, with CEO Satya Nadella stating the gaming business model will be "everywhere in every platform" [9] - Xbox's next-generation console is expected to incorporate features from PC gaming, reflecting a blend of console and PC experiences [10][12] Cloud Gaming and Subscription Services - Xbox Game Pass has seen substantial growth, with 34 million subscribers and nearly $5 billion in revenue over the last fiscal year [16] - Cloud gaming hours from Game Pass subscribers increased by 45% year-over-year, indicating a rising trend in cloud gaming engagement [16] - Microsoft is exploring an ad-supported version of Xbox Cloud Gaming to attract users who have not invested in consoles [17] Cost-Cutting Measures - Microsoft laid off approximately 2,550 employees from its gaming division in 2023 and closed several studios, attributing these actions to pressure for higher profit margins [25][26] - The company has raised prices on its flagship consoles, with the new ROG Xbox Ally priced at $599.99 and $999.99 for the higher-end model [27][28] - Despite the layoffs and price increases, Microsoft maintains that it is not abandoning hardware but is instead focusing on a connected gaming experience [13][20]