Next-gen Xbox melding with Windows, new 'console' is a PC

UPDATE: Microsoft CEO Satya Nadella confirms the new Xbox will "innovate" on both console and PC form factors on a system level.

Microsoft is making a major departure with its next-gen console: sources tell Windows Central that the new Xbox will be a PC that mimics the console environment and plays all existing Xbox console games from gen 9 and below.

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New reports indicate that Microsoft will make radical changes to its Xbox gaming business in the coming years. Sources tell Windows Central's Jez Corden that the new Xbox will be a PC running Windows with a traditional console "experience" layered on top. As was rumored and inferred, the special console-ized version of Xbox/Windows on the Xbox Ally X handheld was essentially a test for the new console.

• Read more: Next-gen Xbox hardware will have shared game libraries and storefronts, Microsoft reiterates
• Read more: Microsoft CEO Satya Nadella comments on next-gen Xbox PC console hybrid

The next-gen Xbox is a PC that can play games purchased on Windows-based stores like Steam and the Epic Store, but it can also play Xbox backward compatible games released across all console generations. Windows Central reports that this new system will be able to play Xbox games released on the Series X/S generation and below, all the way down to the original Xbox. Microsoft is essentially melding Xbox consoles into Windows, likely in an effort to achieve the steep 30% profit margins set by executive management, however the future of Xbox hardware appears to be a combination of these technologies, storefronts, and environments rather than the traditional closed-ended console ecosystem, signalling an end to Xbox console generations as they exist in the status quo.

There's no information on how the storefronts will operate, eg whether or not Microsoft will still maintain an Xbox storefront that sells console-native games within the Xbox-Windows app/experience. It's possible that two storefronts will operate in parallel with one another, with the new Windows Gaming/Xbox store that sells the new next-gen games and beyond on one side, and the traditional Xbox console game store on the other side. That way Microsoft could still net dual license sales wherever possible.

This transformational shift in hardware reflects Xbox president Sarah Bond's recent comments that the next Xbox will be a "very premium, very high-end curated experience," possibly indicating a move towards profitable hardware production.

The report also aligns with Xbox's ambitious goal to "make Windows the #1 platform for gaming."