Microsoft reports sinking Xbox revenue as its cloud business climbs

Microsoft’s Xbox hardware revenue continues to tumble, with the company revealing a 33 percent decline as part of its earnings report released on Wednesday. Even though the rest of Microsoft’s consumer-focused division took a dip, the company’s cloud and productivity businesses continue to soar, driving the company toward $82.9 billion in revenue.

Along with declining Xbox hardware revenue, Microsoft reported a 5 percent drop in Xbox content and services as well. Microsoft has seen a significant amount of executive turnover over the past few months, with the retirement of Xbox chief CEO Phil Spencer and the departure of former Xbox president Sarah Bond. This has left former Microsoft CoreAI head Asha Sharma in charge of the gaming giant, which has struggled with its identity in recent years. Already, Sharma has lowered the price of Xbox Game Pass and has taken steps to rebuild Xbox’s identity.

Microsoft CEO Satya Nadella reflected on these changes during an earnings call, saying it’s part of efforts to “win back fans” across its brands, including Xbox. “The team is recommitting to our core fans and players and shaping the future of play,” Nadella said. “Last week’s Game Pass changes are one example of how we are staying responsive to customer feedback.”

Nadella also cited changes to Windows, which have “brought performance improvements for lower memory devices, streamlined the Windows Update experience, and brought back focus to core features and fundamentals.” The company recently started letting customers pause Windows Updates indefinitely, and also got rid of “unnecessary” Copilot buttons across Windows 11 apps.

In addition to an executive shuffle, Microsoft has only pushed further into AI in recent months, with the company reporting $54.5 billion in revenue from its cloud business, marking a 29 percent year over year increase. “We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era,” Nadella said in the press release. “Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.” Revenue earned by Azure and other cloud services went up 40 percent.

Microsoft 365 Copilot saw growth as well, with paid seats jumping from 15 million in the previous quarter to 20 million. Microsoft has continued building out its productivity suite with new AI features, including the launch of “vibe working” features across Excel, Word, and PowerPoint. The company says Microsoft 365 consumer cloud revenue increased 33 percent during this quarter, while its commercial segment increased 19 percent.

Meanwhile, revenue earned by Microsoft’s Windows OEM and devices business decreased by 2 percent as it grapples with a global memory shortage that has led it to hike the prices of its Surface devices. The launch of new Surface Pro and Surface Laptop models in the coming months could help reverse the decline.

Update, April 29th: Added comments from Nadella.