Pod Insights Decoder Inside Xbox's executive shakeup About this episode Today, we’re talking about the future of Xbox. Phil Spencer, a two-time Decoder guest who’s led Xbox for more than a decade, is stepping down. But in a shocking twist, his deputy long-assumed successor Sarah Bond is also out too, and the Xbox division is now in the hands of an Asha Sharma, one of Microsoft’s AI executives with no prior game industry experience.
There is no better person to talk to about all of this than Tom Warren, senior editor here at The Verge and author of the excellent Notepad newsletter. Tom is actually on parental leave right now, but Microsoft has a longstanding habit of disrupting his well-earned time off. So, Tom was gracious enough to come on the show after publishing a major scoop about what went down at Xbox this past week.
Read the full interview transcript on The Verge.
Links:
Inside Microsoft’s big Xbox leadership shake-up | The Verge
Billions of dollars later and still nobody knows what an Xbox is | The Verge
Xbox chief Phil Spencer is leaving Microsoft | The Verge
Read Xbox chief Phil Spencer’s memo about leaving Microsoft | The Verge
Here’s what Xbox is working on for 2026 | The Verge
AMD hints Microsoft could launch its next-gen Xbox in 2027 | The Verge
The next Xbox is going to be very different | The Verge
Xbox co-founder believes it’s being ‘sunsetted’ in favor of AI | VGC
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Transcript 8,603 words · 12 speakers
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1:30 Speaker 03 Hello and welcome to Decoder. I'm Neil I. Patel, editor in chief of The Verge, and Decoder is my show about big ideas and other problems. Today, let's talk about the future of Xbox. Phil Spencer, the CEO of Microsoft Gaming and a two-time Decoder guest, who's led Xbox for more than a decade, just resigned. But in a shocking twist, his deputy and long-assumed successor, Sarah Bond, is also out, too. And Microsoft Gaming is now in the hands of Asha Sharma, one of Microsoft's AI executives with no prior game industry experience. It's a major leadership transition that suggests Microsoft wants to make serious changes to its gaming division, which owns franchises like Halo, Call of Duty, and Minecraft. There's literally no better person to talk about all of this with than Tom Warren, a senior editor here at The Verge and author of the excellent newsletter Notepad.
2:15 Speaker 03 Tom just had a new baby. He's actually out on parental leave right now, but Microsoft has a long habit of disrupting his time off with major news. So Tom was gracious enough to come back on the show after he published a major scoop about what exactly went down at Xbox this past week. There's a lot to say about Xbox. The story of the console and Microsoft Gaming is a complicated one, with a lot of twists and turns since that first Xbox console made its big splash in the industry 25 years ago. But for a majority of the time since, it's been stuck in third place, behind Nintendo and PlayStation. That's a surprising thing to say for a division of a company worth trillions of dollars and also owns some of the most celebrated gaming properties in all of entertainment. And so Phil Spencer, who started at Microsoft in the late 80s
2:56 Speaker 03 and took charge of Xbox in 2014, was given the job of trying to turn things around. Since then, he's tried many things. The Netflix-style Game Pass subscription service, a major push into cloud gaming, buying Activision Blizzard King, which makes Candy Crush, and many, many different iterations of Xbox hardware. As of last year, he even had plans to bring Halo to PlayStation, something game industry insiders thought was basically impossible just five years ago. But as you'll hear Tom explain, the game industry has been changing faster than Xbox has been able to transform itself. And almost none of Spencer's strategies have ever really clicked. Xbox is still far behind Nintendo and PlayStation. And in PC games, it still stands in the shadow of Valve,
3:39 Speaker 03 which runs the dominant Steam Store and now makes the Steam Deck handheld. Microsoft has spent tens of billions of dollars trying to acquire its way to a stronger position against the rise of games like Fortnite and Roblox, mobile giants like Tencent, and a zero-sum war for attention dominated by apps like YouTube, Instagram, and TikTok. And yet, it has very little to show for all of that. And so today, Phil Spencer's grand vision of 100 million Game Pass subscribers streaming Xbox games to whatever screen they want on a cloud platform. Well, that feels out of reach. But as Tom says, it's not lost forever. Xbox is far from dead, and there's hope that new leadership will take some big swings and make something happen again. Okay, here's Verge senior reporter Tom Warren on the future of Xbox. Here we go.
4:35 Speaker 03 Tom Warren, you're senior reporter at The Verge. You're currently out on paternity leave, but Microsoft just brought you back.
4:42 Speaker 04 Yep, this happens every time I take vacation or leave. Microsoft decides we're gonna do, we're gonna do something massive and ruin Tom's life.
4:50 Speaker 03 It's just punishment for all of the scoops you have dropped on the company over the years. So this week, as you were playing with your beautiful new baby, Microsoft initiated a major shakeup at Xbox, something we've seen coming for a little bit, but maybe not on this scale or this magnitude. Describe what happened at Xbox this week.
5:10 Speaker 04 Phil Spencer, the longtime sort of CEO of Microsoft Gaming, technically, but Xbox chief is what he's known as. He's retiring, so he's leaving Microsoft. Sarah Bond, the Xbox president, is also leaving Microsoft. And then they're actually promoting Asher Sharma, who used to be on the core AI side at Microsoft, to the CEO of Microsoft Gaming, so replacement, replacing Phil Spencer essentially. So yeah, big news, a big shakeup, should we say, of Xbox, which I think has been, I think with Phil Spencer, it's been a long time coming, right? I think Xbox fans have expected that retirement, but perhaps not so much Sarah Bond leaving, so.
5:49 Speaker 03 And this is, I think, the shakeup, right? We knew Phil was going to retire. He'd been messaging that for some time. He's been there for a long time. He's a Microsoft lifer, really. Phil's been on this show before, and we're gonna run some clips from his past interviews on Decoder, because I want to get your take on what happened between those interviews and now. But at a very high level, we knew Phil was going, is it that everyone expected Sarah to be his successor and that didn't happen? And that's the surprise here?
6:13 Speaker 04 I think there's two surprises, right? It's obviously that Sarah wasn't named Xbox chief, and that Asher is the successor, because that just...
6:23 Speaker 04 Wasn't, yeah, that was quite a surprise and a surprise hire really. But yeah, so Sarah has always been the sort of number two. She's always travelled with Phil and always been kind of like the face of Xbox over the past couple of years. As Phil's kind of, I'd say he's stepped back a little bit since the Activision Blizzard acquisition a little bit publicly.
6:47 Speaker 04 But yeah, so Sarah's kind of become the face of Xbox during that time. And then she took over the platform work, the hardware work. So whenever there was any mention of like the next gen Xbox, it was Sarah that would come out and talk about it, not Phil. So that's a change in itself, right? Because it's usually Phil. So I think everyone just kind of thought, okay, well, she's been prepped for, to be Phil's replacement eventually. Whether it be a couple of years, five years, whatever. It didn't happen. But behind the scenes, I know that Xbox fans had heard, had expected that this was going to happen. Sarah Bond would be the, you know, the heir apparent. But behind the scenes for a good year or so, I've been hearing different things about Sarah Bond.
7:29 Speaker 04 Different from what perhaps the public perception is of her. And just different, just not what you'd expect, I guess, from, from what you see of her and stuff. So to me, it wasn't a surprise. I was like, not surprised to see her not named, but I think it was more of a surprise to see Asher named, right? Like, that was, that was kind of the surprise to me. I know Asher a little bit, I've spoken to her a few times, but she's like a non gamer. She's very straight about that and honest about it. But not that that really matters, I don't think, to be a CEO, really, to be honest. But to Xbox fans and, you know, that gaming segment, if they see a non gamer, it's like, yeah.
8:10 Speaker 04 Particularly with Xbox, I think because Phil has kind of instilled that, that over the years. So they've come to that expectation. So, so yeah, I think that was the surprise of it, but I don't think Sarah Bond was a surprise to me.
8:22 Speaker 03 And when I come to Asher, the new leadership, and particularly sort of the Microsoft AI of it all. Because that seems like an important piece of the puzzle. I just want to stick with Phil and Sarah for one more second. There's the reporting you have done about Sarah personally and her skills as a manager and potentially CEO. And then there's Phil and the strategy he pursued. For Xbox and Microsoft Gaming and a huge part of that strategy is making Microsoft Gaming as big as it is, bigger than Xbox, acquiring Activision, doing all the other acquisitions the studios they've done. I look at this and I say, well, it doesn't matter if Sarah was the best manager or the worst manager, the strategy that she was instrumentally
9:04 Speaker 03 a part of failed. And I kind of see this and I say, okay, if I'm such an Adela, or importantly, Amy Hood, the CFO of Microsoft, I'm saying, we've done some of the biggest acquisitions in history, certainly the biggest acquisitions in Microsoft history, and none of this came to anything. We got to reboot this whole thing. Does that feel as important inside Microsoft as maybe Sarah wasn't the right person?
9:28 Speaker 04 It's a couple of things, right? Like, so obviously Microsoft Gaming is ballooned now, right? Because it's got Bethesda, obviously Activision Blizzard has made it bigger than than ever before, right? And then you've got this tension of Microsoft get like the corporate Microsoft of Satya Nadella and Amy Hood, putting the pressure on that new division to, you know, return, return the money that they've invested into this project essentially, so through profit margins. So they've cranked that pressure up over the past couple of years, and it's forced Phil, Sarah, everyone under them to then respond, right? So they've done these studio closures, they've done cuts, they've done price increases, they've tried
10:13 Speaker 04 to accelerate, you know, getting more people using Xbox services essentially. So that became the strategy of like, okay, we need to get to TVs, we need to get to mobile, all this stuff. And there was a lot of like, I guess, trying to rush that, it felt like, and forgetting that the console was their base of like, building up game pass and their base of taking those people and perhaps moving them elsewhere and, you know, user acquisition growth, all that sort of stuff. And it just feels like they tried to rush that and they did this, this is an Xbox campaign, which is just super strange. It was trying to say that phone was an Xbox. And it was born in this idea that they need to speed up the margins,
10:57 Speaker 04 they need to, you know, get more revenue, get more growth, and improve those margins essentially. So
11:04 Speaker 04 When you're trying to pin blame on whoever it is, it's like it comes from the top all night. Like Satya and Amy, they they're pushing these margins. And I think they're slightly unrealistic in the context of gaming. Anyway, like there's not the margins that Sony has, for example, they've put the pressure on. Phil has, I think he's he's kind of stepped away a little bit over the last couple of years. So not so laser focused on exports. And then that's allowed Sarah to have a lot of power over exports and accumulate like marketing power and do do the this is the exports campaign in in her own org. And then just, yeah, it just hasn't gone well. That it hasn't gone well for for consoles. Even if you argue that Microsoft perhaps doesn't care about sending consoles, which
11:46 Speaker 03 Yeah.
11:46 Speaker 04 maybe they don't. But I think they probably thought that they could replace them with cloud and mobile a little bit quicker. But
11:53 Speaker 03 Actually, this is my big question. And this is again, you know, there's the reporting you have about Sarah as a manager and a leader, which I want to come to. But then there's the well, it's Microsoft. All Satya and I care about is mobile and cloud. That's like not even the AI part of it. Like, this is a business that runs huge cloud services in Azure and needed a new foothold in mobile. And they basically bought Candy Crush to get a bunch of mobile revenue. Of course, that's what they wanted to do. And it feels like actually, the decision is not so much about Phil Spencer and Sarah Bond. It's this whole strategy failed. And now we're going to try a new one. And I'm just curious if you have insight into the balance, right? How much is the strategy failed? We just
12:34 Speaker 03 need a new regime versus we need a new strategy and Sarah specifically cannot execute a new strategy?
12:41 Speaker 04 I don't think they're going to change the strategy all that much, because the strategy kind of makes sense in a way like you want to get to mobile, you want to get to cloud. And that's how you're going to get more users, right? Ultimately into your system without not selling enough consoles, essentially. So I don't think the strategy is terrible. But I think the execution has been over the past couple of years. I think that that's been the problem predominantly is the execution of the strategy. The messaging publicly has been pretty bad. So I think it's more a regime change that's needed for to bring some sort of element of people who understand user acquisition, right? And I think that's kind of where Asher's coming in.
13:24 Speaker 03 We need to take a quick break. We'll be right back.
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15:39 Speaker 03 We're back with Verge senior reporter Tom Warren, talking about the future of Xbox. Before the break, we're discussing why executives Phil Spencer and Sarah Bond are out after years of trying various strategies to help Xbox catch up to the competition. But now I want to get back to where those plans came from and pinpoint where it all started to go off the rails. Let's talk about Xbox strategy as a whole, because if you're saying it's not changing, it's worth taking a beat to just understand what the goal has been. And I would say since 2017, Phil Spencer has been very clear that what he wants to get to is everyone is subscribed to Game Pass. You can play Game Pass games anywhere because they're streaming from the cloud.
16:21 Speaker 03 And we're going to get out of this race of console generations and exclusives. Because they essentially lost to Sony, permanently lost to Sony. There was no coming back with a new generation. Did that work? I mean, I think we know now there's executive turnover. It didn't work. But did it ever work? Was there ever a glimmer of it working?
16:40 Speaker 04 So going back to like where it all started, this mess with Xbox essentially is Xbox One, where they failed that that sort of era. And what happened at that time is PlayStation-
16:50 Speaker 03 This is like 2013. This is over a decade ago.
16:52 Speaker 04 Yeah, yeah. And that led up to kind of 2017 and the launch of XCloud and all that sort of stuff. But going back to that sort of era, they they lost that generation, right? And it was a huge, a huge cost to them because that's when that was the generation that people started their digital libraries, right? That weren't on PC. People on PlayStation have built up those libraries. They're not willing to move away from those libraries now. So they knew they'd lost that that real key generation. So the response was let's do Game Pass because that will allow people to bring their games to different devices, you know, sort of cloud vision, mobile, et cetera. So I think that was the only kind of response they could. And it was it was designed to be consumer friendly, right?
17:35 Speaker 04 Like you got day one games that they published immediately. So they took a bit of a risk. It was quite a bold move really to do that. And still Sony doesn't do day one games, for example. So they took a risk. The problem with Game Pass that's happened, obviously, they've had to fuel it with content, right? So they've done all these acquisitions, Bethesda, Activision Blizzard. Nameless others as well. But the problem then with Game Pass is that you're giving your games away with a subscription, but you need to scale that up, right? So it needs to hit a certain amount of million people that you've got that concurrent revenue every quarter and you can rely on where it isn't cannibalizing or eating into the traditional sales of those games that fuel, you know, the, the, the costs for, for developing these
18:20 Speaker 04 games, which frankly are, are just getting, just getting more, more complicated to develop games these days and a lot more expensive.
18:29 Speaker 04 So they've had those, those issues with Game Pass. And ultimately, I think the strategy was to, to respond to try and get that growth, right? To try and scale up this idea of, and, and the way they put it was free billion gamers, right? That was the launch of Xcloud. And, and remember Xcloud and now it's called Xbox Cloud Gaming was originally a mobile play. So it was literally to try and get people into the idea of playing, streaming on mobile with these, with these attachments to your phone, essentially.
18:58 Speaker 03 It's worth noting that they ran into Apple's App Store rules.
19:02 Speaker 04 Exactly.
19:02 Speaker 03 They were not able to do this in a way that actually worked.
19:05 Speaker 04 Exactly. So they, they hit a bunch of regulatory hurdles. They had to launch it as, as a Xbox.com forward slash play in your browser. You couldn't get an app or anything like that. So that completely knocked them back, right? Even when they were trying to play test it, they, they, Apple were like on the test flight saying, no, you have to change this. You know, like it was very, they, yeah, they, they were very restricted in what they could do. So that kind of put their strategy back. Now who you blame for that, like?
19:34 Speaker 03 I, I think you can blame Apple in a very significant way.
19:37 Speaker 04 Yeah.
19:37 Speaker 03 There's like pretty major antitrust ramifications of that, but Apple's still feeling it.
19:41 Speaker 04 And then fast forward from that point, from launching Xcloud and having all those issues to a couple of years ago, they're still trying to get that resolved, right? They're still trying to push for this app. They're still trying to. Get a store in there now. Essentially, it's the idea they're going to have an Xbox mobile store. So we've moved on from, you know, having an Xbox Cloud Gaming app. It's more ambitious now. We want to do a store. We want to sell content in there directly to people. And there was the promise that app's going to arrive from both Phil and Sarah, to be fair. But then Sarah then promised it was going to launch in a month in an interview. And that was two years ago. And so, and it hasn't happened. A lot of that idea of going
20:22 Speaker 04 for mobile recently and trying to do this cloud store thing has just been overpromising and underdelivering and relying on regulatory change that just hasn't come, right? Or it's come and whoever's, whether it be Google or Apple, they've appealed, right? We've pushed it down so many months. So yeah, so they've had all these hurdles with this strategy. But I think ultimately Game Pass has a problem where it's gonna, it fundamentally will eat into those margins of studios. And it's like, how do they, if they can't scale it up, then they have to increase the cost of it. So again, we saw that last year, they went up
21:05 Speaker 04 like 50% Game Pass Ultimate. So they've been doing all these things where they respond to this strategy and try with a goal of either increasing the revenues or scaling it up. And it just, it hasn't been going smoothly. Let's be honest, especially over the past couple of years.
21:22 Speaker 03 So it's really funny. So when Phil Spencer was on the show in 2022, I asked him about this vision that the future of Xbox is Netflix. Here's what he had to say. Then there's the other part, which is, man, it'd be really cool if everyone just paid us 15 bucks a month all the time. And the games came out and everyone was just happy and that base of revenue was recurring and it was a little more stable than hits, than console generations. Is that the move? Because that seems like where you have been building for a long time, but it's harder to get there than maybe anyone anticipated.
21:52 Speaker 08 We don't have this. Vision of everybody's paying us $15 a month. We think the subscription is an interesting business model for certain kinds of games and for certain customers. But I really see it as diversifying the way people build their library of games or creators can reach the customers that they want to reach with the content that they build. But it will always be part of the business, in my view. I think people buying their games and owning their games will be an important part of the business for years and years to come.
22:21 Speaker 03 To be fair, I heard that line at the beginning of the streaming transition in music, very famously from Steve Jobs, actually. People like to own their music is a thing that he used to run around saying all the time. Now, I feel like we're hearing it from the games industry. Is that just the point on the curve that you're at? Is some people are going to buy it and some people are going to stream and we're going to have one day, five years from now, wake up and it's all streaming and subscriptions? Or is it?
22:40 Speaker 08 Now, games are fundamentally different and I'm definitely not smarter than people who did music subscriptions or video subscriptions. I just think the fundamentals of gaming are different, so subscriptions will be part of the solution, but not the only solution.
22:55 Speaker 03 Even as Phil was saying that to me, I was thinking, I don't believe you. But you've gone all in on all of these moves to get recurring revenue. And we were having that conversation in the context of them buying Activision. And Candy Crush is the most stable recurring revenue you can get. It's endless downloadable content, it's endless power-ups, it's people paying money to literally play the game every day. Did you have the same reaction to them saying their goal was not to get to $15 a month from every single Xbox gamer?
23:24 Speaker 04 The interesting thing is, when was that? That was in 2022 that you spoke to me?
23:28 Speaker 03 Yeah, it was just, it was right around, yeah, 22, right around the Activision.
23:31 Speaker 04 That year was quite pivotal internally. So I think that was when they kind of realized that Game Pass wasn't going to do the, like, they'd hit a ceiling on console and they didn't have this mobile growth that they were expecting. And like internally at that time, exactly, I think it was 2020.
23:49 Speaker 04 One or twenty twenty two, but they they did a slide deck with the the hardware gaming team which leaked in the FTC trial. And it was like the ambition was a hundred million people on Game Pass by twenty thirty. And a lot of that growth was through Series S and X. That was the the desire, right? But but some of it was also cloud and mobile, right? Like a a chunk of it. And obviously, that's that's not going to happen unless something crazy happens in the next four years, right? Like that that growth is not just not there for them at the moment. I think the last time they reported it was thirty four million. So the messaging changed in twenty twenty two, basically, from like Game Pass is our thing to like, well, it's gonna be like twenty percent of Xbox content and services revenue. We don't see it being much bigger than that.
24:33 Speaker 03 And that's when they bought Activision, right? That interview was right after they'd announced the deal. It was before it closed regulatory approval and everything. But their thesis for buying Activision was we need to be a bigger player in mobile because that's where the new gamers are. And Activision has all these mobile games. And actually, Call of Duty, which is what everyone is focused on, is the least of our concerns here. What we're after is King. We're after Candy Crush and all of the mobile IP that Activision has to offer us. I'm looking at it, you know, from a pretty outsider perspective. I don't think this has worked out. I don't think this has played out well for them. What do you think?
25:11 Speaker 04 It's still early days. And they've they've consumed it in a way that it's hard to tell, right? This is the classic thing with Microsoft's financials. Every quarter they hide something else that's not quite working into like they've done Surface Devices. They they used to do Surface Revenue. Now it's Windows and OEM and and devices. So they bundle that stuff when it's not quite working. So I think we'll know if it's not quite working when they start doing tricks like that. But at the moment, it's still too early to say, but. I mean, the mobile side, like I said with the Xbox mobile store earlier, I think the King stuff would have definitely played heavily into that. Like, they could have sold exclusive
25:50 Speaker 04 content in that store and not have to pay 30% cut to Apple, Google, Valve, etc. So I think there was a vision for that, to be additive to the business and the growth and everything. But, yeah, I mean, the mobile stuff is still, I don't know their mobile strategy, really.
26:11 Speaker 03 Actually, Phil was clearest about this when he was on in 2022. Let's play that clip, because I'm curious to see your reaction to this in the context of the news today.
26:20 Speaker 08 In terms of the Activision opportunity, and I keep saying this over and over, and it is true, it definitely starts with a view that people want to play games on every device that they have. And in a funny way, the smallest screen that we play on is actually the biggest screen when you think about install base in phone. And that's just a place where if we don't gain relevancy as a gaming brand, and I think other, we're not alone in seeing this, over time, the business will become kind of untenable for any of us, that if we don't, if we're not able to find customers on phones, on any screen that somebody wants
26:58 Speaker 08 to play on, that you really are going to get segmented to a niche part of gaming that running a global business will become very challenging.
27:09 Speaker 03 So I listened to that, and I think, well, Nintendo exists. They seem to be doing just fine without being on phones. Sony is running what seems like a fine business in the PlayStation without running on phones. And then right next to all of this, arguably the most interesting category of gaming devices in the past five years, is Steam Decks and Steam Deck alikes, which are all running Windows games better on Linux than on Windows. And I'm just, I'm actually kind of at a loss here, right? There's this desire to put mobile games on Apple's platforms on Apple's terms, and this very clear statement that if they don't do that, Over time, the business will become untenable. And then the rest of the industry is not doing that at all, and they seem to be fine. How do you reconcile those ideas?
27:53 Speaker 04 Obviously, with Nintendo, they have a strong collection of IP, right? That they can leverage and they can be exclusive. And they're always pointing out great content that people buy the hardware for. They don't have a problem there. Microsoft's gaming output over the last decade hasn't been the strongest, right? Recently, it's got a lot better, but they don't have the respect of the industry for their content either. Like, they just don't do the sort of storytelling that Sony does with PlayStation games. They don't do that sort of content. So they've had a content problem, which is hence all the acquisitions, right?
28:27 Speaker 04 But I think with the mobile stuff, it's like, what essentially Phil is saying here is that we need all this content to pull eyes away from TikTok, right? To put, because no one is buying our console of a certain age, right? And they're worried that people my age, like 30s, 40s, and that they're the people that are keeping the consoles. But no one in their 20s right now is buying a console anymore. Like, that's their worry. And then the next generation is not going to buy consoles. That's starting to impact Sony as well. It's not a unique thing to Microsoft. Don't know so much about Nintendo because they're, you know, they are very unique. Definitely with the Switch. But I think that's their worry.
29:10 Speaker 04 And that's driven this whole thing for content. You know, we need content, we need a way to get people on mobile. We need to, you know, get, meet people where they are. This whole thing of like play across different devices on TV and all this sort of stuff. Xbox Cloud Gaming. But the reality of it is that where they're at now with like Xbox Cloud Gaming, right? It's their vehicle for cross-platform, no doubt. Is that mobile is a small percentage of people who actually play on it, right? And originally, it launched as mobile. It was only mobile, like that was their play. Most people that play on Xbox Cloud Gaming are playing on Xbox One or Xbox Series S or X.
29:51 Speaker 04 And Xbox Ones, because they can't play the games, because they're exclusive to Series S and X now. So I think their problem is they're stuck with that. Amount of loyal customers, you know, it's not not a problem because it's good to have loyal customers, right? But they want that growth. They've acquired all these companies. They were expecting to be better at mobile, better at cloud. But Apple or Google have not allowed them to do that. We all know why they don't, they won't open up their stores because if they did, Microsoft and Sony would completely dominate, right? And they wouldn't have a store for one of the most lucrative revenue streams on the App Store. So I think that that's the key thing is that they can't get to mobile easily. And they're kind of, they've been playing around, trying to work around it.
30:35 Speaker 04 And, you know, they've done cloud gaming and all that sort of stuff. But ultimately, they do need an app in the App Store, like everyone else, that allows you just to easily buy a game and stream it. Like, that's, that's their goal. That's, that's what they want. They're nearly there on Android.
30:50 Speaker 03 We say it a lot, and, but it's always worth pointing out again, the Apple services revenue is not Severance. It's not Ted Lasso.
30:59 Speaker 04 Yeah.
30:59 Speaker 03 It's thirty percent of in-app purchases in games.
31:02 Speaker 04 Yeah.
31:03 Speaker 03 Like, by far, the biggest chunk of Apple's fast-growing services revenue is in-app purchases in games. And they are never going to give that up unless literally the governments of the world demand that they give it up.
31:15 Speaker 04 It's gonna be a really messy fight for them to give that up, so. But for some reason, Microsoft keeps thinking that they're gonna do it, you know, some regulatory change. All right, this.
31:25 Speaker 03 Well, look, I mean, I get it. If you can buy King and you get Candy Crush and then you can lawyer your way into immediate thirty percent margin growth. Like, that's a good play. It just seems like they couldn't pull it off.
31:37 Speaker 04 They've seen, there was some regulatory pressure recently, but it's, it's not enough to, to what they want to do.
31:44 Speaker 03 We've talked about Phil as the CEO of Microsoft Gaming. And, you know, that's, it's easy and tempting to collapse that to just the Xbox. We've talked about how it's important now, especially that the Activision deal is closed, that they run a bunch of mobile games too. And they're making some money in mobile, it's hard to know how much. Right next to that is Windows Gaming. Right, and maybe now the rampocalypse means there won't be gaming PCs anymore.
32:05 Speaker 04 Yeah.
32:06 Speaker 03 Right, and the idea that Nvidia is gonna sell every GP in the world to Sam Altman means there won't be gaming PCs anymore.
32:11 Speaker 04 Yeah.
32:11 Speaker 03 But that was more than a flicker during all of this, right? People buying gaming PCs, playing Windows games, eventually buying Steam Decks. Just our own audience, every time we covered a Steam Deck or something that looked like a Steam Deck, we could tell people really liked these things.
32:28 Speaker 04 Yeah.
32:28 Speaker 03 Why did they ignore that opportunity? Because it seems like it was right there for them the entire time.
32:33 Speaker 04 They, oh god, this could be another podcast episode. They have a history of Windows failures, which is why Steam is the most popular now. But I think they've never, they've never really got Windows gaming and PC gaming right. I don't think they've had the right expertise in there. They've done console, like their console platform's great, but yeah, there is a big opportunity on PC. And I think that's kind of what they're seeing right now. So they're, that now it's like the reality is sitting with mobile and cloud isn't ready for them to get that growth. So now they're like, okay, PC? So the next gen Xbox is a PC, it's gonna be a PC, right? It virtually is now, it's running a custom version of Windows, very stripped down, like, you know,
33:18 Speaker 04 there's not, no start menu inside it, but, but the next one, their bet is that they can essentially convince PC OEMs to build Xboxes, right? Which then boot up into their own interface, which then they can say, subscribe to Game Pass. Buy our games in the store. But is the reality that those people are just gonna buy them and just use Steam?
33:43 Speaker 03 Yeah.
33:44 Speaker 04 That's, that's their problem. And this is like the very big question of the next gen Xbox. Whatever Asher does with that work that's going on at the moment. And what this next strategy is gonna be. Because that is, yeah, that's kind of a big question.
34:04 Speaker 04 We have to take another quick break, we'll be back in just a moment.
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36:19 Speaker 03 We're back with Verge senior reporter Tom Warren. Before the break, Tom is explaining the recent history of Xbox's struggles. But now I want to look ahead to current Microsoft Gaming CEO Asha Sharma, her previous role in AI, and how this leadership change could affect the future of the Xbox. The new head of Xbox is Asha Sharma, CEO of Microsoft Gaming. She does not appear to have any gaming background. I mean, she's out there posting on social media like, what game should I play? Like, she's making overtures to this audience. But before this, she led Core AI at Microsoft. She was a VP of Product at Meta. She was a CEO of Instacart. She's got a corporate operator background. Like, she's been at the big companies. She's run big projects. She's faced the pressure. She's handled it.
37:01 Speaker 03 But she's not a gamer, and Phil very famously is a gamer. I would point out that Nintendo is not run by gamers.
37:08 Speaker 04 No.
37:08 Speaker 03 Sony is not run by gamers. They're actually arguably more successful. Maybe this is actually the thing you need, some distance from this audience.
37:15 Speaker 04 Yeah.
37:16 Speaker 03 What do you think she's going to do with the strategy now?
37:18 Speaker 04 I still think that they will pursue Xbox everywhere, right? But not in the sort of way, not in the sort of over-promising, under-delivering scenario, I hope. Because that was just a mess. And I do think she's kind of signaled in her memo of a return to Xbox. We don't really know exactly what that means because, let's be honest, what does Xbox mean at the moment?
37:43 Speaker 03 Yeah. Also, Phil's been there the entire time. How do you return to the thing the guy who made it is leaving?
37:49 Speaker 04 I think she's kind of signaling there that consoles can be a little bit more of a priority than perhaps it has been over the last couple of years. But who knows? We'll have to see when she talks more broadly about that. I know the reaction to her in particular has been around questions around AI, right? Because she's been at Core AI at Microsoft for a couple of years. I don't necessarily get the impression that she's coming in to suddenly, you know, AI everything at Microsoft Gaming. I think she, I mean, they're just naturally going to do that anyway because it's Microsoft and Microsoft is heavily invested in AI. So I think that's, there's no question that that's going to happen there anyway. But I think. Her background, if you actually look at Core AI, she was more about platform scaling
38:32 Speaker 04 there with the Foundry business at Microsoft AI, Core AI. And that's kind of what she did at Instacart as well, platform scaling and then user acquisition at Meta. So I think if you look into what she's actually done and what she has expertise in, it's exactly what Xbox kind of needs, right? They need someone who can get teams executing and get that user acquisition, the platform scaling, the stuff that they need to build and get ready to actually see this vision through. Because the Xbox Everywhere vision, I don't think is terrible, but I think it's just trying to execute on certain parts of it. They've been really sloppy with it and just a little bit too early. So I don't think the strategy is going to change dramatically, but I think the next
39:15 Speaker 04 gen console and the PC stuff and where they try and push that way is going to be the cover for, you know, the strategy they originally wanted to do. But yeah, I don't think she's like some AI plant. I just don't get that impression.
39:29 Speaker 03 Let me ask you this big, big question. You know, you've done a lot of reporting over the last year and a half about this new console and it being a PC and this strategy and whether or not it's organized or disorganized. I think what I'm hearing you say is she's going to execute it, right? Like there's execution problems here. Maybe the company did not trust Sarah Bond to execute this strategy after Phil left. Maybe we need to reset it all. And so Asha's just going to execute that well. That's one approach. We can see if that's what she actually wants to do. Then there's what I hear a lot of people saying, especially gamers who are prone to hyperbole, that her job is to just shut it down, right? It's just bring this to an end because Activision didn't work, Bethesda didn't work. All Satya Nadella cares about is replacing all of us with AI agents that are using Excel
40:14 Speaker 03 or whatever he cares about. It's Microsoft just wants to wash its hands of this business and she's just going to trim it down to sell it to, I don't know, whoever wants to buy it. Do you think that's true? Is there a risk there?
40:25 Speaker 04 A few years ago, Nadella fought about spinning off Xbox, right? But instead Phil convinced him to do all these acquisitions and do ABK. So he invested obviously heavily. That's Microsoft's biggest acquisition. I don't think. Shareholders are going to like them just writing off Activision Blizzard, right? Like that's just, I can't see them running into the ground. So, and I think some of the people that have been coming up with this theory, and one of them is obviously an Xbox co-founder, which is, which is interesting. But I think it's rooted in the idea that Nadella doesn't want hardware, right? Which notoriously, Windows Phone, you know.
41:06 Speaker 03 Yeah, you talk about writing down acquisition.
41:08 Speaker 04 Don't get me started.
41:09 Speaker 03 Nadella came in as the CEO, the new CEO, and his first job was to write down the Nokia deal and get rid of it. And so you're like, maybe he can just do it again.
41:20 Speaker 04 Yeah, maybe. But this time he was there when the Activision deal went down. But yeah, I can't, I can't see them running the console into the ground. I think there is a realization over the past couple of years, the reaction to them putting games on PlayStation and Switch, and them really devaluing the console. And they're caught, this is their like only remaining consumer brand.
41:44 Speaker 03 Yep.
41:44 Speaker 04 That's, that's successful. And all right, we can't really call it successful right now. Perhaps, I don't know, like it's in a weird spot, right? But it's still a respected brand, a known brand across the world. Whereas Windows is in a weird spot. Surface is pretty much spanned towards commercial, really. And yeah, this is, this is the last one. If they mess this up, then they don't have that, that, that inroads to consumer, which also punishes them in AI, right? As well. So I think there's a realization of that. So I just can't see that they would completely exit out of the base of like what's known as Xbox. And I think if they were going to do that, Asher's not the person for that. I think the person to do that would be Matt Booty, right? You'd promote him and then just focus on shipping games and selling.
42:26 Speaker 03 He's the content officer.
42:28 Speaker 04 Yeah. So I think you do that. If you're in the, and that's what you truly wanted. You just wanted to do content and just be a third party publisher, which is, you know, what everyone kind of thinks Xbox is going to do.
42:39 Speaker 03 Yeah. Or you just keep collecting your 30% of Candy Crush revenue and you just don't talk about it in earnings reports and it'll be fine. Like.
42:46 Speaker 04 Yeah, Candy Crush and Minecraft are like, yeah, just.
42:48 Speaker 03 Right. You can just print that money and keep those things going and not talk about it and hope no one notices. And then spend your time trying to increase co-piloted option with consumers, whatever they think they're gonna do. But it sounds to me like you're saying we should watch out for actual moves to make Xbox more relevant.
43:05 Speaker 04 That seems to be what Ash is trying to signal in her memo. Like, that whole return to Xbox is kind of, it's very vague, but it's very interesting at the same time as well. I mean, if they want to keep this game password revenue going, they can't ignore that base, right? And it's a nice bit of revenue.
43:21 Speaker 03 All right, Tom, I'm gonna let you go back to that baby of yours. Thank you so much for jumping on and explaining all your reporting to us. I hope Microsoft can keep things chill until you're officially back from leave, but I make no promises on behalf of such and such.
43:35 Speaker 04 No, I thought February is a good time, you know, it's quiet.
43:37 Speaker 03 Very good. Thanks so much, Tom.
43:40 Speaker 04 All right, thank you.
43:43 Speaker 03 I'd like to thank Tom Warren for taking a break from his parental leave to join me on Decoder today, and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode, or really anything else at all, drop us a line. You can email us at [email protected] . We really do read all the emails. Or you can hit me up directly on Threads or Blue Sky. We're also on YouTube. You can watch full episodes at DecoderPod. We also have a TikTok and an Instagram. They're at DecoderPod as well. They're a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever you get your podcasts. If you really like the show, hit us with that five-star review. Decoder is a production of The Verge and part of the Vox Media Podcast Network. The show is produced by Kate Cox and Nick Statt. It's edited by Ursula Wright. Our editorial director is Kevin McShane. The Decoder music is by Breakmaster Cylinder. We'll see you next time.
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