Gaming Reinvents Itself Around Software and Subscriptions

Sometimes an executive appointment is more than an executive appointment. On Friday (Feb. 20), Microsoft announced that Asha Sharma would become executive vice president and CEO of Microsoft Gaming, succeeding longtime Xbox leader Phil Spencer.

In his note, Microsoft CEO Satya Nadella emphasized Sharma’s experience in “aligning business models to long-term value.”

Sharma is not a traditional gaming executive. She previously helped scale consumer platforms at Instacart and Meta, businesses built around large digital ecosystems rather than physical products. Her appointment suggests Microsoft believes the future of gaming will be defined less by consoles and more by software, services and cloud infrastructure.

That shift reflects broader economic pressures that are reshaping the industry.

Moving Beyond the Console

For decades, the video game business revolved around hardware cycles. Companies like Microsoft and Sony would release a new console every several years, often selling it at little or no profit in order to make money later through game sales and subscriptions. The console acted as a gateway into a closed ecosystem.

That model is under strain. Modern blockbuster games can cost more than $200 million to produce. At the same time, players increasingly expect to access games across devices, including PCs, consoles and cloud streaming platforms. Locking a major title to one device limits its potential audience at a time when development costs are soaring.

Microsoft’s acquisition of Activision Blizzard in 2023 raised the stakes even further. To justify that investment, the company needs steady, high-margin revenue from the games themselves, not just from console sales. Selling popular franchises such as Call of Duty on as many platforms as possible can generate more predictable returns than relying on hardware exclusivity.

Seen in that light, Sharma’s background in scaling digital platforms makes sense. If gaming is no longer primarily about selling a box under the television, but about delivering entertainment services across many devices, leadership experience in software ecosystems becomes more relevant than experience managing console launches. Xbox increasingly looks like a brand that travels across screens rather than one tied to a single piece of hardware.

The Rising Cost of AI

Another force reshaping the industry is the growing role of artificial intelligence (AI) in creating and running games. AI tools are being used to design virtual worlds, generate dialogue, test software and personalize player experiences. These systems require enormous computing power housed in vast data centers.

Microsoft has spent heavily to expand its cloud computing arm, Azure, and to build infrastructure capable of supporting advanced AI systems. Very few companies in the world can afford this level of investment. While Sony remains a global leader in entertainment and technology, building similar infrastructure independently would be extremely costly.

The two companies already have a cloud partnership dating back to 2019. As AI becomes more central to how games and other media are produced, the economic logic of closer cooperation becomes clearer. Microsoft needs large customers to make full use of its expanding data centers. Sony needs access to powerful computing resources to stay competitive in next-generation production.

A Changing Competitive Landscape

At the same time, competition in gaming has evolved. On personal computers, Valve’s Steam platform has become the dominant marketplace, accounting for an estimated 70% of PC game sales. Steam operates without its own console hardware, instead offering an open storefront accessible to millions of players worldwide.

This model has put pressure on traditional console strategies. As players grow accustomed to accessing games digitally across devices, the advantage of keeping titles exclusive to a single console diminishes.

For Microsoft, leaning into software distribution and cloud infrastructure may offer a more sustainable path than competing purely on hardware. For Sony, protecting its creative strengths while ensuring access to advanced technology is critical.

The gaming industry is increasingly about recurring digital revenue, global distribution and access to computing power. The battle may no longer be decided by which company sells the most devices, but by which one builds the most resilient ecosystem.

Add the growing importance of cloud infrastructure and AI, and Xbox looks less like a box under the television and more like a cross-platform software ecosystem.

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