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Microsoft carves out room for Xbox amid productivity push

Microsoft CEO Satya Nadella isn't giving up on the Xbox, even if it's no longer part of the company's core business.

In a letter to employees that redefines Microsoft as a “productivity and platform” business, Nadella insisted that Xbox is still important. He said that Xbox is “one of the most-revered consumer brands,” and that Microsoft's gaming research has fed into productivity efforts such as Skype speech recognition, Kinect for Windows and GPU simulation in Azure.

Nadella also noted the importance of gaming in a “mobile-first world,” saying that it's the biggest digital life category measured in time and money spent.

“Bottom line, we will continue to innovate and grow our fan base with Xbox while also creating additive business value for Microsoft,” Nadella wrote.

But what does that all mean?

There's a lot to unpack from Nadella's statements, so let's take a swing at it.

Short term, this is probably all well and good for Xbox owners. We already knew from past statements that Nadella had no plans to jettison the Xbox business, and he's basically reaffirmed that Microsoft will be staying the course. And with Nadella nodding to the importance of mobile, maybe we'll even see Microsoft tap into the cross-platform potential that it's never quite realized.

But you also have to wonder how ambitious Microsoft will be when it comes to future Xbox investments. When the Xbox One launched, it was part of a broader strategy to unify all Microsoft platforms. The Xbox One's operating system is based on the Windows kernel, so that developers can eventually create universal apps across Windows Phone, Windows and Xbox. The Xbox One wasn't just seen as a gaming machine, but as a key piece of the Windows-driven “three screens” vision that Microsoft has talked about for years.

Nadella's letter makes clear that Windows is no longer at the center of everything. Instead, Windows and first-party hardware are a way to “set the bar for productivity experiences.” How important will Xbox be in the future, now that Microsoft's hardware and software motivations have shifted?

The competition, meanwhile, isn't letting up, as Sony in particular has done more than just put out another bland gaming box. It's working on a cloud gaming service and dabbling in virtual reality. It's giving away heaps of free games to Playstation Plus subscribers and letting players access their Playstation 4 libraries through gaming handhelds and networked microconsoles.

Microsoft's gaming efforts look rudderless by comparison, with no unique technology on the horizon (at least from the outside), no serious cross-device efforts and nothing but lip service when it comes to PC gaming. If Nadella is serious about staying committed to games, and not just the technological advances that drip down to other Microsoft products from Xbox development, it'll take more than just an open letter to prove it.

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