Foley on Microsoft

Why Gaming (Still) Matters to Microsoft

There's room for more than just business software and services under Microsoft's "intelligent cloud" umbrella. Soon, it will cover its gaming assets, too.

• By Mary Jo Foley
• 03/26/2018

Three years ago in this very column, I wrote an article titled "Why Gaming Matters to Microsoft."

Back then, this was far from obvious to many. (And it still is today, based on some conversations I've had on Twitter, phone and e-mail.) But in the past few years, and especially the past few months, some very substantial things have changed re: Microsoft's gaming strategy and thinking.

In 2014, then newly-minted CEO Satya Nadella defended Microsoft's ongoing investment in gaming by noting that "the single biggest digital life category, measured in both time and money spent, in a mobile-first world is gaming." Games are the biggest moneymakers in the mobile app world and a prime way to monetize Windows, officials have said time and time again.

There were a lot of skeptics when Microsoft bought "Minecraft" maker Mojang for $2.5 billion in 2014. Microsoft was losing money in gaming hardware (as it had pretty much since the first Xbox launch). Wall Street was applauding management's decision to get back to the company's core strength and roots with enterprise software and services.

But last year, Microsoft decided to stop fence-sitting and go all-in with gaming. (The company made a similar shift/commitment with its Dynamics CRM/ERP business just before this.)

Microsoft appointed Phil Spencer, the former head of Xbox, Microsoft Studios and Game Studios, to its senior leadership team, giving him a seat at the table of Microsoft's inner management circle. And the newly empowered Spencer has since made some bold pronouncements, including strong hints that a streamed Microsoft gaming service could come in the next few years to all kinds of devices running different operating systems. Back in 2014, Microsoft was attempting to introduce a new game-streaming service, but ended up scrapping that effort, which was codenamed "Arcadia."

In late January, Microsoft announced it was buying PlayFab, a cloud-connected gaming platform vendor, with execs saying it was "a natural complement to Azure for gaming." At the same time, Microsoft has begun targeting game developers and publishers as a distinct audience for Azure, like it already does with ISVs and startups. A new business unit, called Gaming Cloud, is charged with selling Azure and Azure services to these customers.

(A related reminder: Microsoft's own Xbox Live gaming service does not run on Azure; it continues to operate on its own, separate datacenter platform. But new additions to Xbox Live are built on/using Azure.)

These recent moves provide more evidence of Microsoft bringing its gaming business deeper into the fold. A recent Bloomberg report said that CEO Nadella asked the head of the Gaming Cloud business "to find areas where Xbox could tie more closely to the rest of the company." This is not a company that's looking to sell or launch as a separate entity its gaming business -- as some had been expecting it to do until quite recently.

Microsoft is pivoting so that its "intelligent cloud/intelligent edge" battle cry doesn't just apply to its business software and services, but its gaming assets, too.