When you think of Microsoft, you probably think of Word or Windows first; omnipresent computer software that, despite its usefulness, does not elicit enormous excitement. Xbox is different. At E3 each year, the video games industry’s biggest event, Microsoft packs out a stadium-sized room with fans for its annual press conference, many of whom have travelled from all over the world. People are passionate about Xbox and its games – Minecraft, Halo, Gears of War – in a way that nobody is about Microsoft Office.

Microsoft’s most senior figures appear to have woken up to this relatively recently. Phil Spencer, who ran Xbox’s game development studios for years, was made executive vice-president of gaming within the company in September 2017. This finally put Xbox on equal footing with Windows and Office within Microsoft – and put a gamer in the room with the CEO and CTO of the company. This has meant big changes for the Xbox business, and apparently huge investment in creative video game talent.



On Sunday at the Xbox E3 press conference, Spencer announced that Microsoft had acquired four new developers and created one more, doubling the number of studios it owns. They included British studios Ninja Theory, whose most recent game Hellblade: Senua’s Sacrifice won an extraordinary five trophies at this year’s Bafta games awards, and Playground Games, whose playful, beautiful Forza Horizon titles feel more like travelogues than racers.



“I’ve been at Xbox since the beginning and Xbox used to be like the garage band of Microsoft: as long as we didn’t turn the music up too loud, we were able to keep playing,” says Spencer, speaking to the Guardian in LA on Monday. “But now the company really sees what gaming is: it’s two billion people around the world, many of whom love our brands. We’re a player; we’re important. And we have broad aspirations.”

Matt Booty, who was previously in charge of Minecraft, has taken Phil’s place as head of Microsoft Studios. “It was a big vote of confidence for Xbox and for gaming to have our gaming work sitting side by side with some of the other big pillars of Microsoft,” he says. “We really see that as a signal for long-term investment, in our existing franchises and in starting new things.”

The Xbox 360 was the most popular console in North America and the UK between 2005 and 2012, but the Xbox One hasn’t replicated that success. Microsoft stopped reporting sales figures for the console a few years back, but according to estimates, it’s been outsold Sony’s PlayStation 4 by a factor of 2:1 – largely due to a relative lack of exciting games that can only be played on Xbox. At a time when Sony was investing time and money in developers with great creative reputations, Microsoft was not doing the same.



Phil Spencer is frank about the reasons for this relatively sluggish performance. “We launched a box that was underpowered compared to the Playstation, and more expensive because of the inclusion of [motion-sensing camera] Kinect in every box,” he says. “Underpowered and overpriced was … not the right model for us. We had shipped some of our franchises too frequently, which had made them lose some of the anticipation that’s important in the entertainment industry. Our studios had lost leaders, which meant they were the studio that they had been before in name rather than in function.”



How can Xbox fix this? By focusing on actual games that people want to play, as well as on a box that lives under your television. Microsoft’s recent investment in game studios is the start of remedying situation, enabling Xbox to take more creative risks, says Phil.

“The entertainment business is a portfolio business,” he adds. “Most games don’t work. Most movies don’t work; most books don’t work. The worst thing you can do is say, I’m going to create a hit game: if you’re going to create one game, the maths says it’s not gonna work, though of course there are exceptions. When you’re trying to do new things with video games, or another entertainment medium, your hit rate is 20-30%.”

The next Xbox

This emphasis on games rather than hardware – experiences rather than devices – is indicative of Microsoft’s vision for the next generation of Xbox consoles, which have been in development for years. Spencer and Booty talk about letting people play games on whatever device they want, be it a phone, PC or Xbox, or even streaming games from the cloud, the way that we stream music using Spotify or TV shows using Netflix to whatever screen happens to be in front of us.



“We pivoted about three or four years ago to thinking about the gamer first, not the device first,” says Spencer. “I still see remnants of that: what can you do to force somebody to buy a device, and then once you’ve bought it, own the store and the services? [But] this limits people on the creative side because you have to build games for specific devices …

“Our focus is on bringing console quality games that you see on TV or PC to any device. I want to see the creators that I have relationships with reach all two billion people who play games, and not have to turn their studio into something that makes match-3 games rather than story-driven single player games. Because that’s the only way to reach a bigger platform. That is our goal: to bring high-quality games to every device possible on the planet.”



Booty points out that although streamable gaming might seem a rather distant prospect, cloud technology is already in place in pretty much every game with an online component. “These days, multiplayer games depend so much on servers and matchmaking that’s hosted in the cloud. It really is pervasive. It’s what allows things to be saved across platforms; it’s what allows virtual currency to transfer around,” he says. “The cloud has enabled a whole new world in terms of what games can do with multiplayer.”



“The biggest challenge I feel now is gamers’ desire to continue to divide our industry,” says Spencer. “The mentality is that somebody must fail in order for someone else to succeed … we all want to think about how we grow the gaming business, to not create arbitrary decisions on what console you buy or what network you join. The more we work together as an industry, better things happen. You have an Android and I have an iPhone; I can still call you. That would be my hope: that we still compete, but we compete on creative and quality.”



Microsoft is far from the only company in the games industry talking about this. Ubisoft’s chief executive, Yves Guillemot, has predicted that the next generation of consoles will be the last, as streaming takes over from bulky boxes.

“With time, I think streaming will become more accessible to many players and make it not necessary to have big hardware at home,” he said last week. “There will be one more console generation and then after that, we will be streaming, all of us.” EA’s gone one step further, demonstrating its own “cloud gaming” service at E3.

If the future for video games is streaming services, that means that we’re approaching the end of the era where there’s a new console to buy every five years or so: the technology in the box isn’t going to matter so much. But that won’t make brands such as Xbox or Playstation irrelevant; ultimately, it’s games that people love and relate to, not consoles.



“Before any kid uses Office, before they’re using Windows, they might be playing Minecraft, they might be playing Fortnite on an Xbox,” says Phil. “That gives us responsibility in this space. We talk about being inclusive to everyone who wants to play, and embracing the power in what gaming can do to unify people and bring them together in a world that could use more of that right now.

“We work at a company that has the resources to actually change the world in that way.”