Microsoft's games revenue increased 8% in the second fiscal quarter, which CEO Satya Nadella declared as the "largest gaming revenue quarter" in the company's history.
In the three-month period ended December 31, 2018, Microsoft earned $4.23 billion in revenue from its games business -- an overall increase of 8% year-on-year.
That improvement did not come from hardware revenue, however. Hardware sales actually fell 19% over the same quarter last year, which hosted the launch of the Xbox One X.
Instead, Microsoft drew strength from software and services, which saw a 31% increase in revenue thanks to a combination of third-party sales, Game Pass subscribers, and Xbox Live users. In a call with investors, Microsoft CEO Satya Nadella confirmed that Xbox Live MAUs increased by 8% to reach a record 64 million people across console, PC and mobile.
According to Nadella, that included "the highest number of mobile and PC users to date. Xbox Game Pass subscribers and Mixer engagement also hit new all-time highs."
"Our investments in content community and cloud services across every endpoint drove both record user engagement and record average revenue per user and contributed to our largest gaming revenue quarter ever, driven by software and services," Nadella added.
Microsoft also acquired two more development studios in the second quarter: Obsidian Entertainment and inXile Entertainment. It now has 13 internal studios, having doubled its "first-party content capacity" in the space of six months.