Microsoft's games are bigger than Xbox. So just scrap Xbox.

Xbox looks like a slow motion car-crash. That’s the trouble with airing turnarounds in public: only the bad news filters through. Here’s the economic good news: by applying vast scales of capital and without really seeming to know why, Microsoft has assembled one of the largest entertainment companies on the planet. The problem isn’t the games: it’s the expectations that come with building a platform.

Microsoft should not give up on games. It should just give up on Xbox as a service and platform. It needs to be said: console exclusives are an absurdity. The unit economics of building a game is now so expensive that limiting your audience to those who can buy a box to play them on is an act of financial insanity. And Xbox, with its costs of hardware and software infrastructure, intricate networks, and dependencies doesn’t look like it’s adding value to its customers. Being on Xbox, supporting the platform, driving Game Pass or Live subscriptions is a tax on developers even inside the Xbox business.

As a journalist that’s worked in PC gaming for 25 years, I’ve watched the money furnace of Xbox with a sense of awe and shadenfreude. The irony of Microsoft, a historic PC business, burning cash on competing with Sony, while in their backyard, a little upstart called Valve eats their audience with a slow drip drip of incredible games and seamless distribution has never left me.

So here we are. The Xbox brand is going through a historic restructure. And from the outside it appears it’s all falling apart. Studios are closing, jobs are being lost, and the human price of that is paid in careers and livelihoods up in smoke, art and code abandoned because projects and teams will be quietly dissolved. All for what? To service the expectations of a console and platform that is all sunk cost. Games built hoping to sell consoles that lose money. Why?

There’s an answer to this, and it’s not one that Xbox fans are going to like. Microsoft should give up on Xbox. Hardware is a losing proposition. It’s always going to be a losing proposition. And they will always lose. There isn’t a win here. Console hardware is going to lose them billions. There is no appetite from young consumers for high end hardware. There is no under TV device strategy that can outcompete a phone or tablet that’s placed into a toddler’s hand. The gateway to gaming: Roblox, can run on a potato. You might be able to convince a middle-aged man to part with a thousand dollars for an Xbox Edition Helix Pro X, but will he ever have the time or energy to play on it? No matter how you cut it, this is a losing proposition.

It’s doubly painful because Microsoft’s real attention and excitement is so clearly elsewhere. It sees gold in AI and Azure data centres, and the gaming business is being cut to ribbons to support that investment. Humans are losing their jobs to pay for the trillions the tech industry thinks it deserves to pay for the robots to rule.

But there’s a better option.

The leadership at Microsoft should accept they’ve done one thing right. They have assembled, accidentally and haphazardly, with billions of spare change, and to the ire of regulators across the globe, one of the biggest entertainment companies on the planet. MS don’t split out actual gaming revenues on their annual reports, but if you squint you can see the shape of it. Activision Blizzard, Bethesda, Xbox Game Studios, and Mojang, together, are chucking off 24 billion dollars a year in revenue. In scale, that’s four Take-Twos, Three EA’s, or two Foxes. It’s reaching Netflix proportions. Take the win.

Together, the games, brands, franchises, and IP are an extraordinary jewel. The same business that owns Call of Duty, World of Warcraft, and Candy Crush owns Minecraft and The Elder Scrolls. Halo is practically a footnote to this wild, incredible bit of M&A. Squeezing it into a hardware or platform strategy is just absurd.

So here’s the proposition. Spin it off. Make a new entity, part owned by Microsoft but floated independently. Put the games business in it, and appoint great leadership. Let that be run as a for profit entity. Then, maybe, gamers will all get what they want: great games, released at pace, not tied to a pointless and expensive platform purchase.

Microsoft’s games should, could and can meet any age group, in any environment, in any place in the world. But only if you decouple them from hardware.

A hard-headed games entertainment business would and should focus on making the best possible games and entertainment, making them available to the widest possible audience irrespective of device. There will be a complicated ownership structure here that can make it a win for both Microsoft and gamers. Capitalize it as a business until first, and then float it, having shown success, in a year, whilst MS remain the largest individual shareholder. That way they can share in the success and get the cash value back into Microsoft’s business. I’m pretty sure any share sale of that sort would raise enough cash for an AI data centre or three.

In the meantime, if Microsoft truly believes there’s a future in game devices, they should try that. Surface showed the way for Windows devices. The Xbox hardware team should and could properly attack modern, affordable PC hardware in new formats and styles. I would love to see a bedroom gaming PC built with the same philosophies of the Macbook Neo. Or a handheld to take on the Steam Deck that isn’t a skateboard-sized halfway house abomination like the ROG Ally. But those products should be in service of the games that run on them: not the other way around.

I’ll say it again. The next Xbox console is almost certainly doomed to fail. So will the next one. And if they’re still persisting with this model, so will the next one. The economics of games subsidizing a piece of hardware have fallen apart. That doesn’t mean Microsoft and Xbox have failed. They have created and provided incredible games and memories. Xbox was a brilliant place to play. It has done so much good for gaming. It is those games that will endure. Set them free.