Sales of Microsoft’s Xbox console are failing, and the company is signaling that it may not care in the way fans expect. CNBC points to Microsoft’s fiscal first quarter 2026 earnings, where total gaming revenue declined 2% year-over-year and Xbox hardware revenue declined 29%.
The decline is greater than for Xbox. Circana data cited by CNBC shows that spending on console hardware dropped 27% year-over-year in November, which is typically the best month for shopping. Even in this unfavorable situation, Xbox series hardware was hit the hardest by a 70% decline compared to the same month last year.
Instead of promising a classic return, Microsoft is leaning towards a different proposal. Phil Spencer said Microsoft isn’t trying to “overtake” Sony or Nintendo, and a source familiar with Xbox’s strategy said the company is looking for an open system that will allow gamers to switch between consoles, desktops and cloud gaming, as well as entertainment beyond gaming.
Xbox is far behind
In the unit comparisons highlighted by CNBC, the difference looks brutal. Nintendo says the Switch 2 has sold 10.36 million units since June. Sony reported sales of 9.2 million PlayStation 5 units in 2025.
On the Xbox side, CNBC cites VGChartz estimates that the Xbox Series S and Series Microsoft declined to comment on sales figures and stopped reporting console shipments in 2015 as PlayStation’s lead grew.
Open system, fewer walls
Microsoft leaders are laying the groundwork for this change in society. Satya Nadella said gaming is “everywhere, on every platform” and suggested the next Xbox could blur the line between console and PC. Xbox CEO Sarah Bond also mentioned Asus’ newer handhelds designed for cross-platform play and access to PC game stores.
On the software side, the walls are coming down as well. Bond decided that the exclusives were archaic, and Microsoft announced that the next “Halo” game will appear on PlayStation 5, for the first time in the history of the series.
What to watch next
The bet is that subscriptions and streaming may outgrow the failing demand for hardware. CNBC cites a report from Xbox that said it had 34 million Game Pass subscribers in 2024, nearly $5 billion in Game Pass revenue in the last fiscal year, and cloud gaming hours increased 45% year-over-year. Xbox Cloud Gaming currently covers 30 countries, including India.
But the economy remains tough. There has been a lot of backlash over Game Pass Ultimate’s 50% price augment in October, and Microsoft is testing an ad-supported cloud option. If you’re deciding what to invest in, pay attention to two things: whether Microsoft will show off true “open system” features in its next-gen roadmap, and how it will stack up against the arrival of up-to-date arcade rivals like Valve’s next-gen Steam Machine.
