The Vergecast - Decoder: Microsoft's Phil Spencer on launching the new Xbox

Episode Date: November 24, 2020

On this week’s episode of Decoder Nilay Patel talks to Phil Spencer, the guy in charge of Xbox at Microsoft. They discuss not only the next-generation Xbox and PS5 just arriving in stores now, but how gaming itself has become part of mainstream culture, a trend that has definitely accelerated during the pandemic. We’ve also reached an inflection point for game streaming: Google, Amazon, and Microsoft all have services that allow consumers to play games on any device by streaming them over the internet, kind of like Netflix for games. Is that the future? Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey everybody, it's Neelai. Once again, we're running an episode of my new podcast Decoder in this feed to promote it a little bit. But I think you're going to like this episode. This week on the show, I interviewed Phil Spencer. He's Microsoft's executive vice president of games, which means he's in charge of the Xbox. And we got into the next generation Xbox consoles that just launched. We talked a little bit about competing with the PS5. We talked an awful lot about game streaming, whether it's the future and how he's working the platform companies.

Check it out, Phil Spencer on Decoder. Support for the show comes from Retool. Too many companies run critical operations on duct taped spreadsheets, Slack workflows, and whatever else they could cobble together. Not because they want to, but because building internal tools means weeks of waiting on someone else's backlog. That's where Retool comes in. Build custom internal tools just by describing what you need. Proms something like, build me a revenue dashboard on our Salesforce data.

And Retool actually builds it. On your company's data and your cloud with enterprise security built in. Go to retool.com slash Verchcast. We all need to retool how we build software. What's up, y'all. I'm Skylar Diggins, seven-time WMBA All-Star, Olympic gold medalist, and mom. And I'm Cassidy Hubbard, host and reporter for nearly 20 years, covering the biggest names and stories in sports and mom.

And this is Am Mom, a community for athletes, game changers, and moms of all kinds. Dropping May 14th. Tap in with us. Hello and welcome to Decoder. I'm Neely Patel, editor-in-chief of The Verge, and Decoder is my new podcast about big ideas and other problems. On this week's episode, I'm talking to Phil Spencer, the executive vice president of

gaming at Microsoft, or more simply, the guy in charge of Xbox. And we had a lot to talk about. Not only did a new console generation just arrive in stores with the Sony PS5 and Microsoft's own new Xboxes, but gaming itself has become part of mainstream culture, a trend that has definitely accelerated during the pandemic. On top of that, we've reached an inflection point for game streaming. Google, Amazon, and Microsoft all have services that allow you to play games on any device by streaming them over the internet, kind of like Netflix for games, although no one really likes it when you call it that. Phil and I talked about all of this,

how much the pandemic has accelerated those trends in gaming, why he chose to launch two next gen consoles at the same time, the issues we've seen with pre-orders and supply, and how we see his Xbox growing over time. And we talked about game streaming, where it is now, where it might go, and how it's going with Apple and Google to get his streaming service in their app stores. Spoiler alert, medium. I really enjoy talking to Phil, and we definitely got deep into it, but Microsoft's Xbox products have a lot of confusing names. So I'm just going to run through them all at the top so you know what they are. The Xbox is obviously Microsoft's game console.

There are two new Xboxes in this generation that just launched, the entry-level Xbox Series S and the high-end Xbox Series X. I know, and it's not going to get better. Xbox Live is the service you pay for to play your Xbox games online with other people. Xbox GamePass Ultimate includes Xbox Live and access to a library of 100 games you can download and play. Cloud is the code name for Microsoft's game streaming service, which is now in beta for GamePass Ultimate Subscribers.

You got that? It's a lot. But trust me, it sort of makes sense over time. All right, here's Phil Spencer, EVP of Games at Microsoft. Here we go. Phil Spencer, welcome to Decoder. Thanks for having me. It's fun to be here.

You are our third guest. I'm excited to talk to you. There's a lot to talk about. I have a million questions about the Xbox. Is there two of them you just launched the future of games and streaming? There's a lot to talk about, but I want to start a little bit bigger picture. You are a Microsoft lifer. You started as an intern in 1988, like screwing around in video games.

You are now the executive vice president of gaming. I think you report to the CEO now. I do. That's quite a rise. And this moment seems like a particularly gigantic inflection point in gaming. Right? We're talking about the entire architecture of games moving to streaming. We've got two big consoles.

It's exploded in the mainstream culture. Is this what you expected? When you were an intern in 1988, does this look like what your wildest dreams? Is it meaningfully different? What's your view on just sort of where we are right now? Well, definitely not what I expected as an intern. I mean, just from both my own career, if we go into kind of my side of it, which I won't dwell on. But I've never been one with kind of huge, like a career roadmap.

I kind of follow my passion and what I'm passionate about, teams I get to work with. And in terms of where we are in gaming, I think it's somewhat regretful, but it's also nice to see that during this time of social distancing and disconnect from our friends and our family, that gaming's really pushed to the forefront as a real communal way for people to connect. And I think the world needs more of that. I've kind of been on my gaming as a connective tissue opportunity for people, different backgrounds, different beliefs coming together. And during the C-19 pandemic, people staying high at home, we've really seen a rise in gaming. So I think we've seen the acceleration of some of the timelines and kind of trends in gaming over the last six months.

We've definitely accelerated maybe a year or two in terms of adoption of some of this. But I think gaming has always been building. towards this moment of being a real unifier. So it's interesting, instead of a year or two, with some of the other trends that have accelerated, you know, I've heard e-commerce is a five-year acceleration because of the pandemic, streaming and cable television falling apart and everyone moving to streaming services way faster than people thought was going to happen. You're thinking with games, it's only a year acceleration?

Well, you know, it could be longer. I think gaming was further along some of those communal aspects of our art form than some of those other. I don't, when I'm watching video, streaming video services, I don't know that I feel connected to anybody that's not in the room while I'm doing that. You know, some of the shopping stuff and stuff maybe in different parts of the world sitting in Seattle. You know, we see a lot of online shopping and delivery we just always have. So maybe it's different. Is there a big company in Seattle? that does online shop? Yeah, there's a few of them now. It's funny. We used to be like the sole outpost here at Microsoft, but everybody's around here now. And for gaming, though, I think with, you know, you've seen Twitch, you've seen the power of gaming on YouTube. So you've seen Discord and other places where people come together to talk about games, watch games, watch others play games. So I say the acceleration, and I don't know if I'm accurate in my timeline, but I feel like it's a little more gradual for us in gaming because we've already been so far along that, kind of you.

using community and virality as a way for people to get into gaming. But we've definitely seen a surge. And I don't think it's something that's going to reverse. I think we've just become more and more a part of way people entertain and connect. Anything about that surge surprising to you? Or is it just this is where I thought was going to happen in 2024 and it's happening in 2020? It's been cool to see the kind of some of the genres and stuff that have really popped to the front in gaming. when I think about things like Among Us and Fall Guys and stuff,

really finding an audience Animal Crossing, which has always been big, but you know, you have people like Gary Wedda doing his talk show inside of Animal Crossing and it almost seems normal in this time that that that would be happening. Gaming in certain times gets really hyper-focused on realism and grit and kind of, and it's nice to see that during these times,

you've got a breadth of things that are really fine. finding large audiences and large viewers. I think that's not, I wouldn't say a surprise, but a nice to see. The other thing I would just say, and it's something that I think is special about the game space, is everybody can be a creator. You know, whether you're somebody on YouTube or somebody building a social following on TikTok or on Twitter or whatever, or you're somebody building games, you know, we've really democratized people's ability to create their own content and get that to millions of customers

fairly easily. The consoles all support that now. Obviously, Steam has supported that for a long time. You've got these social platforms that are out there that are letting people build the audience. And I really just think also you're seeing the rise of the creators and creators can be of different types. And that's something that I think really provides longevity to what gaming is about as well, is you have so many people that are both a consumer of gaming content and frankly now creators of game content. So I want to get into that for sure. But just on that sort of zoom out level. You have been to Microsoft for a long time. You've seen three different CEOs. There have been three very different styles of how to run that organization. There have probably been even more

versions of Microsoft itself under Gates, Balmer, Nadella. What have you pulled into your decision-making style? Yeah, I haven't really talked about this. I love the question. You know, I started as obviously all Bill G. You know, Bill had such a, just a presence in the company. both from a technical standpoint and from a leadership standpoint. And I kind of learned the value in people believing in the direction that an organization is going in and having a leader in Bill at the time that was just so consistently, kind of maniacally consistent in the things that he would focus on and push us. I was a developer at the time. So it was sometimes the wrath of Bill when my code was being. used, checked in, or whatever, wasn't always the easiest, but he was very consistent in the things

that he cared about. And even today, I review my gaming business with Bill probably two, three times a year. And he's still remarkably consistent in the things that he will push on. And I think that consistency for a large team as the company grows is very valuable. If the teams can kind of predict how you're going to respond or react or the things that you're going to focus on, as opposed to being, you know, moody or random. I found real value in that from Bill. Steve was just so focused on customer and selling. And I thought for me, as a developer, it was a great way to learn. Under Steve, they sent me overseas. I worked in the UK for a while. And that was a, it was the company's effort to expand the kind of perspective of some of the leaders to get out of Redmond.

what is it like to work for Microsoft when you're not in our zip code and in the same time zone? And that was all really the push that Steve had at the time of let's get very close to our customer and are selling what we do in selling our products and how our customers perceive our products, not just how we built something or even why we built it, but what do they, our customers feel about what we built? And then moving on to Satya, he's just such an empathetic leader, somebody who's connected to the feelings and motivations. Like when he says, we're here to empower every person on the planet to achieve more, which is the mission statement of the company, every person and organization on the planet,

he truly believes that. And it's amazing to see him talk about that in our leadership meetings. Like, okay, how is this going to touch 7 billion people on the planet? How is this what we're doing? And when you're a company with the market cap that we have and the capacity that we have, that's the scale we should be working at. And Satya just raises us to that every moment. Like it's, and when you see us standing up for climate change, you see us stand up for

representation in our senior ranks and making public statements that frankly we don't exactly know how we're going to achieve. Like there's no math today that says how we get to all of our carbon neutral and carbon negative goals, but being bold to stand up and be accounted for in the public eye, I think is just incredibly, incredibly a great learning opportunity for me and I value it. So just thinking about those decision-making styles and frameworks and what you've picked up, walk me through a decision leading up to the launch of this new Xbox where you pulled from that, where that decision could have gone a different way, but you, I don't know, like, do you put on

your bomber hat and be like, we have to be focused on sales here? Like, you know, it's like, it's time. Or is it Sony's launching a console too? I'm going to put on my Gates hat. We're going to have to crush the competition. I didn't say that about Bill. But the, I think he said that about himself. I feel comfortable with that one.

The decision, just thinking real time, the decision to ship two consoles at the same time is probably one that's worth kind of pushing on. Because we've never done that before with the differences that we have between Series S and Series X. I can't think of other console launches that have had that Delta in the products that have come out at day one. And there was really a decision that clearly you could have made a different decision. Clearly, you could have shipped only one of those two skews at launch, would have made some of the kind of supply chain and other things easier naming and other things. But, you know, we started from a point of view of gaming should be growing, going back to our first point as an industry. And Microsoft should be growing as part of that industry. I want to grow faster than the industry's growing, but I want to be part of a growing industry.

And it was really this inclusion of how do we include more people in the long? launch euphoria and hype and everything that happens and make it as accessible to more people as possible going to that Satya push on how do you really build things that can get to true scale and influence everybody and impact everybody on the planet. And I know like Series S and Series there's more with X Cloud and Game Pass that we can talk about. But the decision to do to do two hardware skews was really centered on that of, you know, $499 in the U.S. for the Series X. That's a lot of money. That's a lot of money. That's a lot of money during during a time of economic uncertainty and everything else.

Now, we didn't know when we made those plans that we'd be sitting here, but even regardless of COVID, $499 is a lot of money. So can we build an accessible console that will deliver a great next-gen experience, clearly different, but a next-gen experience at a more accessible price point? And it really centered on that how many people can we impact with everything that we do. And that decision wasn't easy and was questioned a number of times by our internally. But we feel really good about where we are now that we've launched and we see the result. But that was a good, tough decision.

What was the best argument against doing two consoles? Just complexity in the market, I would say, well, I guess the way I would frame it, the best argument against doing it was Sony. Like we didn't think that they were going to do it. And I don't, I have a ton. I've said it before. I have a ton of respect for what Sony does. So it's not to say what they're doing is wrong.

But if it's, we're going to go compete with one hardware competitor and we just want to make it as easy as possible to compare our one product to their one product, that was the thought process that would have you push to say, no, just do one thing. But when we think about where gaming is going, you kind of go into maybe the balmer framing of it, you've got a business that's growing. And you want to grow as fast as you can. you want to grow in a healthy way, you're either going to grow by making more from the customers that you have now or finding new customers.

And I'd say in the console space over the last four or five years, most of the growth that the industry has realized has been growth per user, not growing the number of console users that are out there. It's actually been a fairly fixed number over the last decade, which for us that love console gaming like we do should be like a sign of, hey, we don't want to be about raising the price on retail products because you have a fixed number of customers and you just want to figure out how do I get 10 more bucks from them? We want to think about how do we bring more people into the gaming funnel, have more people experience this art form that we love. And so, you know,

the question of would you go do this and why would you not go do it? The pushback against that was always, but we want to find new customers because it can't just be a fight over the same customers that we've all seen that every year get one, your average age of your product goes up by one year every year because it's the exact same demographic that's just moving with you. And all of those things were important when we thought about the decision on S and like I said, about XCloud and GamePass, it's can we create a platform that's more inviting to more people, including the hardware that we build and even how we sell it with things like Xbox All Access, allowing people to buy the hardware on a monthly basis as opposed to one fixed fee.

It's all about how we bring more people in. So it's obviously really early. They're just out. You have a lot of names. You've just said a lot of names of a lot of product. There's a lot of X's and series and games in sort of MADLib's order. Is it playing out? Do people understand what the difference between the series S and the series X and game pass ultimate and X cloud is?

On the hardware side, it is. I think sometimes inside of the industry as we want to be, you know, like poking at ourselves, I think we can look at series S and series X. Even the annunciation of S and X isn't the easiest to kind of differentiate. But for most consumers, they walk in and one's $500 and one's $300. Yeah. Like, and that's the difference. It's not to make everything about the iPhone, but like if you asked me to explain the iPhone

lineup, I can't really do it. When I walk in the store, it's pretty clear, right? One's big, one's not, one's $1,000, one's $800, whatever. Like, they differentiate based on normal people's vocabulary of how much does it cost and what does it do? So from that perspective, we're very happy with the early results on both consoles. A lot of new people to Xbox are coming in through Series S, which is what we would have expected.

It's lower price. There's game pass there. Some people get a bunch of games. And X is our power play, right? It's the thing. It's the most powerful console. It's the, if you want the highest fidelity, the highest experience, we want it there. On GamePass, it's a good question.

And I went back and forth and I still sometimes, I really want it to all just be about Xbox. And I want people to get into this feeling of I can be a member of Xbox, regardless of whether I own the console. I'm still a member of the community. I might play on PC. I might play streaming on my phone. I might own a console. But I'm always a member of Xbox.

So this Xbox GamePass was an attention. to make sure it tied back to, yeah, I'm just a member of Xbox. But I think over time, and even the Xbox Series S, Xbox Series X, was to bring it all back to, yeah, I'm just Xbox. Like, where do you play? I play on Xbox. And that doesn't necessarily mean one piece of hardware. It could mean many different things.

But I agree. Like, it's a journey for us in going from one console that has one name and one price point to something that's a little more expansive. Do you know that Microsoft people always say things are a journey? journey in Google people always say things are early days and that's how it's like it's a very clear tell of like we're just going to figure it out just give us a minute it's every company has its own vocabulary i do want to talk about the notion of gaming shifting away from the hardware but you launch some hardware it's yes it's you're going to ship a lot of them uh when do you make

the decision to say this thing is done we're moving on the development of the console is done we're moving on to figuring how to manufacture a million of them and put them in stores and ship them to people. When is that decision? Because it feels like it all happened yesterday, but that clearly isn't the case. No, no, no. We started manufacturing kind of late summer. We were a little bit later than the competition because we were waiting for some specific AMD technology in our chip. So we were a little bit behind where they were where Sony was in terms of building units.

But we started in late summer. And when you do that, then you have to ship them to all the right retailers and distributors. So there's a time lag even when you start. And even when they're coming off the assembly line, like when are they sitting at retail shelves. But we've been building at full capacity for now, you know, a few months. And we continue to. So units continue to hit the shelves. Demand is just incredibly high right now.

And it's like the biggest disappointment for me in this launch. but I'm also happy with it is people love the product. And the demand is high, such that when you're going to see product hit the shelf, but it goes very quickly. And I would, if you want one, I'd recommend pick, it sound like a salesman now, but I'd recommend picking one up when you see it, because we're going to be in this situation, you know, probably into the spring of they're just going to be maybe not as tight as it is now, but demand is just really high. And we're building. So we start the supply chain back at kind of end of summer. We're building. We're building. building. There is just physics in how many lines at the fab you can put in the assembly lines.

So there you can just you can build as many as you can build. And that's what we've been doing. There are decisions around mix, like how many of the S and the X do you build. So you kind of, you have to make decisions on that. But have you shifted that since you started? No, we, we knew that. Well, our no is probably overstating our level of insight, which I say, We're at the starting line. Was that the Google line? Early days. Early days.

Sorry, we've got to get it right. We figured that our first holiday and probably our second holiday, you would see more of the higher-end skew, just the series X sold. So we built more series X's than we did series S's. I think when we go into kind of spring and summer, we'll probably moderate that a bit. over the long run, in most cases, price wins out. Like if you just go back and look at previous generations and when console generations hit the real sweet spot of sales, which is one of the reasons we like having that,

that's the series asset at its price point. But yeah, well, and then when we go back into next holiday, which we're already thinking about with supply chain and build, so we're already in that framing, trying to look at what we think our ratio should be between the two. The chips are very different in size, and this is a little bit in the weeds. So we can actually build more of the Series S

kind of in the same die space as we can, the Series X. But right now, demand for the Series X is higher, which is kind of what we expected. It seems like there's still hiccups with the retailers. Like, I would love to just tell Walmart or Best Buy or Amazon. Like, I want one.

Like, here's some money. Just send me when you get it. And, like, that's not the way the pre-orders have gone. It's just hard to buy either one. It's hard to buy the PS5, too. Yeah. And it's weird because we're just like fully in the age of e-commerce. Do you ever think about just doing more of it yourself? Well, I think our retail relationships are important.

We do think about solving or at least helping with the issue that you talk about. Like we've had real discussions internally about should I be able to reserve my slot. So I'll put some money down. I know my machine's getting built January 20th and I'll get it on, you know, February 1st. And we have customers that would do that today. Dude, I'll mail you a check for $500 right now. I'll do it cash. This is actually a good discussion about what you're talking about before with stay at home

and the transformation of the retail channel, even for day one. So November 10th, we're going line. So we do our pre-orders, whatever, six, eight weeks before that. And we tell the retailers what percent of their allocation we want them to pre-order. The retailers would sell them all, not because they're evil, but if you've got demand, why wouldn't you take the money? But we're like, no, we actually want November 10th to be a moment. We want people to feel like there's some consoles to go by.

And it's not just the day where everybody gets to go pick up their console. I don't know if that's the right decision in today's world. Like, that's very old world thinking. People are going to go line up outside of a store, kind of last decade thinking. And I think we should challenge ourselves on that. Is that really the supply chain through the consumer that we're talking about, that is a reality day? And we talk to our retail partners about this as well. So I do think, you know, this business is going through both for us and Sony and Jim and

Jim Ryan, somebody I talked to, I have a lot of respect for him. We both have lamented like how these pre-orders have gone. And what problem are we really solving when we seem to still have as many upset customers as we have because they can't get our product? So I do think it's going to push us to think about new models. And it could be like reserve your slide. It could be doing things more direct with the customer. Still could have the retail or fulfill the order,

but just so people can have more clarity in when they can get a console. It's something we're working on. So you mentioned people lining. There's like all these cultural things that happen at a console launch. People line up and then there's waves of unboxings. And then one thing that just mystifies me is there's a wave of people who like run over the new Xbox with their car and smash it with a hammer.

And like, I'm like, I can't get one. And what goes through your? What goes through your head when you're like, well, the inevitable people smashing my new console is happening. And my next phone call is with my retail partners to figure out how we can get them more. To be honest, I love the industry I'm in. Like, I don't want any of it. This is the job I love. My wife will tell me it's the only job I'm qualified for.

But this is definitely the job I love. That tribalism in the industry, if there was anything that would ever drive me out of the industry, it's actually that that you're talking about. You know, I look at shipping a product, shipping a game as one of the bravest things a team can do. You put your product out there. It gets analyzed and prodded and reviewed. It can't defend itself. It's an inanimate object. You can't go on the internet and defend it.

We've seen that way too many times. That never works. So when a team releases something into the market for this kind of kind of the world to tear it apart on the internet, it's just such a brave thing for a team to do. I'm never going to vote against any creativity. creative team or any product team to do poorly because I have a competitive product. I just, it's not in me. And I don't actually think it helps us in the long run in the industry. But there is, and especially in the console space, there's like a core of the core that's,

I think, taking it to a destructive level. I really want that to fail. So the thing that I bought succeed in, that's saying on both sides. Like, I'm not saying that, you know, it's all people crushing Xboxes and everybody on that that loves Xbox. box is always completely inviting to all the PlayStation stuff. And I just, I've said before, I find it distasteful. Maybe that is too light. I just really despise it. Like I, I don't think we have to see others fail in order for us to achieve the goals. And that's not some kind of like kumbaya thing. It's actually real. We're in the entertainment business. The biggest competitor we have is apathy over the products that would serve as games that we build. And we see that today. Everybody's

doing well in the industry right now for the most part with the stay at home and the surge. And that's what we should be focused on as an industry. We've done it with things like crossplay and other things that we focused on breaking some of those tropes. But there is like a core that just really hates the other consumer product. And man, that's just so off-putting to me. And again, that word's probably too light. But to me, it's one of the worst things about our industry.

Yeah. I always tell our team that rooting for failure is a bad. It's just a bad place to be. You should root for success. It makes more, it makes you happier. And it's just not a, I've said it before, not a two may enter, one may leave scenario. Like, could you imagine if you were the director of a movie and you wanted another movie to be bad so that people would hire? Maybe directors do that, but I don't.

There are some directors who do that for sure. Maybe they do. But like, you know, I could see maybe, like, I don't know. Like, in the end, we know there's a, there are millions and millions of people that are going to end up with a switch, a PlayStation, and, an Xbox in their home. Yeah. And those are great customers, and they're going to buy the games that they want on the platforms where their friends are or where the exclusives are, whatever it is.

So, like, it's just, it's not a world where in order for us to win, Sony has to lose, or Nintendo has to lose, or Steam has to lose or something. And if it is, it's not really a Microsoft business. What I mean by that is Microsoft has this perspective. I mean, you look at our market cap, you look at the businesses we aspire to go be. I can't target Microsoft and say, hey, the board of Microsoft, our enemy is this Sony company. We should go take them out. It just doesn't, it's not even in our vocabulary to talk about Sony like that way.

They're a partner of ours, frankly, in a lot of different places. So our ambition has to be a global business that's growing, that's going through transformation, where Microsoft has some real opportunity to help with that transformation and play an important role. And that's how we frame our opportunity in gaming. We're going to take a quick break, but when we come back, I'll ask Phil about the role of software in streaming and Microsoft's gaming strategy and whether this is the last generation of big consoles for the Xbox. Support for this show comes from Shopify. Every thriving, successful business has to start somewhere. A good place to start is a relatively simple question.

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think, write, and finish your work where you already write, while giving you access to agents that help you sound natural and engaging. No matter what kind of writing you're doing, Gramerly helps you get ideas done faster and move from draft to done with less friction. You can use Gramerly's AI chat to brainstorm ideas, outline a solid draft, then refine it with context-aware suggestions that fit what you're working on. See why 90% of professionals say Grammarly has saved them time writing and editing their work. In a world of generic AI, you don't have to sound like everyone else. With Gramerly, you never will. Download Grammarly for free at Grammarly.com. That's Grammarly.com. All right, we're back with Phil Spencer on Decoder.

To launch a console, you don't just need hardware. You obviously need big games. The Sony PS5 has two games that everyone seems to be talking about. Spider-Man Miles Morales. Remember Miles. You're Spider-Man. An Astros Playroom, which takes full advantage of the next-generation haptics on the controller. The new Xboxes don't seem to have those stand-out titles just yet.

One of Microsoft's flagship games, Halo Infinite, was delayed to 2021. So I asked Phil how he's thinking about the role titles play. play in the launch of next generation consoles and how he feels about not having the new Halo game right away. We were very public about Halo Infinite and our desire to have Halo at launch. I do think there are some great launch games that are there to go play that maybe get lost up in this dialogue about who's got the better launch lineup, which is, I think, a downside of the games. I'm playing a lot of Tetris effect from my friend Miziguchi and the team, and it's awesome. But the overall that you talk about, we wanted Halo at launch that we thought it would have

been kind of a real cultural moment for us as Xbox. The last time we had done that was the original Xbox in Halo CE. From a business standpoint, I'm selling every console I can build. So it's hard for me to paint out how I would be selling more consoles today if I had Halo. I wouldn't be. But there's also a fan promise. And that's not lost on me that people want to see new great games that play on their new platform that they purchase. And that's a commitment that we believe in. We've made huge investments in our first party in growing the amount of games that we can build that can be special on Xbox, that can be there for our Xbox fans so that they feel like they made the right purchase. And that was a miss on our part. I wouldn't change the decision

based on kind of the right game, healthy situation for the team and how they're working. But absolutely, it's something that we had planned for Bonnie Ross, who runs the studio and I, to have Halo there. In the long run, I think what's going to happen is we're going to get a better Halo game at a good time when people can actually get a console. So I feel good about that. I think the game will be better for the time that we're giving it. And I'm incredibly excited about the lineup, not only of Xbox Game Studios, but we've

obviously also announced our intent to acquire Xenamax and Starfield and great games that Todd and the team are working on that people are going to go play on their Xbox. And so I feel good, really good, the best I've ever felt about our roadmap. But yeah, it would have been really great to have Halo at launch. Well, so it's, that's all wrapped up into the idea of game streaming, right? So just to lay a foundation and feel free to disagree with me if I'm getting this wrong. But there's a part of me that says this is the last generation of hardcore game consoles that you're going to buy at this moment. And the future is streaming games over the internet to all kinds of devices in your house.

And you've launched a service like that. Google has a service like that called Stadia. Amazon just launched a service like that. We see it from a lot of different directions that the game code will actually run in the cloud. You'll never really know what those computers are. and then you'll just stream them. And I think people call that Netflix for games. You're going to pay a monthly feed at Microsoft for Amazon or Google or whoever, you know,

have access to. And there's some differences in business models, but I see that. Well, you're shipping two pieces of hardware, right? Like, we've talked a lot about the nuts and bolts of your hardware so far. But do you think that shift to game streaming is, will be the inflection point? Do you think that these are the last big pieces of hardware you're going to ship? I don't think it is. These will be the last big pieces of.

of hardware that we ship, but I totally understand the logic flow that you're running through. Like, it makes sense. I'll say, and obviously I don't know. Like, I'm learning every day. We react to what our fans and our customers want, not what we need to have happened. But, like, it's funny, because I'm sitting here and I look to my right, and here's my Sonos speaker, the Sonos move, which is a big piece of hardware. Well done. The advent of streaming audio has not caused me to buy fewer audio devices in my home. If anything, it's actually increased the number of, like, not they're all they're not like you know two dollar little speakers that I'm throwing these are real money spent on real devices um I'd say streaming video the same way like if anything I'm spending more

on my TVs than I ever have because I care about like I care about the quality and does it have HDR and all of these things because of the capability so I don't know that it's inevitable that streaming games means that there's no local compute capability um that I want in my house and in fact that's not what we're building towards. So when we think about X cloud, which is our version of Stadier, Luna, I think what it needs to evolve to are games that actually run

between a hybrid environment of the cloud and local compute capability and that they can actually take full advantage of the cloud that's there and that's available, but also full advantage of my edge compute capability that I have in my home in the console. And it's really a hybrid between both of those. And that's, I think, the compute model that most people are going to move to with most app

development is a hybrid model between Edge and the cloud, where things that either from a security or latency or even cost and bandwidth standpoint can be done locally, should be done locally, and things that really could use the scale that you can get through cloud and be able to light up multiple blades to deliver whatever experience you want to deliver to somebody would use the power of the cloud. Now, if your local device has almost no. no compute capability relative to games. Obviously, we'll move almost everything to the cloud. But if I have a device that's very capable in my home, we should use some of that,

and we shouldn't ignore it. So I think it will change. I definitely think your point about inflection point is right. I don't think the outcome is by definition going to be everything becomes terminal server in my home and all my games are just running completely in the cloud. And when we think about the evolution of our game platform, It's really more of a hybrid game platform between Edge and Cloud that we're shooting for. So the sound of speaker is a really good example because I can concoct the sort of same example that proves a different point, which is 10 years ago, if I wanted to get satellite television, I needed a dedicated satellite television hardware in my house.

And if I wanted to get serious radio, I need a dedicated serious radio equipment in my house. And if I wanted to record anything, I needed a dedicated piece of hardware to record it. And all of that has converged and all of it is delivered over the internet to a single relatively high performance computer, right? Whether that's a Sonos move or like Apple TV or an Xbox or or in many cases the television itself is just a giant tablet that we call a TV, right? And it's got an arm processor and it runs Linux and we're off to the races. Yeah. What's stopping you from saying, okay, Xbox is an app. It has minimum hardware specs and we're just going to run it on a smart TV.

I think you're going to see that in the next 12 months, right? So I don't think anything's going to stop us from doing that. But I thought what you said about the TV was spot on. What we used to call a TV was a CRT that's just throwing an image on the back of a piece of glass that I'm looking at. And now, as you said, a TV is really more of a game console stuff behind a screen that has an app platform and a Bluetooth stack and a streaming capability. So is it really a TV anymore? Or is just the form and function of the devices that we used to have around our TV? been consolidated into the one big screen that I'm looking at.

And so I do think you're going to see hardware change. I mean, frankly, even on the console, we see this. One of the primary things that people do on game consoles is watch video, right? Which is they watch Netflix and Disney Plus and Hulu and everything else. So what it's meant is we actually have to build out an app platform inside of a game console so that these providers can go and build their Spotify app and the different things that run. And there's real, like, hours and hours of usage on these things, which, you know, my N64 didn't do that. The first Xbox didn't do that.

So I think you're absolutely right that the definitions and the, there will be winners and losers and things that evolve and get combined together. I think what I'm saying is my, the amount of compute capability in my home, I think has increased with the number of streaming signals that have come in, not decreased. And I think gaming will be one of those things as well. Let's take a scenario of, you know, my kids want to play the same game on multiple televisions. Is there going to be something that keeps all of the local inputs for low latency and other things in my house? And maybe even I want that from a safety and security standpoint.

So only the kids in the house can get on Xbox Live. And it's not out on the open Xbox Live. But I still, those kids will still want to go play games together on their own screen and other thing. So I think we're going to stay eyes open on what scenarios evolve. I just push back a little bit of, and this is not exactly what you said, but that when streaming comes, all the consoles go away or all my local kind of devices that play video games go away. And I'm not quite as sold on that. I think we just have to be nimble in watching what players want. One of the larger challenges with streaming writ large is that the two phone platforms are owned by companies that are very interested in competing with

the major game vendors. And they're not Microsoft. And they're not Microsoft. I won't say anything about Microsoft and phones. I promise that conversation is dead and over. But right, it's Apple and Google. Apple, obviously, it's embroiled in a lot of different controversies with various game makers. I think Fortnite is just at the top of the list. But right now, if you wanted to put XCloud onto the iPhone, and Apple won't let us do a storefront, they've come up with all these rules. And we've seen, I think, Amazon, I think to some extent, Microsoft, it said, screw it, we're just going to go through the browser. What is that conversation with Apple like right now?

Is it just whatever the safari is open, we're not going to deal with your app store? No, they actually remain open to the user experience we would like people to see. But we have this avenue of a browser that works for us that we will go and build out, which gives us access, frankly, to a lot of devices. If the device is capable of running a capable web browser, we're going to be able to bring games to it, which is pretty cool. And you'll be able to bring all of your save games and your friends and everything comes with you. So it's like it's just Xbox on this new screen with the games.

But Apple does remain open in the conversations that we have on this topic. I mean, I can understand their perspective from their position. I don't say I agree with it. But I can under, they have a competitive product. Apple Arcade that is competitive with Xbox Game Pass. I'm sure they like having Apple Arcade as the only game content subscription on their phone. We want access to at-scale compute devices that we think should have open access to services

that customers want. And we're willing to work with them on safety and other things that people have come up with. We run a platform that we take safety and security very carefully and it's very important to us on Xbox. So that's topic's not something. that's foreign to us. But yeah, it's one of the things that we navigate.

We're on Android today, but I think going with a web solution gives us a lot of opportunity on a lot of different devices. Do you don't think that, I mean, this is like in the realm of conspiracy theory, but I've heard it from other developers that Safari is limited in what you're able to accomplish in order to push developers to the app store and Apple's fee system? We have not seen that to date, just like we haven't on Chrome. I will say, you know, that maybe more Chrome, just because I happen to be an Android user. But Google's good at advertising their first-party services through their platform, right?

So there's a capability of can our service run on Safari or Chrome. And then there's also just the promotion capability that those platforms have of any time I try to go to GamePass, do I end up at Stadia? Like, you know, those are things that isn't happening today. I'm not accusing anybody of things. But that's just one of the positions we're in and not being a platform holder. You know, Windows is open. Things like Steam were created on Windows because Gabe and the team could go build an app that on Windows sold products. And they didn't have to come through Microsoft.

They had open access to the SDK and the users. And as a platform holder, you have to be diligent in how you manage that. But frankly, Chrome was. built on Windows. I think when compute platforms really get to scale like an Android or an iOS or Windows, I think there's a responsibility for us to keep those open and allow for competition on them. I do fundamentally believe that. And I've seen it work on Windows. What's interesting about that is when you go and push Apple and Google on their platform and how they run it, their first response is, well, Xbox and PS5 are the same fees. Do you think that's a fair comparison?

I don't. If that was it, like if we want to do the, if I can put GamePass on iOS, if I open Xbox, like I'd kind of do that yesterday, right? If you just look at the scale, right? I mean, there's, there are a billion mobile phones on the planet. Those are general compute platforms that game console does one thing, really. It plays video games. It's sold at, for us, at a loss, and then you make money back by selling content and services on top. Like, the model is just very, very different from something, the scale of Windows or iOS or Android. You know, I think there are 200 million game consoles that are sold in a generation across all of our platforms. You know, there's as many, that's like less than a year of phone sales, I think. Like, you know,

it's just not even close. And people say, well, the scale shouldn't matter. But it actually does when you start looking at how we look at open platforms and access, those things do matter. From a legal perspective, they mattered. We know that at Microsoft, we had our DOJ time. So I think as platforms get to scale, there's a responsibility there, absolutely. We're going to take one more break, but when we come back, we're going to talk about the Game Studios. Microsoft is buying to fill up that GamePass subscription service and how the subscription model

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That's cloud. com. And check out Claude Pro, which includes access to all the features mentioned in today's episode. Claude. a.i. slash vergecast. All right, we're back. Microsoft has acquired a lot of game studios over the past few years,

but the biggest acquisition by far has been Zenimax Media, which brings huge titles like Fallout, Elder Scrolls, and Doom under the Microsoft umbrella. So I had to ask Phil, is the thinking behind buying all of those studios to make GamePass work, to have that library of first-party content? Yeah, it is. I mean, GamePass relies on third-party content, And I want it to be that way.

I want our third parties to have success. One of the things, going back to like previous CEOs, Bill always had this good point of view that you're not really a platform until other developers make more on your platform than you do. That's kind of one of the fundamental definitions of a platform. And I think it's very smart to look that way. And I think about Game Pass as a platform. It's not just a subscription on a platform.

And I want third parties to see the distribution. and monetization capability of GamePass is something that is accretive to their business and important to them. I obviously, as the owner of GamePass, are going to invest earlier than third parties will, both in when I put games on the service and the number of games that I need in order to create the flywheel that gets it to scale. So, yeah, we're investing in content because we're early in GamePass and, frankly, in XCloud. And I need to have great content as an attractor to customers into GamePass and XCloud and our consoles as well. But when I play it out, I want to get to the world. And you've seen this. You've seen developers. It's been great as

Game Pass has grown, start to come out and say, look, Game Pass is actually a critical part of the discovery process of my game. And it's actually created business opportunity for me, which isn't true in video and music today. Because when certain people try to call GamePass the Netflix of or the Spotify of, there is a fundamental difference that you... I was seconds away from doing it, so I'm excited for this answer. I mean, these games are all for sale. And what we've seen, because one, games, some games have a business model inside of themselves, and there's retail availability at the same time and all these other platforms

that games are on, that one of the big issues that some of the mid-tier and smaller games deal with is, how do I just get known? How do I actually create that either that Twitch moment that you see with something like fall guys, or just the, it's alive on so many people's social graph because people are playing that people just see it. And Game Pass has been a real avenue for that because we have over 15 million subscribers and a very consumptive kind of base of players and everybody sees what everybody's playing on Xbox Live. When a game hits in this curated marketplace of GamePass, it becomes more discovered on the network, which is just such a huge viral marketing for the game

that's out there. And that's what I need to get to with GamePath. So we invest in first party, and we're seeing it. So I'd say get to like we're, I think we're at the, we're right at the inflection point of that really being true. And it's definitely true for a lot of developers already. So we invest in our first party as a catalyst for growth. But in the end, I do know that most of the games, just like most of the games that are played on an Xbox, should be third parties. And those third parties have to build a healthy business on GamePass. Otherwise, it doesn't work. Well, so let me make the Netflix comparison. You know, just to have done it, just to check the box.

The Netflix business model was it started with a bunch of third-party content, right? They were licensing TV shows from networks that had no streaming capability of their own. It was just free money because it was on this thing called Netflix. The TV networks realized, oh, crap, they're eating our lunch, and Netflix started pouring money into originals to increase and maintain the value proposition of your Netflix subscription. And they're still doing it. They're still spending a lot of money when the TV networks are saying, we're all going to build our own streaming platforms. now. You're describing the opposite of that. You're saying, I'm going to spend all the money up front to make people come onto the service. And then the game developers who are not going to build their own subscription bundles, we don't think, they're going to come onto GamePass to make a lot of money. That's our goal. That's absolutely our goal. And we see it. And not in all cases, but this is all learning every day, but we see it. And even things like EA play coming on to Game Pass was us working with our partners at EA to say, it's not, not about a per title thing. Let's actually bring the channel that you guys want to go drive and grow

value in called EA Play. And let's bring that to GamePass on console and PC. So you see growth in people's attachment to your service through the distribution power of Game Pass. And that's real strength for them, right? It actually, for a content partner like an EA or someone else, It helps them create the kind of moat around their content that says, no, this EA play thing has value. And we love that. Now, that's at a portfolio level. There's certain teams that are just, let's do that with our game. If I think about Studio Wildcard with Arc, you know, a game that does really, really well in GamePass.

It's a good example. If they've got a whole ecosystem around what it means to be in Arc and the business model behind that, and they can use GamePass as a great way for them to go. grow and find new customers who might not choose the game just on an open marketplace or might never find it. But we can actually raise the visibility of the content. And that's just not true in the video space. I mean, it is true at some level. There's definitely some third party series that I've found like season one and two on Netflix and then I'll go to watch on the studios service or even on broadcast if it's something that's on broadcast. I just don't think

the video companies were there to catch that growth in friends. You think about something like the office or friends or these things that were kind of critical at parts of Netflix growing. I think the opportunity that was missed there, and I'm not disparaging anybody, but if you're going to grow a bunch of interest in friends because it hit Netflix, what do you do with people's interest when they get to the last episode that's in Netflix? Gaming knows how to do that. Like our gaming partners, whether it's an annualized franchise that comes out, so you're building an audience for the next release, or it's an ongoing perpetual game.

Destiny 2 is in GamePass right now. And those developers know how to continue to manage and grow communities. And that's what I would say in the video space. If you want to use Netflix for distribution, absolutely. But make sure you know how to catch the signal of fans for you as the content creator when it comes out. And we enable that. That's something like we've got a storefront.

We've got discoverability. You can bring, you can have your social, whether it's you play or EA or other things on our platform. So you're building a direct-to-consumer relationship for you as a publisher. Those are all critical, critical components of GamePass. And even more important with XCloud as we start taking this content to a device that's never seen your game in a part of the world that's never going to own a game console or a gaming PC, how do you as a publisher build that strong direct-to-relationship customer, either around your portfolio? or around your game. Does a subscription model change the kind of games you're commissioning or that developers are making? One of the things we've heard from Apple arcade developers, for example, is that Apple is pushing for

engagement time. They want people to play the games for longer, so you feel like you're getting every ounce of money, every ounce of value out of the money you're spending on the subscription. I buy Madden every year. I just pay the $65. I know I'm going to get my money out of it. But when you're paying that monthly fee, right, you always need some novelty or you need to come back to a game over and over again? Is it changing how you're thinking about how games should

be made and developed over time? I'd say for us, the biggest change has been just expanding the kind of creative chances we will take because we know we have 15 million subscribers at players who will try something. The marginal cost of trying the next new thing is today a download and with XCloud will just be opening a stream and giving it a try. So we're doing more episodic things Even games like Flight Sim come back because we know we have millions and millions of customers who will give it a try. I don't know how many of those people would have paid $60 for that game, but the business model allows us to try new delivery methods, whether things like episodic, new themes. It doesn't all have to be the known genres.

Like, let's go push on some genres that have either fallen by the wayside or people are making new things. Those are the areas where I see us unlocking capability. I will say, and this is a healthy thing for Game Pass, and it's true, it sounds like a BAPL arcade as well, the number one metric that we see that drives success of Game Pass is hours played. Like, it's not catalog size, it's not actually even the size, the retail price of the games that are included in the subscription. Like, we've kind of run the math from all different angles. And I love the fact that if people's happiness with the subscription is in line with how often they use it and play it, that seems like a pretty good thing to me.

How do you pay out developers? Like, I'm a developer. I make a game. I say, I'm going to put it in Game Pass. A customer pays $14.99 a month. How do you decide how much to pay me the developer? Yeah, we have, our deals are kind of, I'll say, all over the place. That sounds unmanaged.

It's really based on the developers need. So one of the things that's been cool to see going to the question of, do we see kind of what new things are happening, is a developer, usually a smaller to mid-sized developer, might be starting a game and say, hey, we're willing to put this in GamePass on our launch day, if you guys will give us X dollars now. And so what we can go do is we can, we'll create a floor for them in terms of the success of their game. They know they're going to get this return. Certain cases will pay for the full production cost of the game. And then they get all the retail opportunity on top of Game Pass. So they can go sell it on PlayStation, on Steam and on Xbox and on Switch. So for them, what they've said, they've, they've kind of protected themselves from any downside risk, the game is going to get made.

And then they have all the retail upside. We have the opportunity for day and date. So that would be a flat fee payment to a developer. Sometimes the developer is more done with the game and it's more just a transaction of, hey, we'll put it in Game Pass if you'll pay us this amount of money. Others want more based on usage and monetization, whether it's kind of store monetization that gets created through transactions or kind of usage. So we're open in experimenting with many different partners because we don't think we have it figured out.

When we started, we had a model that was all based on usage. And most of the partners said, yeah, yeah, we understand that, but we don't believe it. So just give us the money up front. That's what I mean, look, if you look at every other model, Spotify is always in a fight with the industry. That model makes a lot of logical sense. We'll pay you based on if people use it. But it seems to lead to an enormous amount of conflict down the line.

My hope is we will get there, and maybe not 100%, like maybe some hybrid model, which I think could work. You know, we already have a Rev Share relationship with most of the content creators, because we have a store, a digital store on our Xbox. So, which is basically a usage-based thing if you think about it. Like I buy the game, we take a cut, they take a cut, and we build success together. And I'm hoping we can get to a model, whereas we see upside, they see upside. there's some downside risk that we can help cover, which gives us certain capability with the content, but also helps them go do some things

that maybe they couldn't get greenlit on a pure retail model. And that's the thing that's been heartwarming to me as somebody who's been building games for so long, is to see games come to the service that wouldn't have been built if there wasn't this engine called GamePass that allows us to go off and help fund

a certain game to go built. when the team, if they're just out there pitching to publishers on how do I get this sign as a retail game? And if it doesn't fit into some Excel spreadsheet that tells you what the retail outcome will be, that it doesn't get greenlit. And you see this in things like Netflix. There are clearly shows on Netflix that would have never been greenlit by NBC or CBS or ABC in the old model. And frankly, it can have real success. So it's interesting about this. We've been talking a lot about Game Pass and streaming, being on lots of devices.

is a thing about this console generation in particular is that, you know, Sony took a leap forward with the actual controller. And they were able to do something because they built haptics into their controller. It's tightly integrated into their system. They have a few titles at launch that really take advantage of it. How is, how are you thinking about that split? There's something I can do if I own the whole stack over here. And then there's this massive inflection point and opportunity to be everywhere if I

sort of commoditize a little bit more. And I say commoditize, and like that's a little bit unfair because every controller in the world looks like the Xbox 360 controller, right? Like that design has won. So you could just take that everywhere. But they were able to take another leap with their controller because they control the hardware stack. So I applaud what they did with the controller, not actually for this, well, I shouldn't say not for the specifics of the controller, but more than just the specifics of the controller.

I think for all of us in the industry, we should learn from each other and the innovation that we all push on. And whether it's distribution and business model like GamePass or controller tech or the Wii back in the day, which clearly had an impact on us when we went off and did Connect and Sony did the move, you know, I think all of that innovation is something that we should all be looking at and learning and growing and saying, okay, what's really going to break out and become a common part of a problem. platform that that developers and players are going to look for or what is more kind of vertical around a specific scenario on a specific piece of hardware. And so we're trying to be eyes open on that for any technology, whether it's controller or any VR or anything else. Yeah, but I look at that controller and I say there's no way you could execute that unless you have a box right there. Right. Like you couldn't abstract the PlayStation platform to every phone in the world and then support haptics with that low latency. You think you could?

Yeah, yeah. You could create as part of the API that we have with direct input or other with Apple and Android, which is where our controller works. We could clearly add API calls for Rumble, which we already do in certain cases or haptic triggers and stuff that we've looked at. I think your point earlier around the Xbox controller has kind of become a default, even outside of gaming scenario, is always bizarre to me. I'll see somebody controlling a robot and they're using a an Xbox controller somewhere in like an enterprise scenario. But, you know, that's, that's something where we have to think about superset, subset, not all of our controllers have all exactly the same capability. The elite has the kind of buttons on the back and stuff. So I don't think it precludes us, but there is something about the common just expectation that people have on our controller and its ubiquity that's out there that I think is a strength. It doesn't keep us from innovating, But clearly we do have to think about all of the use cases that are out there. We can't turn the controller inside out because there's so much expectation about the way it should work now.

But we can innovate on top of that. And we're going to look at what any other company does and learn from it and see if it's something that we want to apply to what we're doing. I feel like this comes back to that conversation about what happens in the cloud and what happens on the edge, which is like every time I talk to anybody from Microsoft, I feel like I use the words edge in cloud like five times in the conversation. But right, what I'm describing is they've made a user experience improvement at a very local level, right? The thing you're holding your hand connected to the box, it's all running on the box. And it just, a lot of our conversation so far has been about streaming. Like, how do we abstract the platform and put it everywhere? And that level of abstraction usually just comes with a commoditization of user experience.

Like, it's sort of necessarily what happens. Yeah, but so I understand that. I'm just thinking real time. Like, if you, it's like a 4K television that different. Is HDR and my television that different? Like, I get it in a 4K HDR signal from Disney Plus that lights up my local hardware capability in a unique way. It's coming from the cloud.

But my local edge device, my TV, to use Microsoft vocabulary, knows how to decode that and actually turn on specific hardware capability locally and make that way. work. And I don't think that the fact that things are coming from the cloud really keeps us from innovating on local hardware, whether it's input, whether it's display, whether it's audio. And you see that with DTSX and a bunch of other things that are hitting now. You know, those streams could easily come from the cloud and light up in interesting ways. It's something to think about, but we don't see it blocking us in any way. Last question, we've talked a lot about just sort of the business of games. We've talked a lot about how you architect the consoles, how you make them, how you get them

people. This is all in the context of what we started with, which is games are having a moment. It's an inflection point. They're more visible than ever. Certainly, I think that's started with Fortnite. We're seeing a Roblox moment. There are concerts happening. This is how people are socializing the pandemic. Games have just been a sideline in the entertainment industry. They were over there for a long time. Now they're just like in the middle of everything. Does that change your responsibility. You talked a lot about, you know, the parts of the gamer culture you don't like, but are there parts that you want to enhance that you want to push forward? There's a lot of kids learning their social interactions in these spaces. Like, what's your responsibility? How is it

involved? I love, love this topic. I absolutely think as an industry, it's our responsibility to use both the interactive nature of our medium as well as you say the audience that comes into gaming, to help build social norms that are durable across the physical and the digital space in gaming and non-gaming scenarios. I think we have that opportunity as an industry. And I actually see us, we get tons of learning and growing and mistakes in our past as a company as an industry. I say as a company is like as Xbox.

I'm learning on this every day. But I absolutely see the industry. I'll go to like game developers conference, you know, back when we, We were having it physically. And you see blacks in gaming, Latinos in gaming, LGBTQIA plus in gaming events. You see topics around the discourse that should be able to happen in our social gaming networks. You see work on ML machine learning techniques to detect whether it's bullying or grooming that happens online or people that are in social, suicidal stress situations. and can we detect these things?

For the longest time, gaming, and again, as you've said many times, I've been around for some will say too long. And when it's the adoption of things like AI or simulated 3D technology, gaming has always been at the forefront of adopting these things and making them mass market into consumers' hands. And I think now what we have as an industry is an opportunity on more social and maybe even global issues that we can really lean into. And I love the way that the industry itself and Team Xbox has done its share on seeing that opportunity and trying to realize it. It's part, like, who are we as teams?

It can't be a bunch of old white guys like me that are running all of these teams. And that's the only perspective that shows up in the creative and the business model and the opportunities. It can't just be people from North America, Europe, and Japan that are building games. We need to diversify what voices are being heard through the creative. and where those creations happen. We need to really build safety and security. Obviously, we have Minecraft. Roblox is on our platform.

We think very, very carefully about both the social norms and the safety and security. So if I'm a parent and my kids online, that I know that they're as safe as they are upstairs playing in their bedroom. And that's a goal for us. So these are real opportunities. I could have said challenges,

but I see them as opportunities for us as an industry. and I'm actually motivated by the accessibility and all of the work that this industry takes on and tries to go tackle. And that's a Sony comment, a Nintendo comment, a Steam comment, like an Xbox comment. It's not a competitive thing. It's something for us as an industry.

Sorry, I'm a little bit passionate about this one. No, I'm going to ask you a more question because you're going to keep giving me time if I stay on it. So when you think about the opportunities there, How active are they? One of the things every platform company that we talk to, we asked them about content moderation. You know, like user generated content comes with like a known set of challenges. How active do you need to be in moderating and shaping your community versus putting norms around it and hoping it develops the right way?

Every second. Like that you need to be real time with your community as it gets to scale, whether you're an individual developer with one game or a platform. and we as Microsoft, and other companies will do the same, we need to give you the tools to help you as an individual game developer or as a growing platform to help monitor. Because one answer is to throw bodies at it. And like, okay, I'm just going to go hire 1,000 people to manage the community that happens on my game as it gets to scale.

That runs out of steam at some point. Not everybody can go put Azure stacks with RL, with reinforcement learning capabilities all over. But we have that capability. And we've built technology through Microsoft research, whether it's on the voice side, the tech side, or the image side that can detect certain things. And we've shared that with other game industry and community companies that are out there. This is an area where Microsoft and Xbox, I want us to be leaders, not leaders, again, to the exclusion of other people, but leaders just in helping. Because you do need to do it real time.

You can't put three rules up on the whiteboard and say, okay, well, the rankings will figure it out, or the good stuff will float to the top because regretfully, that's just, you know, people will, that doesn't work. It can work for maybe a short while, but it doesn't work. So we see it as an active, we have hundreds of people and a ton of technology and cores that we throw against this problem real time. And I really think it matters. So I think it's a constant opportunity. I see it as an opportunity because I value what bringing people together and play does. I see that empathy it builds, you know, that social contact theory that I'm a big believer in,

of bringing disparate groups together with shared rule sets and understanding can help build empathy between different groups. But with that becomes a responsibility to make sure it's the right environment for that to happen. Well, that's great. Well, thank you so much for going a little bit over. I really appreciate it. This is a great conversation. Thanks so much, Phil. No, I appreciate it. Okay. Thank you. again to Phil Spencer for taking the time to talk with me. Thank you all for tuning in. I hope you enjoyed it. As always, I'd love to hear what you think of the show. You can tweet at me.

I'm at Reckless on Twitter, or you can email us at Decoder at theverge.com. And if you enjoyed the show, please share it with your friends and subscribe wherever you get your podcasts. Decoder is a production of The Verge and part of the Vox Media Podcast Network. It is produced by Sophie Erickson. Our audio engineer is Andrew Marino. Our music is by Breakmaster cylinder. We'll be back next Tuesday with another episode of Decoder. We'll see you then.