Xbox is bigger than Windows.
Revenue from Microsoft’s video-game business surpassed its Windows division for the first time in the December quarter, with a big boost from the company’s $69 billion acquisition of game publisher Activision Blizzard.
That’s one of the takeaways from numbers included in Microsoft’s 10-Q filing with the SEC in conjunction with its earnings report Tuesday afternoon for the second quarter of its 2024 fiscal year:
- Gaming revenue increased 50% to $7.1 billion, which included more than $2 billion in revenue from Activision Blizzard. It’s the first time that the Call of Duty publisher’s results have been included in Microsoft’s revenue.
- Windows revenue rose 9.5% to $5.3 billion for the quarter, boosted by an 11% increase in sales of Windows PCs, but that wasn’t enough to keep pace with the extra injection of revenue from the gaming acquisition.
The milestone is a jaw-dropper for those who have followed the company historically, given the ways that Windows defined Microsoft for decades, from the debut of Windows 1.0 in the mid-1980s through the heyday of the Windows 95 launch and the subsequent antitrust battles over Windows’ position as the dominant PC operating system.
But in reality, the Activision deal simply accelerated a trend that has been playing out for a while. Microsoft Games came within a mere $50 million of Windows in revenue in the same quarter a year ago, for example.
Bragging rights aside, business is about the bottom line, and from that point of view, Windows still has the profit advantage over games on the whole. As evidence, Activision’s $2.08 billion in revenue for the quarter would boil down to a slim $11 million profit after adjusting for $55 million in transition costs.
This helps to explain the recent job cuts in the games division.
Microsoft is looking to reinvigorate the Windows business with AI — including the introduction of neural processing units, integration of the company’s Copilot technology into Windows 11, and the advent of a new Windows key.
“In 2024, AI will become first class part of every PC,” Microsoft CEO Satya Nadella said on the company’s earnings conference call Tuesday afternoon.
In the meantime, in the ranking of Microsoft’s businesses, it’s possible that Windows will be passed by another franchise entirely. LinkedIn posted more than $4 billion in revenue for the quarter, and it’s climbing steadily.
