Xbox is losing the console race by miles. It's part of Microsoft's big gaming pivot

Microsoft's Xbox division has encountered a challenging year marked by significant layoffs, rising prices, and studio closures, leading many to speculate about the platform's viability. Laura Fryer, a former executive producer at Microsoft Game Studios, remarked in June that the company appears to lack the ambition to release new hardware. Additionally, former Microsoft executive Mike Ybarra criticized Xbox's unclear strategy, suggesting the brand is at risk of suffering from gradual decline. According to Microsoft's first-quarter earnings for fiscal 2026, overall gaming revenue fell by 2% year-over-year, with Xbox hardware sales plummeting by 29%. The console market as a whole has been struggling, with a 27% decrease in hardware spending reported in November, typically one of the busiest shopping months of the year. This November was noted as the worst in two decades, as highlighted by research firm Circana. Sales for the Xbox Series hardware suffered the most, experiencing a staggering 70% drop. In comparison, Nintendo's Switch 2 has achieved impressive sales of 10.36 million units since its launch in June, while Sony's PlayStation 5 reached 9.2 million units sold in 2025. In contrast, Microsoft's Xbox Series S and Series X managed to sell only 1.7 million units, failing to surpass the original Nintendo Switch, which has sold 3.4 million units this year, according to VGChartz. Despite the setbacks, Microsoft appears to be shifting focus. Phil Spencer, CEO of Microsoft Gaming, stated in a podcast that the company is not primarily concerned with outpacing Sony or Nintendo but aims to create an entertainment hub that encompasses all forms of gaming, whether on console, PC, or mobile. This sentiment was echoed by Microsoft CEO Satya Nadella, who expressed a vision for the next Xbox that could resemble a PC, indicating a merger of console and PC gaming. The recently launched handheld gaming devices, developed in collaboration with Asus, support cross-platform gaming and can run PC titles from various platforms. Additionally, Xbox has introduced the Backbone Pro, a portable controller that enhances cloud gaming across multiple devices. While Microsoft is not entirely abandoning hardware, analysts suggest the company is diversifying its audience approach, catering to both existing console users and a broader gaming community. Xbox Game Pass has been a central component of this strategy, with the subscription service experiencing growth and now boasting more than 34 million subscribers. However, the company faced backlash after increasing the price of its Ultimate tier by 50% in October. Reports indicate Microsoft is exploring an ad-supported version of Xbox Cloud Gaming, which could help attract new users, although the high costs associated with cloud services present challenges. In its pursuit of a more interconnected gaming ecosystem, Microsoft has made substantial investments in game studios, acquiring several high-profile developers to enhance its game library. This expansion has led to a notable pivot away from exclusive titles, with Xbox announcing that the next 'Halo' game will be available on PlayStation 5, marking a significant shift in strategy. Despite recent layoffs impacting nearly 9% of its gaming division and the discontinuation of multiple projects, Microsoft remains focused on building a future where gaming transcends traditional hardware limitations. The ongoing evolution of Xbox continues to raise questions about its long-term sustainability and relevance in an increasingly competitive market.