Microsoft has outlined the vision for its next-gen Xbox games consoles and announced a deeper, long-term relationship with chipset and processor company AMD. Microsoft already has an established relationship with AMD as it supplies the custom CPUs and GPUs for the existing Xbox Series consoles, so this move builds on that relationship. Microsoft’s major console competitor, Sony, has also established a more involved working relationship with AMD which pushes beyond the existing console hardware relationship and towards the end of 2024 announced a deeper, more open, technological partnership on future AI-based hardware, software and algorithms. 

The key elements to Microsoft’s announcement include:

• Multiple form factors and/or use cases for next-gen first-party console hardware – the announcement video suggested the company is preparing to release a handheld form factor alongside its next-gen TV console hardware, or perhaps a hybrid device, like Nintendo's Switch, which covers both use cases. Sony has already dived back into the handheld console space with its streaming handheld, PlayStation Portal
• Deeper partnership with AMD – this deeper collaboration is likely to reduce R&D costs, leverage expertise in areas such as AI, and produce technological benefits that ripple out into the PC handheld and cloud gaming gaming spaces. While we await details on the specifics of the collaboration, this move seems to mirror Sony’s more open R&D strategy in terms of partnering with AMD (read more here). It also establishes AMD as a key partner to both Sony and Microsoft, while Nintendo works with Nvidia for its recently released Switch 2  
• A plan to open future Xbox consoles to other storefronts – this is the most radical element of Microsoft’s next-gen Xbox console strategy. The company has already telegraphed this development with the Xbox Rog Ally PC gaming handheld announcement (read more here), which will support access to other PC gaming storefronts as well as the Xbox app on Windows. Steam coverage is clearly the most important aspect here considering the Ampere estimated 170m monthly active users the platform enjoys and the availability of games from a huge range of publishers including Sony Interactive. 

Conceivably it could also support Google Play on PC, which would align nicely with the King acquisition and its ongoing strategy to launch a more mobile-focused Xbox app store. Microsoft aims to be more central to gamers platform usage across PC and console, and hopes to drive engagement, which can be monetised in different ways. With this more open storefront strategy, advertising may become a more important part of the mix.  

This confirms Microsoft’s complete split from the traditional console business model and will place more industry and competition authority focus on the closed platforms of Sony and Nintendo. The support of other storefronts also implies a continued shift away from subsidised console hardware business models, likely to be reflected in the pricing of these new devices when they hit the market.   

• Backwards compatibility – it is now clear that future Xbox consoles, while being more PC-like, will differentiate on also being able to play Xbox console games alongside the expected PC gaming storefronts. This software-driven capability underlines Microsoft’s deep expertise in this area, which it allows to differentiate from its console competitors   
• Use of Windows as OS for next-gen consoles – while the current Xbox consoles use a heavily modified version of Windows which is optimised for the console environment, Microsoft’s recent Windows OS work for the upcoming Xbox Rog Ally PC gaming handhelds is a good indicator of how this could evolve for next-gen Xbox devices. What is clear from the announcement is that Microsoft views support of Windows as the OS layer for gaming as fundamental to its future gaming strategy and that means a natural convergence between PC and console offerings

Conclusions

Overall, this announced console product strategy increasingly aligns with Microsoft’s multi-platform approach to content and service distribution. The company would like to offer its Xbox app and services on all screens to reach as many gamers as possible but is also being realistic about the time frame to achieve that in a consistent way.

It is true that its multi-screen distribution strategy driven by cloud gaming is not yet ready to replace the console experience and won’t be ready by an Ampere estimated next-gen launch date of the end of 2027. It will take at least another generation of console hardware to reach a more impactful tipping point for streaming distribution that goes beyond today’s incremental use cases for cloud gaming. To decouple from the console at this point would be highly damaging to Microsoft’s Game Pass subscription business. To maintain its scale, it must continue to serve its console audience. 

The major target for Microsoft is to deliver better engagement and player attention during this next gen of consoles from 2027 onwards. It is aiming to do that through the support of other storefronts and by building form factors that engage new use cases. For Steam users that might buy and use next-gen Xbox consoles in the future to get access to both console and PC game content, a lot of their time will be spent within the Steam platform albeit on an Xbox device using Windows. Ampere will be looking at how Microsoft can effectively pull in this audience to its own storefront and experiences in a meaningful way and broaden its audience. 

Update: With this engagement issue in mind, Microsoft is rolling out support for third-party game libraries (a user's collection of games from Steam or Battle.net for example) in the official Xbox PC app, so users can access all their games from one list and app. Support for this will also come to the Xbox Rog Ally handheld.