Microsoft CEO, Satya Nadella, has bemoaned the performance of its Xbox division, claiming that YouTube makes more money from the gaming arm than it does.
Nadella made the comments during a live event in San Francisco with Hard Fork, The New York Times’s tech podcast, ahead of expected significant layoffs across Xbox.
Last week, Xbox boss Asha Sharma sent a surprisingly candid note to staff, in which she shared “realities that we need to navigate”, claiming that Xbox’s annual revenue had declined nearly half a billion in five years, with hardware costs up 4x, and its studio system “overextended”.
Microsoft CEO Nadella’s comments on the Xbox division seem to echo Sharma’s, with the exec stating that the gaming arm needed to find a more sustainable business model going forward.
“This is the 25th year of Xbox, and we’re very thrilled about the progress we have made,” Nadella said. “Gaming, in an interesting way, at Microsoft is older than even Windows and Office. The first app we built was Flight Simulator. And so, it’s got a long heritage. Xbox itself has been there for 25 years.
“The challenge now for us is to think about how do you innovate both in hardware as well as in the games going forward in an economically viable way?
“I think one of the things that Asha, who has just taken over Xbox, put out is that we’ve invested a lot. No one can accuse Microsoft of not having invested for the last 25 years. And now we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment still.”
According to Nadella, Microsoft’s challenge in gaming is that it has “not been monetizing” its entertainment properly. “In fact, if anything, we’ve been subsidizing that entertainment,” he claimed. “In fact, there’s more monetization of Xbox games happening on YouTube than at Microsoft.”
The CEO went on to claim that creating a more sustainable future for the Xbox business “doesn’t mean we go do things that are unnatural”. He said: “We want us to do what is really our job, which is to build great games, build great hardware. But we’ve got to do it in an economically sustainable way.”
Speaking during a separate interview earlier this month, Asha Sharma suggested that Xbox was looking at ways to make its next console, codenamed Helix, more affordable, amid an ongoing hardware “crisis”, including considering “radically different business models”.
In the Hard Fork interview, Nadella claimed that the component price surges were a temporary issue, and said he was more concerned with identifying a strategic position for Xbox, alongside PC and mobile gaming.
“The scarcity of the semiconductor supply and memory are having a massive impact on consumer electronics,” he said. “That’s a temporary thing that I think we’ll get through. It is not going to be a permanent.
“But there is a permanent thing, which is, what’s the Xbox model going forward? And that’s where, if you think about it, PCs and consoles, both have their place. Obviously, mobile has. People play elsewhere. And so we have to now bring it all together while staying true to what we’ve always done.”
