Microsoft CEO says Xbox needs to be more sustainable: "We've not been monetizing that entertainment"

As newly arrived Xbox CEO Asha Sharma promises a 100-day “reset,” Microsoft boss Satya Nadella says the company’s biggest challenge is finding ways to make both its games and hardware more “economically sustainable.” In a new interview with Hard Fork, CEO Nadella calls on Xbox to find ways to monetize its products, as elements like cloud computing and AI push prices upwards, although he wants to “stay true to what we’ve always done.”

Sharma’s open letter, which was sent to all Xbox employees this week, says that Xbox must fight ever harder for attention with such a wealth of entertainment options at consumers’ fingertips. She also spoke to the ongoing hardware component crisis, the company’s declining annual revenue, and a need to become “more self-reliant as an engineering culture.” Referring to this memo, Hard Fork host Casey Newton asks Nadella what his strategy is for Xbox.

“This is the 25th year of Xbox, and we’re very thrilled about the progress,” the Microsoft CEO responds. “Gaming, in an interesting way, at Microsoft is older than even Windows and Office, right? The first app we built was Flight Simulator. So it’s got a long heritage. The challenge now for us is to think about how you innovate both in hardware as well as in the games going forward in an economically viable way.”

Xbox CCO Matt Booty has reassured the PC audience that Sharma’s new exclusivity push is console-focused. “When we say ‘console exclusives,’ it means Xbox console. It’ll still show up on all the normal places where we sell the PC version and our cloud – wherever you can get Xbox Cloud streaming.” That means we don’t need to worry about missing out on the likes of Gears of War: E-Day.

For Nadella, however, one of the most important elements right now is making Xbox more sustainable. “One of the things that Asha put out is that we’ve invested a lot. No-one can accuse Microsoft of not having invested for the last 25 years. Now we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment.”

What needs to change, in Nadella’s eyes? “The challenge we have is we’ve not been monetizing that entertainment – in fact, if anything we’ve been subsidizing that entertainment. In fact there’s more monetization of Xbox games happening on YouTube than at Microsoft.” He chuckles.

“That doesn’t mean we go and do things that are unnatural,” Nadella continues. “We want 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.” Referring to Asha’s first 100 days and the vision for the next 100, he remarks, “She’s going to take a fresh look and make sure we deliver on what our fans expect of us, both on the hardware side and on the publishing side.”

Newton presses for more detail, stating that the current conversation leads people to worry about being asked to spend more. “I think we have to find ways to deliver the games which are economically relevant for the customer and for us,” Nadella replies. “Unfortunately, because of what’s happening with the cloud and AI, the prices have gone up. It’s happening with PCs, it’s happening with phones, Xbox is impacted as well.”

Nadella believes this component crisis will pass in time, “but there is a permanent thing, which is, ‘What’s the Xbox model going forward?’ That’s where, if you think about it, PCs and consoles both have their place, obviously mobile has people playing elsewhere, and so we have to now bring it all together while staying true to what we’ve always done.”

What Nadella’s comments could mean for the future of Xbox games remains to be seen. His remarks follow those from new Xbox CSO Matthew Ball suggesting that ad-supported tiers could give more people an affordable entry point to Xbox’s products. Ball did however specifically go on record to state that he wasn’t discussing in-game advertising, and that he believes “interrupting the gameplay experience would be bad.”

Nadella’s desire to find more “economically relevant” ways to present games to players could theoretically point towards options like an ad-supported version of Game Pass. What’s more certain for now is that things are changing at Xbox; exactly what that looks like in the long term remains to be seen.