Phil Spencer sacrificed the Xbox Series S and X to invest in cloud gaming

So, while many thought that the Xbox Series S/X's "low" sales were due to its unavailability, these emails suggest that Xbox was well aware of the risks as it repurposes custom Xbox Series X chipsets to power its cloud servers, which had a negative effect on console production.

It's difficult to paint a proper picture of how much the PlayStation 5 is outselling the Xbox Series S/X, but after it enjoyed a record-setting quarter while the Xbox Series S/X reportedly struggled to crawl off the shelves, it's safe to say that this was far from a smart play.

Despite the pursuit of a grand cloud vision, Xbox Cloud Gaming, also known as xCloud, has faced a slew of problems such as high-latency gameplay and text scaling issues on handheld devices ever since it launched. The platform remains in the "beta" stage even now, while competitors like NVIDIA's GeForce Now showcase more mature and robust cloud gaming technologies.

Not to mention, this very investment might be the reason why Microsoft ends up paying a hefty fine for its failed attempt to buy Activision Blizzard.

Despite these hitches, Spencer's emails emphasized his belief in the long-term vision for cloud gaming and content over console volume. The strategy aimed to capitalize on Microsoft's unique strength—the combination of console prowess, developer engagement, and a robust catalog of content—that rivals like Amazon Luna and Google Stadia lack. Yet, in the context of today's market dynamics, some might argue that Microsoft's priorities were misplaced.

Microsoft's acquisition of Activision Blizzard, should it come to fruition, would bring significant clout in terms of coveted titles like Call of Duty, World of Warcraft, and Candy Crush. Yet, the question remains: Could this additional firepower help remedy the seemingly self-inflicted wounds of the past? That largely depends on how Microsoft rectifies its missteps, optimizes its cloud platform, and replenishes its console supply.

The recent court proceedings have made one thing clear: Microsoft has taken a calculated risk, opting to focus on future-oriented cloud gaming at the expense of their current console market.

Whether this gamble pays off or backfires will depend largely on how well they can execute their vision in an industry that's fraught with fierce competition and high consumer expectations.

But, hey, at least it will have the library to fill out its cloud gaming endeavors. Avowed, Fable, Starfield, and the likes of IO Interactive Project Dragon, among many others, will make xCloud even more attractive in the years to come - provided that Microsoft finds a way to make it work 99% of the time.