Microsoft's Xbox division is in a much healthier state today than it was a year ago. It's had a tough time of it; forced to reinvent itself in an excruciating, public way as the original design philosophy and marketing message for the Xbox One transpired to be about as popular as breaking wind in a crowded lift, resulting in executive reshuffles and a tricky refocus of the variety that would ordinarily be carried out pre-launch and behind closed doors. Even now, Xbox One remains lumbered with the fossilised detritus of its abortive original vision; Kinect 2.0 has been shed, freeing up system resources and marking a clear departure for the console, but other legacy items like the expensive hardware required for HDMI input and TV processing are stuck right there in the system's hardware and cannot be extracted until the inevitable redesign of the box rolls around.
All the same, under Phil Spencer's tenure as Xbox boss, the console has achieved a better turnaround than any of us would have dared to expect - but that, perhaps, speaks to the low expectations everyone had. In truth, despite the sterling efforts of Spencer and his team, Xbox One is still a console in trouble. A great holiday sales season was widely reported, but actually only happened in one territory (the USA, home turf that was utterly dominated by Xbox in the previous generation), was largely predicated on a temporary price-cut and was somewhat marred by serious technical issues that dogged the console's headline title for the season, the Master Chief Collection.
Since the start of 2015, things have settled down to a more familiar pattern once more; PS4 consistently outsells Xbox One, even in the USA, generally racking up more than double the sales of its competitor in global terms. Xbox One sells better month-on-month than the Wii U, but that's cold comfort indeed given that Nintendo's console is widely seen as an outright commercial failure, and Nintendo has all but confirmed that it will receive an early bath, with a replacement in the form of Nintendo NX set to be announced in 2016. Microsoft isn't anywhere near that level of crisis, but nor are its sales in 2015 thus far outside the realms of comparison with Wii U - and their installed bases are nigh-on identical.
"while the Xbox One looks like it's struggling, it's actually doing markedly better than the Xbox 360 was at the same point in its lifespan"
The odd thing about all of this, and the really positive thing that Microsoft and its collaborators like to focus on, is that while the Xbox One looks like it's struggling, it's actually doing markedly better than the Xbox 360 was at the same point in its lifespan - by my rough calculations, Xbox One is about 2.5 million units north of the installed base of Xbox 360 at the same point. Oddly, that makes it more comparable with PS3, which was, in spite of its controversy-dogged early years, a much faster seller out the door than Microsoft's console. The point stands, though, that in simple commercial terms Xbox One is doing better than Xbox 360 did - it just happens that PS4 is doing better than any console has ever done, and casting a long shadow over Microsoft's efforts in the process.
The problem with this is that I don't think very many people are under the impression that Microsoft, whose primary businesses lie in the sale of office and enterprise software, cloud services and operating systems, is in the videogames business just in order to turn a little profit. Ever since the departure of Steve Ballmer and the appointment of the much more business-focused Satya Nadella as CEO, Xbox has looked increasingly out of place at Microsoft, especially as projects like Surface and Windows Phone have been de-emphasised. If Xbox still has an important role, it's as the flag-bearer for Microsoft's brand in the consumer space; but even at that, the "beach-head in the living room" is far less important now that Sony no longer really looks like a competitor to Microsoft, the two companies having streamlined themselves to a point where they don't really focus on the same things any more. Besides, Xbox One is being left behind in PS4's dust; even if Microsoft felt like it needed a beach-head in the living room, Xbox wouldn't exactly be doing the job any more.
"All those rumours about Microsoft talking to Amazon about unloading the Xbox division came to nothing only a few short months ago, after all...Isn't this all settled now?"
But wait, we've been here before, right? All those rumours about Microsoft talking to Amazon about unloading the Xbox division came to nothing only a few short months ago, after all. GDC saw all manner of talk about Xbox One's place in the Windows 10 ecosystem; Spencer repeatedly mentioned the division having Nadella's backing, and then there's the recent acquisition of Minecraft, which surely seems like an odd thing to take place if the position of Xbox within the Microsoft family is still up in the air. Isn't this all settled now?
Perhaps not, because the rumours just won't stop swirling that Microsoft had quietly put Xbox on the market and is actively hunting for a buyer. During GDC and ever since, the question of who will come to own Xbox has been posed and speculated upon endlessly. The console's interactions with Windows 10, including the eventual transition of its own internal OS to the Windows 10 kernel; the supposed backing of Nadella; the acquisition of Minecraft; none of these things have really deterred the talk that Microsoft doesn't see Xbox as a core part of its business any more and would be happy to see it gone. The peculiar shake-up of the firm's executive team recently, with Phil Harrison quietly departing and Kudo Tsunoda stepping up to share management of some of Microsoft Game Studios' teams with Phil Spencer, has added fuel to the fire; if you hold it up at a certain angle to the light, this decision could look like it's creating an internal dividing line that would make a possible divestment easier.
Could it happen? Well, yes, it could - if Microsoft is really determined to sell Xbox and can find a suitable bidder, it could all go far more smoothly than you may imagine. Xbox One would continue to be a part of the Windows 10 vision to some extent, and would probably get its upgrade to the Windows 10 kernel as well, but would no longer be Microsoft hardware - not an unfamiliar situation for a company whose existence has mostly been predicated on selling operating systems for other people's hardware. Nobody would buy Xbox without getting Halo, Forza and various other titles into the bargain, but Microsoft's newly rediscovered enthusiasm for Windows gaming would suggest a complex deal wherein certain franchises (probably including Minecraft) remain with Microsoft, while others went off with the Xbox division. HoloLens would remain a Microsoft project; it's not an Xbox project right now and has never really been pushed as an Xbox One add-on, despite the immediate comparisons it prompted with Sony's Morpheus. Xbox games would still keep working with the Azure cloud services (Microsoft will happily sell access to that to anyone, on any platform), on which framework Xbox Live would continue to operate. So yes, Xbox could be divorced from Microsoft, maintaining a close and amiable relationship with the requisite parts of the company while taking up residence in another firm's stable - a firm with a business that's much more in line with the objectives of Xbox than Microsoft now finds itself to be.
"None of Xbox' rivals would be in the market to buy such a large division, and no game company would wish to lumber itself with a platform holder business. Neither Apple nor Google make the slightest sense as a new home for Xbox either"
This, I think, is the stumbling block. I'm actually quite convinced that Microsoft would like to sell the Xbox division and has held exploratory talks to that end; I'm somewhat less convinced, but prepared to believe, that those talks are continuing even now. However, I'm struggling to imagine a buyer. None of Xbox' rivals would be in the market to buy such a large division, and no game company would wish to lumber itself with a platform holder business. Neither Apple nor Google make the slightest sense as a new home for Xbox either; the whole product is distinctly "un-Apple" in its ethos and approach, while Google is broadly wary of hardware and almost entirely disinterested in games.
Amazon was the previously mentioned suitor, and to my mind, remains the most likely purchaser - but it's seemingly decided to pursue its own strategy for living room devices for now, albeit with quite limited success. I could see Amazon still "exploring options" in this regard with Microsoft, but if that deal was going to happen, I would have expected it to happen last year. Who else is out there, then? Netflix, perhaps, is an interesting outside possibility - the company's branching out into creating original TV content as well as being a platform for third-party content would be a reasonably good cultural match for the Game Studios aspect of Xbox, but it's hard to imagine a company that has worked so hard to divorce itself from the entire physical product market suddenly leaping back into it with a large, expensive piece of hardware.
This, I think, is what ultimately convinces me that Xbox is staying at Microsoft - for better or worse. It might be much better for Xbox if it was a centrepiece project for a company whose business objectives matched its strengths; but I don't think any such company exists to take the division off Microsoft's hands. Instead, Spencer and his talented team will have to fight to ensure that Xbox remains relevant and important within Microsoft. Building its recognition as a Windows 10 platform is a good start; figuring out other ways in which Xbox can continue to be a great game platform while also bringing value to the other things that Microsoft does is the next challenge. Having turned around public perception of the console to a remarkable degree, the next big task for the Xbox team will be to change perceptions within Microsoft itself and within the investor community - if Xbox is stuck at Microsoft for the long haul, it needs to carve itself a new niche within a business vision that isn't really about the living room any more.