You can almost set your watch to it at this point. Another Microsoft quarterly report showing Xbox with double-digit, year-over-year hardware revenue declines; usually, in the realm of about 10-30%. In this latest report, the figure was a 32% decrease, alongside a 9% drop in Xbox revenue overall.
It is not a great mystery why this is happening. Over the years, Microsoft has put less and less emphasis on needing to actually own an Xbox to play games. For a while, that was a pitch for streaming many Xbox titles on other devices, from smart TVs to tablets. Now, that’s evolved into Xbox putting nearly all of its first-party games on rival systems like Switch and especially PlayStation, either on day one or after an unknown amount of time.
Then, there are the price hikes, which Microsoft blames on marketing conditions. Sony too has had to deal with this with increases of their own, but they’re not seeing 32% hardware drops, nor are their prices as absurd as $800 for an Xbox Series X (its more powerful PS5 Pro costs less than that).
All of this may normally lead to the conclusion that Xbox is going to phase out of its hardware business and turn into more of a publisher/subscription service with Game Pass and cloud streaming and other console publishing alone. But so far as we know, that’s not happening.
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Xbox President Sarah Bond said back in November 2025 that hardware is “absolutely core to everything that we do at Xbox” and the new Xbox will be “a powerful experience…that also enables people to take their library with them.” Many have interpreted that as a Switch-like hybrid console, but it’s clearly also leaning into the “multiplatform” hardware idea even further.
The problem here is that the vast majority of existing Game Pass subscribers are on Xbox hardware, however much its losing the sales race to Sony (it is not remotely close) or how much it declines year over year. If hardware is cut entirely, suddenly millions of players see little reason to keep their subscription if they can go buy Xbox games piecemeal on PlayStation.
It feels like a trap. Xbox almost has to make hardware despite an extremely obvious reduced appetite for Xbox hardware that began all the way back in the Xbox One era, with Xbox 360 being the last time Microsoft was tied with a Sony offering. Eventually, Microsoft stopped posting hardware sales figures altogether, but they are not high, and dropping 32% from not high is not good.
The other factor here is AI, which, as it stands, has almost nothing to do with the current Xbox ecosystem. Microsoft is leaning hard into AI, as is every other tech giant, namely focused on Copilot, which has been less well-received as a platform than some of its rivals. Continuing to invest in a non-AI-based video game brand and subscription service, one that has not capitalized on enormous acquisitions like Activision Blizzard, may not be attractive. Jamming AI into hardware, “Xbox Copilot” or what have you, would drive even more fans away, which has already happened in droves.
Xbox would not be the first big-name console brand to die, with SEGA and Atari two big examples in decades past. Microsoft would also not be the first in big tech to abandon/reduce its gaming arm. Google left the space entirely after its Google Stadia streaming project failed. Meta threw billions into the VR-based metaverse with little to show for it besides a new company name. Amazon has closed down game studios over the past few years, and its biggest contribution to gaming is owning Twitch, the game-streaming platform. It’s possible that in its (potentially quixotic) pursuit of AI, Xbox could fall by the wayside. No matter what its executives are saying, it seems unstable at best, at the moment.
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