While Xbox chased mobile and cloud gaming, it completely ignored the rise of the PC handheld market, led by the Steam Deck. This was a major strategic blind spot, as these devices primarily play Windows games—an ecosystem Microsoft owns but failed to capitalize on, allowing competitors to dominate.

Xbox's persistent third-place position isn't a recent issue. Losing the Xbox One generation to the PlayStation 4 was a critical failure because it was when consumers first built their digital game libraries, creating a powerful ecosystem lock-in for Sony that Xbox has never recovered from.

Microsoft's ambitious plan for an Xbox mobile store, a key justification for the Activision deal, relied entirely on forcing regulatory changes to Apple's and Google's app stores. This high-stakes gamble on external factors failed, leaving the strategy with no viable path forward.

By 2022, Microsoft internally recognized its flagship Game Pass service had stalled on consoles and lacked expected mobile growth. This forced a pivot away from the "Netflix for games" vision, acknowledging the model's limitations and its potential to cannibalize more profitable game sales.

Microsoft's aggressive mobile strategy was not primarily about competing with PlayStation, but a defensive move against irrelevance. It was driven by the fear that younger generations are abandoning consoles for mobile apps like TikTok and YouTube, and may never enter the console ecosystem at all.

Instead of building another closed-box console, Microsoft's next-generation strategy involves convincing PC OEMs to manufacture "Xboxes." These would be PCs that boot into a Microsoft-controlled interface, attempting to capture store and subscription revenue from a broader hardware base and move away from direct hardware competition.

MongoDB's CEO argues that successful pivots during tech transitions like cloud or AI are fundamentally change management challenges, not technical ones. The biggest risk for established companies is complacency. Leadership must force the organization to lean into new platform shifts, even when their maturity is uncertain, to avoid being disrupted like Nokia or BlackBerry.

Asha Sharma's appointment is less about her AI experience and more about her background in platform scaling and user acquisition at Meta and Instacart. Microsoft is signaling that Xbox's primary challenges are in execution and growth, prioritizing operational expertise over traditional game industry experience.

Despite premier access to OpenAI's models, Microsoft is failing to integrate them effectively and quickly. This execution problem is so severe it's deemed a "skill issue." CEO Satya Nadella’s personal focus on Copilot is viewed as a sign of existential crisis rather than strategic leadership.