Microsoft has sacrificed the growing sales of the Xbox Series X/S since launch as a trade-off for investments in cloud and gaming content. In an internal email exchange between Xbox chief Phil Spencer and Xbox CFO Tim Stuart in December 2020, the pair discussed the reasons behind lower Xbox console volumes. The email has been revealed as part of the FTC v Microsoft to belong.
Spencer admits that Microsoft had a “yield miss” for Scarlett, the code name for Xbox Series X/S consoles, but that this and the delay for Halo Infinite were not the “key factors in our console scarcity” during the initial launch period. Microsoft had reduced the compute units on its Xbox Series X silicon from 56 to 52 to improve production yields, but the company still missed a target for hardware production of the console. Microsoft also had a strategic bet on the cloud for which it appears to be holding back chips.
The email exchange refers to a trade-off between spending money on the volume or content of the Xbox console and cloud betting. “From a strategic perspective, I believe in our trade-offs for Cloud and Content in Gaming over console volume,” said Spencer. “With our strategy and opportunity, console volume will still be the thing we limit to grow our long-term ambition.”
Microsoft has had to invest money in building out its cloud infrastructure for Xbox Cloud Gaming, especially since it’s based on custom console components. “I believe our investments in content and xCloud are critical to realizing our potential in gaming,” said Spencer. “Amazon Luna and Google Stadia don’t have the console power we have to give us developer engagement, gaming community and content catalog.”
Microsoft also worked on a separate “dedicated” version of Xbox Cloud Gaming last year. But that “dedicated xCloud SKU” isn’t necessarily launching any time soon. In testimony during the FTC v Microsoft hearing last week, Sarah Bond, head of Xbox Creator Experience, said Microsoft was “clearer about costs” regarding Xbox Cloud Gaming and the service’s popularity, so no special version was currently being worked on.