The decline of Xbox has been unfolding in slow motion throughout this console generation. The Xbox Series X/S underperformed from the start, and many observers were surprised by how quickly the situation deteriorated. The reasons are now clear: players are entrenched in the PlayStation ecosystem, and the Xbox One's lack of compelling launch titles left little incentive to switch. Even Game Pass failed to gain traction, and the acquisition of Activision Blizzard—including Call of Duty—did not reverse the trend. In fact, Call of Duty experienced its worst sales year ever, a stroke of bad luck after such a massive investment.
The End of the Xbox Experiment
Despite Phil Spencer's good intentions, the Xbox experiment appears to have failed. The new leadership speaks of restoring Xbox's former glory and hints at exclusivity, but such talk seems unrealistic. Exclusives require a large installed base to be profitable, and Xbox's user base is too small. PC-only big-budget games died out in the 1990s for the same reason. Releasing a new console—especially one that is essentially a PC—would be prohibitively expensive and remain a niche product. The brand has lost relevance globally, and even in the US, enthusiasm for Xbox is waning.
Option One: Become a Third-Party Publisher
The most straightforward path is for Microsoft to admit it is now a third-party developer, like EA or Take-Two, and release games on all platforms. This is already happening informally, as few consumers buy Xbox hardware. However, the company's rhetoric about Project Helix and a return to the Xbox 360 glory days suggests it has not fully accepted this reality. Even if game streaming takes off, the Xbox name carries little weight; success would depend on streaming quality, which is currently subpar.
Option Two: Sell the Games Business
The alternative is to divest the entire games division. The challenge is that Call of Duty's declining revenue makes it less attractive to potential buyers. Microsoft's focus on year-over-year profit growth means the downward trend in Activision's earnings is unacceptable. Splitting off Activision Blizzard as an independent entity seems unlikely due to the immense cost of a management buyout. More probable is a sale to a tech giant like Amazon or Apple. While not ideal, this would reduce consolidation in the industry and allow Activision to receive undivided attention.
Microsoft has been in gaming for 25 years, with only a brief period of success. The current mess has destabilized the entire industry, and it may be time to accept that the venture has not worked out. Whether through a strategic pivot or a complete exit, change is inevitable.
