Microsoft's CFO is keeping an eye on gaming now that it does $10 billion in annual revenue

Key Points
  • Microsoft executive Phil Spencer joined the company's inner circle of top leaders last year.
  • In the company's most recent fiscal year, which ended in June, gaming represented 9.4 percent of total revenue.
Microsoft Chief Financial Officer Amy Hood speaks at the annual Microsoft shareholder meeting in Bellevue, Wash., on Nov. 29, 2017.
Jason Redmond | AFP | Getty Images

Microsoft has been in the gaming business since the turn of the century. Finally it matters to the company from a financial standpoint.

"Amy Hood, our CFO, she likes to tell me I've made the spreadsheet now, and she says that can be a good thing, and I'm on the spreadsheet. So she's going to pay attention," Microsoft's executive vice president for gaming, Phil Spencer, said on stage at the Barclays Global Technology, Media and Telecommunications Conference in San Francisco on Wednesday.

Today Microsoft is one of the top public companies by market capitalization, alongside Amazon and Apple. Sales of Xbox consoles and online services means Microsoft is less dependent on revenue from other products, like Windows, Office and enterprise software. In its 2018 fiscal year, which ended on June 30, Microsoft surpassed $10 billion in gaming revenue for the first time.

Spencer, who joined Microsoft's senior leadership team alongside Hood and CEO Satya Nadella last year, pointed to several investments the company has made in gaming recently, building on earlier moves like the $2.5 billion Mojang acquisition. and its purchase of game-streaming company Beam, which has since been rebranded to Mixer.

"We've acquired and started seven new first-party studios in the last year. We obviously don't do that without tremendous support from Satya and Amy," Spencer said. "We understand content is a critical component of what we're trying to go build and the support from the company has been tremendous."

One of Microsoft's stated growth opportunities in the future is cloud-based gaming, which could make the technical limitations of consumers' devices less important and expose Microsoft's gaming content for wider consumption. Spencer talked loosely about its cloud gaming initiative, called, Project xCloud, on Wednesday.

"We focus first on an Android phone because there's over a billion Android phones on the planet and it's a place that the content that we've natively built up over the past decades on our platform hasn't been able to reach," Spencer said.

This strategy builds on Microsoft's past efforts to bring richer capabilities to Android. But Google, the company behind Android, has started working on cloud gaming with its Project Stream initiative, Spencer said. And meanwhile Amazon, which is the leader of the cloud infrastructure market, has its own gaming division, he said.

"We'll have multiple business models that will work with streaming, but the connection of streaming with the subscription model makes a ton of sense," Spencer said. "You see it in music. You see it in video. So you can look at Project xCloud and you can look at something like Game Pass, and you can see there's natural synergies."

On stage, Barclays asked Spencer how Microsoft differentiates from gaming subscription offerings from EA and Sony.

"For us, it's all about how we reach 2 billion gamers," Spencer said.

"If you build the market around a couple hundred million people that are going to own a game console or a high-end gaming PC, then your business model diversity can actually narrow because your customers are narrow. But when you think about reaching a customer with this content where their only compute device could be an Android phone, you think about, well, what are all the ways that that person pays for content if they do at all today?"

Microsoft will bring its Game Pass subscription service to PCs, and eventually it will be available on every device, Spencer said.

Gaming is the future of entertainment: Sood
Gaming is the future of entertainment: Sood