Xbox has faced some challenges in the gaming world recently, but its cloud gaming service is a definite strength.
Sales for the Xbox Series X|S haven’t been as strong as expected. Several factors are contributing to this, including tariffs, the growing popularity of free games on PCs and mobile devices like Roblox and Fortnite, and competition from other entertainment options like TikTok. Nintendo’s stock has dropped significantly in the last six months due to rising costs of memory chips, and PlayStation has also experienced a decrease in hardware sales this year.
Even with recent economic difficulties affecting some gaming companies, Steam and PC gaming are still becoming more popular. Steam has a strong hold on dedicated, long-time gamers, and PC gaming has grown significantly in the past year. This is partly because younger players with more money to spend want to play like their favorite streamers and enjoy features unique to PC gaming, such as modding and Steam’s frequent sales.
Microsoft is working to grow its presence on PC gaming through services like Xbox Game Pass and the Xbox PC store, as well as devices like the Xbox Ally. They’re also investing in cloud gaming, which has improved significantly recently. Xbox Cloud Gaming is now quite reliable, and Microsoft may be planning to expand it even further in the near future.
As a researcher tracking Xbox Cloud Gaming, I noticed a change last week. Players are now seeing a message when they start a game saying they get one hour of playtime per session with ads. It seems Microsoft is testing a new time-limited model for ad-supported gaming.
There was some concern that ads might be coming to all levels of Xbox Cloud Gaming, but we’ve learned this message was sent by mistake.
Last year, I mentioned Microsoft was looking into showing ads within Xbox Cloud Gaming. I’ve now confirmed that these ads will be shown to players who buy Xbox games digitally but don’t subscribe to Xbox Game Pass. Currently, while Microsoft offers many games through Xbox Cloud Gaming, you need a Game Pass subscription to play them. This new, ad-supported option will allow access without a Game Pass membership.
Xbox Cloud Gaming is getting a lot of attention recently because the growing demand for AI is driving up the cost of parts commonly used in gaming PCs and consoles, like memory and storage. This increase in component costs is also leading to higher prices for pre-built gaming systems, including the PlayStation 5, Xbox Series X|S, and Nintendo Switch.
Services like Xbox Cloud Gaming and NVIDIA GeForce Now offer a way for people to play games without expensive gaming computers. However, these services aren’t immune to rising costs either. Running and maintaining them requires money and the same computer parts as traditional gaming. The good news is that when fewer people are gaming, the computing power used for these services can be repurposed for other tasks, like artificial intelligence and business applications.
One of the biggest costs in cloud computing is having servers that aren’t being used. Offering free Xbox Cloud Gaming, potentially supported by advertising, could help keep Microsoft’s Azure servers busy and reliable. This justifies building more data centers and secures Xbox’s place in Microsoft’s future, which is increasingly focused on cloud technology and artificial intelligence.
It remains to be seen exactly when this will roll out, but I’m told it’s coming “this year.”
I’ve been watching Xbox Cloud Gaming really take off for Microsoft, with growth numbers showing a significant increase. It’s been especially popular in places where buying a console and games is just too expensive due to taxes and other economic issues. Late last year, Microsoft brought the service to India, and they’re now looking at expanding into more countries in Asia and Africa. For those who subscribe to Xbox Game Pass Ultimate, they’ve even started streaming some games at a higher quality – now up to 1440p resolution with boosted bitrates.
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2026-01-19 00:09