Xbox Falls Further Behind in Console Sales as Microsoft Accelerates Gaming Pivot

Microsoft’s Xbox business is facing renewed scrutiny as console sales continue to trail rivals by a wide margin, even as the company presses ahead with a broader strategy centered on cloud gaming, subscriptions, and cross-platform access. While industry-wide hardware demand has softened, Xbox’s sharper declines highlight a deliberate — and controversial — pivot away from competing primarily as a traditional console maker.

Microsoft’s gaming division has endured a turbulent year marked by layoffs, studio closures, and price increases. Those moves have reignited debate over Xbox’s long-term direction, particularly as competitors Sony and Nintendo maintain stronger hardware momentum despite the same challenging market conditions.

Hardware sales lag amid industry downturn

Microsoft reported a 2% year-over-year decline in overall gaming revenue in its first-quarter fiscal 2026 results, alongside a 29% drop in Xbox hardware sales. The figures come against the backdrop of a broader console slowdown. According to Circana, U.S. hardware spending fell 27% year over year in November, traditionally one of the sector’s busiest months. IGN, citing the same data, said it was the weakest November for console sales in two decades.

All major platforms were affected, but Xbox experienced the steepest decline. Combined sales of Nintendo’s Switch and the newer Switch 2 fell by more than 10% in November, while PlayStation 5 sales dropped over 40%. Xbox Series X and Series S hardware sales plunged roughly 70% over the same period, according to Circana estimates reported by IGN.

Annual sales figures further illustrate the gap. Nintendo said its Switch 2 sold 10.36 million units since launching in June, while Sony reported 9.2 million PlayStation 5 units sold in 2025. By contrast, Microsoft’s Xbox Series X and S sold an estimated 1.7 million units this year, according to VGChartz. That figure trails even the original Nintendo Switch, which debuted in 2017 and sold an estimated 3.4 million units in the same period.

Microsoft declined to comment on Xbox sales figures. The company stopped publicly reporting console shipment numbers in 2015 as the sales gap with PlayStation widened.

Internal and external criticism mounts

The widening disparity has fueled criticism from former Microsoft and Xbox executives. Laura Fryer, a former executive producer at Microsoft Game Studios, said in June that the company appeared to have “no desire or literally can’t ship hardware anymore.” Former Blizzard Entertainment president and ex-Microsoft executive Mike Ybarra also criticized Xbox’s “confusing” strategy in an October post on X that was later deleted, warning it risked a slow erosion of relevance.

Those concerns have grown louder as new competitors blur the line between console and PC gaming. Valve’s announcement in November of a next-generation Steam Machine — a console-PC hybrid running SteamOS — drew significant attention across the industry. The Verge described the device as “the Xbox that Microsoft is dreaming of,” highlighting its ability to access a vast PC game library from the living room.

Microsoft downplays console race

Despite the optics, Microsoft’s leadership has consistently played down the importance of winning the hardware race. Microsoft Gaming CEO Phil Spencer said in a 2023 podcast that the company is “not in the business of out-consoling Sony or out-consoling Nintendo,” arguing there is limited upside in pursuing that goal directly.

Instead, Microsoft is pushing toward a vision rooted in accessibility across devices. CEO Satya Nadella said recently that the company’s gaming model is designed to be “everywhere on every platform,” spanning consoles, PCs, televisions, and mobile devices. He also suggested future Xbox hardware may more closely resemble a PC, challenging the traditional distinction between the two.

Xbox President Sarah Bond echoed that thinking, noting that the company’s next-generation console will incorporate ideas from its new handheld devices developed in partnership with Asus. Launched in October, those handhelds support cross-platform gaming and can run PC titles from multiple digital storefronts, including Steam and Epic Games.

Cloud gaming and Game Pass at the center

At the core of Microsoft’s strategy is Xbox Game Pass, its subscription service that offers access to a large catalog of games across devices. The company reported 34 million Game Pass subscribers in 2024 and nearly $5 billion in Game Pass revenue over the last fiscal year.

Microsoft said in a November blog post that cloud gaming hours among Game Pass users rose 45% year over year. Console players, it added, are spending significantly more time streaming games via the cloud, both on consoles and other devices. Xbox Cloud Gaming is now available in 30 countries, including India, which Microsoft describes as the world’s fastest-growing gaming market.

The company has expanded Game Pass offerings while adjusting pricing. The Ultimate tier price rose sharply in October, drawing criticism from subscribers. Microsoft is reportedly testing an ad-supported cloud gaming option, which analysts say could help attract new users but may struggle to deliver meaningful profits due to the high costs of cloud infrastructure.

Content expansion and exclusivity shift

Microsoft has also invested heavily in game development through acquisitions, including ZeniMax Media in 2020 and Activision Blizzard in 2023. Analysts say the spending spree was aimed at securing enough content to support a platform-agnostic gaming ecosystem.

That approach has coincided with a major shift away from exclusivity. Microsoft has increasingly released Xbox titles on rival platforms, including PlayStation. In October, the company announced that an upcoming “Halo” title would be available on the PlayStation 5 — a first for the flagship franchise.

Spencer has said the company no longer wants to “put walls up” around where its games can be played, emphasizing reach over hardware lock-in.

Layoffs, closures, and rising prices

The strategic pivot has unfolded alongside significant cost-cutting. Microsoft laid off about 1,900 gaming employees in January and another 650 Xbox staff in September. Several Bethesda-owned studios were closed in May, and additional projects were shelved following company-wide layoffs in July.

Microsoft has also raised prices on its console lineup twice in the past year. The PlayStation 5 now starts at $549.99, while Nintendo’s Switch models range from $399.99 to $499.99. Microsoft’s newer handheld offerings, the ROG Xbox Ally and Ally X, launched at $599.99 and $999.99, respectively.

As competition intensifies and consumer spending remains under pressure, Microsoft appears willing to accept weaker console sales in exchange for broader reach. For Xbox, the future may hinge less on the number of boxes sold — and more on whether its cloud-first, cross-platform bet can sustain long-term growth.