Xbox will continue making console innovations, Microsoft CEO Satya Nadella promises

It sounds like Xbox consoles are safe, at least for another hardware generation.

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Hardware has always been a sore spot for Microsoft. Although the original Xbox launched to surprising numbers, and the Xbox 360 went neck and neck against the PS3, Microsoft has always missed one very important part of consumer electronics sales: Profit.

Typically, companies like Sony, Nintendo, and Microsoft will launch their consoles at a loss and make up for it via games, subscriptions, services, etc. Over time, Sony and Nintendo will sell their systems at a profit. But Microsoft never makes its money back from Xbox hardware, and every generation of Xbox console has been unprofitable and sold at a loss (clarification that Xbox as a games division is still profitable).

These trends, collectively wrapped in the all-constant goal of profits and growth, have caused Xbox management to break game exclusivity and release first-party games on third-party platforms like Nintendo and PlayStation. The goal is to maximize profits and apparently that isn't happening with Xbox hardware.

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Read Also: Microsoft: We sell Xbox hardware at a 'substantial loss'

Some think that Microsoft is slowly trying to spin itself out of the hardware game and exclusively sell content & services.

Not only are consoles like the Xbox Series X--and even the cheaper S model--sold at a loss, but Microsoft cannibalized its own console supply in 2020 and beyond to fill out its Project xCloud (Xbox Game Streaming) server banks, which are powered by actual Xbox hardware. This decision at a critical point where COVID-19 was already restricting production had reduced total supply for consumers, which reduced sales and allowed competitors to sweep up potential users, while also further reducing Microsoft's foothold in the Big 3's console race.

And a significant portion of Xbox's quarterly revenues come from software and services--this was high before, but the ratio is even higher now that ABK's revenues are included.

However, Microsoft has made public commitments to make new consoles.

Xbox gaming president Sarah Bond already confirmed the next Xbox console will deliver the largest technical leap in console history, and now we have more comments from Microsoft CEO Satya Nadella about Xbox hardware.

In a recent annual shareholders Q&A, Nadella outlines his hopes for Xbox, and how he aspires to have the games division utilize all of Microsoft's core services and strengths--including cloud and AI.

The buck stops with Nadella and the Board of Directors, so if the CEO is saying it, Xbox hardware is here to stay (at least for a while).

"More importantly, I think, long term, as a company, we can bring the best of AI innovation, cloud innovation, console innovation, PC innovation to build the best games that can be enjoyed by gamers everywhere," Satya Nadella said during the call.

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Reports indicate that Microsoft is currently working on its own dedicated Xbox handheld console device. If accurate, this system may end up being the first-ever profitable Xbox hardware.

Elsewhere in the meeting, Nadella said that he is satisfied with Xbox's current trajectory and that he feels fantastic about the future of Xbox now that it's empowered by Activision Blizzard King's multi billion-dollar content.

Here's what Xbox gaming president Sarah Bond said about the next-gen Xbox console earlier this year in February 2024:

"When we look at hardware, it's where you really get the flagship seminal experience of Xbox. It also represents a developer target. Our developers can build the specs of our hardware, and we invest to make sure when they do that, the games are going to run great on our hardware but they're also going to be able to be accessed across any screen because of all the other investments we make.

"So we're giving them an easy way to access as many players as possible. And we actually have more creators right now building for Xbox than ever before by nature of those investments.

"We've got more to come. There's some exciting stuff coming out in hardware that we're going to share this holiday season and we're also invested in the next generation roadmap.

"And what we're really focused on there is delivering the largest technical leap you will have ever seen in a hardware generation, which makes it better for players and better for creators and the visions that they're building."