Microsoft considered shutting down Xbox before major game developer acquisitions

Redmond's gaming division was underperforming, and still is in cloud subscription metrics

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Rumor mill: As Ubisoft executive Philippe Tremblay recently stated, we should accept that we no longer own the games we pay for. Microsoft tried – and is still trying – to build a thriving business around this concept with Game Pass. Guess how things are going now?

Microsoft CEO Satya Nadella could have shut down the Xbox division in 2021, but instead, he chose to double down by acquiring two of the most successful game developers in the industry. According to a recent report from The Information, Nadella faced a critical business decision related to the Game Pass cloud gaming service.

In 2021, Nadella decided to acquire ZeniMax Media, the owner of Bethesda, for $7 billion, followed by the $75.4 billion purchase of Activision Blizzard in 2023. With these acquisitions, Microsoft aimed to significantly boost Game Pass subscription numbers over the coming years. Although the company no longer shares specific figures on cloud subscriptions, The Information reports that the Game Pass business is still falling short of internal expectations.

Microsoft had originally projected over 100 million Game Pass subscribers by 2030, with an ambitious 40 percent year-over-year growth rate. Nadella approved the Activision Blizzard acquisition in an effort to meet these lofty goals, which were tied to his pay package. However, the provision was eventually removed in 2023 after the company failed to meet its aggressive Game Pass targets for two consecutive years.

Investors are now viewing Game Pass as a disappointing opportunity – one that's highly volatile and too dependent on major releases like Call of Duty. Microsoft has also failed to convince game publishers to adopt its Azure cloud services. Even Activision, now part of the Redmond tech giant, continues to rent cloud servers for development tasks from Google and Amazon.

When asked about Game Pass's performance, Microsoft pointed to Nadella's recent remarks to shareholders, highlighting the new revenue record set by the business. Executives are increasingly trying to transform the entire gaming industry into a subscription-only model, but end customers remain skeptical about the idea of not owning anything of value after each digital purchase.

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Microsoft is now primarily focused on AI as a key driver for its future business prospects. This shift in priorities has meant that Activision's underperformance has had little impact on the company's stock evaluation. According to Janus Henderson investor Denny Fish, investments in data center infrastructure and AI accelerators have become far more important to shareholders than the Activision deal.