PlayStation won the console war, will Xbox let them win cloud gaming too?

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PlayStation is leapfrogging Xbox on cloud gaming. How did we get here?

Xbox gamer in the clouds with Xbox Series X console
(Image credit: Windows Central)

During the Kinda Funny XCast interview before the Xbox "not E3" event in June, Microsoft Gaming CEO and Xbox lead Phil Spencer conceded that the division couldn't "out console" Sony PlayStation. Sony's lead in the so-called "high-end" console market has extended to 2:1 according to most reports, and could conceivably extend further still to 3:1 in the coming years based on current trends. Indeed, Microsoft's Xbox hardware output was down 13% year-over-year in its quarterly earnings, although services like Xbox Game Pass and an expansion into PC gaming have helped keep Xbox in growth overall. 

I wrote an article a little while ago noting that with Xbox's focus on its huge Activision-Blizzard acquisition, Xbox cloud gaming, and PC, the Xbox console experience is suffering. Development on the Xbox console dashboard has slowed to a snail's pace, and many fan-requested improvements have simply not been implemented, although we have seen a trickle of new features for things like Discord and the like. Meanwhile, Sony is plowing ahead with a much-expected 2024 redesign of its PS5, ahead of a more powerful PS5 Pro for 2024 or 2025. From what I've heard, Xbox is not exploring a major power revision for the Xbox Series X by comparison, and will likely complete the gen with only minor refreshes like the Xbox Series S Carbon Black — although I wouldn't call that confirmed information as of right now. 

With PlayStation's victory in this generation all but assured already, perhaps Microsoft could find wins elsewhere, right? Microsoft is a cloud-first company, with Azure making up the bulk of its envious profit margins in recent years. Stands to reason the firm would be an industry leader in cloud gaming, right? 

Well lately, it feels a bit like Microsoft is ready to concede cloud gaming to PlayStation as well, on top of home console gaming. 

Xbox cloud shrinks, while PlayStation grows?

Xbox Cloud Gaming has been hit by queues lately.  (Image credit: Windows Central)

I've been quite bullish on Xbox Cloud Gaming in the past. Microsoft was ahead of the curve in this area and still is in a lot of ways. It's the only cloud gaming platform that provides a relatively seamless console-like experience on mobile devices, complete with bespoke touch controls. The list of games in Xbox Game Pass for Xbox Cloud Gaming is also incredibly impressive, and Xbox Cloud Gaming also has some of the best latency of all the competing services, outmatched only by NVIDIA GeForce Now. NVIDIA GeForce Now's convoluted mix of Steam and other launchers isn't a particularly intuitive experience — despite being the best overall in terms of speed. And then, we have PlayStation Plus Premium (formerly PlayStation Now), which has been quietly growing in the background. 

Sony was actually among the first to the idea of cloud gaming, having purchased cloud gaming service Gaikai a few years back. I was reminded of articles like this from The Verge in 2019, which talk about how Sony "squandered" its cloud gaming potential. Increasingly, it's looking like early skepticism of Sony's cloud gaming aspirations may have been misplaced. Lately, there has been a flurry of activity in the Sony camp with regard to the cloud, and analytically, it couldn't come at a worse time for Microsoft and Xbox. 

Xbox cloud gaming with touch

Xbox Cloud Gaming is the best cloud gaming platform for mobile devices right now, but the gap could easily close.  (Image credit: Windows Central)

I can corroborate a report from Brad Sams on YouTube that Microsoft has been restructuring its cloud gaming business, with some staff being moved to other departments. I've heard that Microsoft has also reduced allocations for cloud servers in certain territories, notably the UK, while Xbox Cloud Gaming continues to suffer from increased queues. Part of this might be due to the Activision deal, to speculate (perhaps cynically). The UK regulator threatened to block Microsoft's $69 billion acquisition of the Call of Duty maker on the grounds of cloud gaming after all, it might not be particularly great optics to push ahead with an expansion there. There are even some expectations that Microsoft may divest UK cloud gaming in its entirety to a third-party operator, like UK telecoms giant BT. 

Microsoft worked hard to undermine its own cloud operations during the regulatory battles with the U.S. FTC and UK CMA, with Microsoft President Brad Smith even appearing on BBC Radio to downplay its significance to the firm. Indeed, Microsoft supposedly only has enough capacity for a few thousand concurrent users in the UK — a stat that might be useful to know if you're a competitor looking to leapfrog Microsoft's position. According to reports, that's exactly what Sony is looking to do right now. 

Insider Gaming has very well-connected sources within PlayStation recently, and they recently dropped a report on what Sony calls Cronos — the codename for its cloud gaming expansion plan. Sony is looking to grow its cloud gaming footprint with 28 new data centers, which it aims to launch more broadly in Spring next year. Sony is also exploring handheld devices for remote play, with its "Project Q" handheld. And sure, it doesn't support cloud right now, but future versions could conceivably do so. Sony also recently detailed its plan to begin bringing PlayStation 5 games to its PlayStation Plus cloud streaming service. And yes, while it remains far behind Xbox Game Pass' cloud service in terms of content breadth and features, the gap is rapidly closing. 

PlayStation leapfrogs Xbox on major cloud features

(Image credit: Windows Central)

Microsoft announced quite a while ago that its long-term plan for Xbox Cloud Gaming was to allow players to play games they actually own in the service, rather than being restricted to the limited selection in Xbox Game Pass Ultimate. This news was particularly exciting to hear, since many of the games that make sense for a low-latency experience simply aren't available on Xbox Game Pass, but we're years out from that announcement now, and it still hasn't materialized. 

Meanwhile, PlayStation unexpectedly in June announced that it will be forging ahead with this feature instead for "supported" games. While that list of "supported" games may be small once finalized, the idea of PlayStation leapfrogging Microsoft, the so-called cloud company, on this much-awaited feature will be a tough pill to swallow for Xbox Cloud Gaming users. 

Not content with beating Microsoft in this area, PlayStation has now begun rolling out 4K streaming to cloud beta testers. With Xbox Cloud Gaming, at best you can get 1080p streaming. And sure, 4K streaming may not be ideal for most home network conditions, but if Sony can leapfrog Microsoft with technology delivery as well in this area, it presents an existential crisis for Xbox.

It felt like Microsoft was betting it all on a cloud gaming future at one point, using the cloud to reach gamers across any device, no matter where they are at any one time. Is Microsoft throwing in the towel again before seeing it through to completion? Or is there something else going on behind the scenes?

Outlook: cloudy. What's going on?

The Logitech G Cloud is the best device for Xbox Cloud Gaming right now, but Google's stranglehold on how businesses can monetize Android forces Logitech to make it too expensive for most people to consider.  (Image credit: Windows Central | Zachary Boddy)

Microsoft conceded during its regulatory hearings that Xbox Cloud Gaming isn't profitable right now, and why would it be? Apple and Google's duopolistic control over how developers can monetize and grow businesses on their closed, anti-competitive mobile platforms effectively precludes Microsoft in particular from growing a viable catalog-based gaming business. But even if Apple and Google weren't blocking Microsoft from selling content through Xbox Cloud Gaming on their app stores, it wouldn't matter. Xbox Cloud Gaming doesn't have enough servers. 

Microsoft can't market Xbox Cloud Gaming because it doesn't have enough capacity to meet the demands of its current, and tiny user base. Growing Xbox Cloud Gaming would essentially mean dedicating even more Xbox Series X silicon to server farms rather than store shelves when supplies already feel constrained. Microsoft can't deliver 4K for Xbox Cloud Gaming because it doesn't have enough capacity, and they can't deliver the ability to play games you actually own, because... it doesn't have enough capacity. It's unclear right now why Microsoft is struggling so much to get the silicon it needs to meet the demand for its Xbox Cloud Gaming platform or its Xbox Series X sales effort, but with Starfield and other high-quality upcoming Xbox games around the corner, the opportunity to capitalize is slipping. 

Even if access to silicon was infinite, perhaps Microsoft ran the numbers and realized that with Apple and Google making it practically impossible to monetize the service on mobile — maybe there simply isn't a point where Xbox Cloud Gaming becomes financially viable. Perhaps Microsoft is focusing its cloud efforts on AI opportunities with OpenAI, Bing Chat, and ChatGPT instead — with Xbox set to suffer as a result. Perhaps all this could have been avoided if Microsoft hadn't given up its own mobile platform (RIP Windows Phone) of course, but that's a dead horse well beaten. 

I hope that Xbox Cloud Gaming doesn't become another example of an industry trend that Microsoft identified, entered into too early, only to then also give up on too early. I'm not optimistic right now. 

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Jez Corden
Jez Corden
Executive Editor

Jez Corden is the Executive Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by tea. Follow on Twitter (X) and Threads, and listen to his XB2 Podcast, all about, you guessed it, Xbox!

13 Comments Comment from the forums
  • GraniteStateColin
    Jez, awesome article, as yours always are on these long-term strategic pieces. In fact, as primarily a marketing strategist with a background in the game industry myself, these are among my favorite articles on the Internet!

    But one big question: is Sony actually "beating" Microsoft in terms of number of cloud-based/streaming gamers, or just a concern that based on the features and capabilities that they're testing and announcing, they COULD take that lead? I couldn't determine this difference from the article and it seems like an important distinction. (I do agree that letting Sony beat them to cloud-play on purchased games is a serious mistake.)

    Keep in mind that Microsoft is probably betting a lot on the Starfield launch. They've shortened the $1 GamePass trial, clearly in an effort to better monetize GamePass with this launch. I suspect shortly after launch (after ensuring no problems that could lead to a PR problem like they had with Redfall or CDPR had with Cyberpunk), they will also market Xbox as the home of Starfield in hope of avoiding that 3:1 PS to Xbox sales ratio you mentioned.

    IF (big if unfortunately), MS doesn't screw things up, I'm optimistic they are well positioned to be the focus of most gaming press over the next few years with all the 1st party games in their pipeline and the general awareness of GamePass. Then, they just need to convert that mindshare into console sales.
    Reply
  • Kvally
    Um, PlayStation and Xbox lost the console war. Nintendo won.
    Reply
  • GraniteStateColin
    Kvally said:
    Um, PlayStation and Xbox lost the console war. Nintendo won.

    First, unless a company quits altogether, like Sega and Atari did, they're still in the fight, which applies to both Sony and MS. That means, none of them have won or lost the "console war," beyond sales figures in the current generation. Recall that Xbox 360 won that generation over the PS3, at least at the time (ironically, I thought the PS3 was the better console with its built-in Blu-Ray drive).

    Second, Nintendo is not really a direct competitor to MS or Sony (they are much more direct competitors to each other). Like mobile gaming, which is also huge in terms of volume, Nintendo doesn't have many of the giant hard-core games and is less of a serious game system (with a few notable exceptions like Nintendo's own Zelda games). That's not a criticism: The Nintendo Switch and the Wii before it are excellent and innovative systems, making brilliant decisions on where to invest in something new (motion controllers and novel methods of portability) and where to use mass-produced low-cost components (they are relatively low-powered from a CPU and GPU standpoint, which is why most bigger games don't bother with the Nintendo systems). They're simply not serious contenders for traditional hard-core gamers. For those gamers, the only real choices are PC, Xbox, or Sony.

    To make an (imperfect) analogy, McDonalds does more business every day/month/year than, say, Applebees. Does that mean that McDonald's "beat Applebees" in the restaurant wars? No, because they're not directly competing. Customers considering Applebees might choose TGIFridays or Chilis instead (direct competitors), but not McDonalds.

    The other thing to keep in mind in talking about the competition between these consoles is that Microsoft is looking at its gaming investments holistically, including how it monetizes gaming on Windows. Sony and Nintendo only have their consoles and software sales onto Microsoft's Windows systems, so the comparison metrics are not as clear as some would make them out to be.
    Reply
  • jediboy72
    The term "console war" is misleading and unnecessary. It implies a conflict between different platforms that offer diverse experiences and cater to different preferences. Most games are available on multiple platforms, so there is no clear winner or loser. Competition is healthy and beneficial for the industry and the consumers. There is no need to compare or criticize different platforms based on subjective opinions or biased media reports. I own both consoles and a gaming PC, and I enjoy them for different reasons. Microsoft, Sony and Nintendo are all successful and influential companies in their own ways, and they have different goals and strategies. The size or value of a company does not determine the quality or enjoyment of its products. Nintendo, for example, has sold over 122 million units of its Switch console since 2017, despite being less powerful or advanced than its competitors. The term "console war" is immature and divisive, and it should be abandoned.
    Reply
  • jediboy72
    Kvally said:
    Um, PlayStation and Xbox lost the console war. Nintendo won.
    122 Million Switch sold since 2017. Ask again who won this fake war.
    Reply
  • FarStrider2001
    Well i guess the fact that sony's paying Microsoft for hosting services is kinda funny.
    big deal an overpriced overpowered with exclusives that are outsold by 3rd party titles & was mostly bought by scalpers console has thrown in the towel. It's nice we finally got the storage expansion that the series x/s sorely needed nearly 2 years ago & supply for series x has gotten better as people's income has started to dwindle
    Reply
  • Desynthesis
    It feels like this article is kind of burying the lead: it doesn't mention PSNow once (then again, maybe the answer is to pretend it never happened, like that console that came out between the Wii and the Switch, the Something-U? What was it?), and mentions about Gaikai for one sentence. Sony came to the cloud gaming space first, and failed catastrophically, despite every advantage and huge install base to work from. They failed so badly that they killed more than half the platforms PSNow was supported on (including all Sony televisions), then waited three years and killed it off completely when they felt no one was looking; that was the same service Sony advertised before their films in theaters as "the future is here, now."

    Sony wishes PSNow did "only" as badly as Xbox One, because it might not have literally had to scrap everything and try again from the start like they did. They definitely have to try much, much harder than Microsoft has to, because they already have one huge failure under their belt (haha, great, now I sound like an article on this website!). Microsoft as pretty obviously imitated Sony trying to play catch-up extensively in the past (whether that will work, who knows)--considering the new Playstation library service is...basically just Game Pass without first-party games, that seems to be what they're trying to do.

    I'm not sure "XCloud"/Xbox Game Streaming will ever really gain a foothold. I doubt the 30 million Game Pass subscribers (if we believe Sony's word in court, anyway) are drawn by its specific functionality. Meanwhile, Sony, the company with a massive lead in installation hardware (2 to 1, or even 3 to 1, just as the article said!) failed to reach even that modest level of acceptance, killed everything off, and is trying again. That sounds a lot less like "leapfrogging" and a lot more like "desperately playing catchup" (why, aside bragging rights, I'm not sure, and I'm not convinced Sony knows why either). Still, at long as its not the start-to-finish disaster PSNow was, PSN users will only benefit (so long as Sony doesn't give up again, but that's what refunds are for, right?).
    Reply
  • fjtorres5591
    1- How many 4K streams has Sony actually delivered?

    Because the report I saw simply said *up to* 4K.

    2- To how many customers? And where?

    Because one report I saw had Sony bragging about 28 datacenters serving 15 metro areas. It is easy to serve out 4K if the only customers you serve have fiber to the house. As of last feb GamePass included 40 countries including quite a few without bleeding edge broadband. That's a wee bit more than 15 metro areas.

    3- How many day one titles?

    Unless Sony is suddenly up the cash from the release month model, windowing new releases out of their subscrition for a year or two is hardly a compelling reason to adopt their grudging ME-2 service.

    4- Finally, when? When they ship the mythical PS5 PRO, perchance? 2024? 25?

    What sony is really saying is "we can't match GAME PASS today but if you wait a bit, we'll have something much better. Really. It's coming! Real. Soon. Now."

    This announcement smacks of IBM account control, circa 1970, when IBM Reps invented the practice of promising great wonders "coming soon", aka vaporware, as a way to freeze the market (keep their installed base from defecting to newer, better products) until they could catch up.

    (Look up the terms online. PC users long ago learned to ignore grand pronouncements from trailing edge-tech companies until their product actually shipped. Which in most cases it never did; it was just arm waving and pure vapor to obscure their bare catalog.)
    Reply
  • fdruid
    Sorry but this reads as a doomsayer, pessimistic or outright pro-Sony take. Sony is still coming way from behind on cloud despite all their promises, and Xbox has a consistent presence on the cloud, small as it might be. Sony is at zero on cloud. Or as someone else points, after scrapping their very real previous failures, they're starting at a negative.
    If anything, something to read about this supposedly big push on cloud by Sony is that again they're following Microsoft's lead, with yet another thing they said they wouldn't do. Like the discless console. Like them clumsily trying to copy Game Pass in their new ripoff of a service.
    Also having a limited amount of "supported" games to buy for cloud play? Hardly a threat. Especially since the few hit games that Sony waves around are always the same. The same that they put on their GP clone and everyone already bought.

    This is all a bit appalling to read from industry analysts or even xbox fans, IMHO they're giving too much credit to Sony, and by reacting like this, they're actually empowering them.
    Reply
  • pjmlp
    The continous jabs at Apple and Google app stores are getting tiring, as if Microsoft would do any different had Windows Phone actually had a place in the market.

    They failed to make it happen, partially due to how it was incredible mismanaged, with broken promises all the time, including which devices would get 8.1 support, only to be dropped at last minute.

    While on the developer side, Windows Phone 8 was 100% incompatibile with Windows Phone 7 development stack, Windows 8.1 and Window 10, each one of them requiring additional rewrites, to the point everyone lost interest, in doing yet another rewrite for such tiny market.

    Now we get to read continous complains about the bad kids in the block, as if the underdog would behave any differently, given the opportunity to join one of the gangs.
    Reply