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Xbox's Phil Spencer puts gaming front and center at Microsoft

Here's what the Xbox chief wants the gaming division to become.

Looking at Phil Spencer's role at Microsoft is a bit like playing the game "One of these things is not like the other." That's because Spencer runs Xbox, the video game division that has little in common with the company's business-focused products.

The Xbox brand -- bright green, white and black with a massive X as the logo -- also has a decidedly different vibe from the buttoned-down feel of the rest of Microsoft. Although launched in 2001 under then-chairman Bill Gates and then-CEO Steve Ballmer, Xbox always seemed a bit out of place at the world's largest software maker.

"The analogy I use with some people is we were like the garage band for a long time," said Phil Spencer, executive vice president of gaming. "As long as we didn't play our music too loud, we're allowed to keep practicing."

Microsoft's Xbox chief, Phil Spencer.

Microsoft's Xbox chief, Phil Spencer.

James Martin/CNET

He's allowed to play music as loud as he wants now. Last year, the three-decade veteran was promoted to Microsoft's Senior Leadership Team, a group of 15 executives who meet with CEO Satya Nadella each week to discuss the company's direction. That seat at the table — along with the cred that comes from helming Microsoft's biggest consumer and entertainment brand — arguably makes him the loudest consumer advocate in a company not known for a consumer-first mindset.

The video game industry is rapidly changing, Spencer acknowledges. It's up to him to prime Xbox for the next wave of games, in which streaming services could make game consoles unnecessary. He's already made inroads. Spencer's the one who convinced Nadella to buy Minecraft — one of the world's most popular games, played by a generation of young kids — for $2.5 billion. 

Spencer says he's focused on turning his business into more than just a video game console and a few high-profile titles, like Minecraft and the Halo series.

I sat down with Spencer on July 25, during a visit to Microsoft's headquarters, to talk about what the Xbox is becoming and how it fits into Microsoft's worldview. Here are edited excerpts from our conversation.

Now playing: Watch this: Xbox has become the voice of consumers at Microsoft
6:25

You were elevated to the senior leadership team in the past year. How has that changed things for the Xbox?
The vote of confidence that came from the Senior Leadership Team — that gaming is going to be one of the top words in the company — the team really internalize that. And [we] thought about, what are the resources that Microsoft has? What does it mean for Microsoft to be a leader in the games industry? What role should we play in this industry?

The Xbox has always been a gaming platform. Where do you see the potential for it beyond that?
We always start with the player. We think about 2 billion people on the planet play video games, some of them on a console, some of them on our console, some of them on PC, a lot of them on phones. If we put the player at the center of every decision we make — let's give people access to the games that they want to play, with the people in the community they want to play with, on whatever device they choose to play on — I think the opportunity for Xbox as an ecosystem, as a community and as a set of games is tremendous.

Where do I interact with my community? I interact with my community wherever I am. Where do I play games? I play games wherever I am. Where do I want to talk to my family? I want to be able to talk to my family on multiple devices and where I am.

I think that's a good thing, that we've gone from a one-device-defines-the-world to a user-centric view.

In a lot of ways, you're becoming the customer advocate within Microsoft.
Not solely. I mean there's people like Panos Panay running Surface and Alex Kipman doing a lot of mixed reality work. But I will say what I add to that senior leadership table is I want to make sure that view of the customer shows up. The team has been incredibly embracing of that, thinking about the consumer.

I thought the decision to put gaming at the senior leadership table was an affirmation from the company that all customers are important to us. I want to be present in the room in terms of the impact I can have on the other things that Microsoft is doing.

So imagine you're a normal Xbox user. What doesn't Xbox have that you want?
I've been explicit that we needed to up our investment in our first-party studios, and at E3 we announced the addition of five new studios. I don't think we're done. People want to play great games on our platform.

What I look at now is this opportunity where 200 to 250 million people will buy a console, whether it's from us or Sony or Nintendo — or even something else out there that could be coming to the 2 billion people who play video games. And I say, "How can we enable the great content and stories that I see happening on my television screen, or my PC laptop to reach every screen in the world?"

Look at television. I think we're at an interesting time with new business models, and I think about building some of the most creative and engrossing content we've seen from companies like Netflix, HBO and Showtime. That content gets consumed on all kinds of screens, but it's designed for a large screen on the wall.

We have great stories, characters and worlds in gaming that have been locked to certain screens because of the technical capability that you need to see that content. And we've really taken this view of, how can these characters reach more and more people on the planet?

Are you talking about streaming?
Streaming is one output. If you go back a few years, we made this decision that when you buy one of our console games, we give you the ability to play on a PC at the same time because it was, "Hey, if you if you bought Gears of War from us, and you want to play on your PC, great, go play. You should experience the world on any device that you want to go play."

And then you say, OK, there's all these phones out there. How do I make those phones accessible? Is streaming a way of doing that? I have said streaming is something that we're investing in.

And then there's the complexity of the content. One of the things I've loved that the games industry has really embraced is, "How do we build games for all kinds of players?" You can look at something like what Telltale Games does and build really narrative-driven story games. I think, look at what Nintendo does, and bring very family-friendly, great games.

It's all creating new forms of entertainment — new games, new experiences — for people to play alone or together. We think about getting more people to play, getting people to play wherever they want to play with the people they want to play with. I think we're growing the industry and the opportunity for all of us.

Halo Infinite

The Xbox is home to some of video game's biggest games, like the space war series Halo.

Microsoft/Screenshot by CNET

So is Satya pushing you further down that path, or he's like, "Just don't screw it up"?
I've worked around Satya for many years. Obviously for the last year I've worked directly for him.

It will sound like playing to my boss a bit, but I've been incredibly impressed by both his enthusiasm for learning about this gaming space and what it means, and the freedom he's given us to chart a path.

There's not a lot of "Don't screw it up." There's more, "What can this company do to help us be a more meaningful player in the games industry?" And if there are things the company in the past has asked us to do that inhibit us or slow us down or are even just a distraction, he's been very supportive of us saying we're going to put a pause on those things as we focus on what the real opportunity is.

We come and say, "Hey, we want to add these five studios because here's how the equation works. And this is something we think will be important to us as we continue to grow the business." He's incredibly supportive of that.

I will say he's eager to see the progress we're making. I feel this pent-up enthusiasm for what the opportunity is.

For many kids, their first experience with technology could be with Minecraft. What is our social responsibility, entertainment responsibility, parental controls responsibility in those scenarios? We take that very seriously. Look at the work we've done with Minecraft Education, work we've done with Code.org. That's something Satya has just been incredibly supportive of.

Tell me a good Satya story.
The thing that has stuck with me the most is the experience through the Minecraft acquisition. He became CEO in February and I became head of head of Xbox in like March, April. And Notch, the creator of Minecraft, calls in June. He thinks he's done — he wants to sell the business. We were the first people they called, which is great.

Look at where Satya came from in this company: cloud enterprise. And the first acquisition — when people would take notice — was this Java-based PC game.

I just thought that was such an awesome move. It wasn't about him. Instead, he was incredibly supportive and it never it all came up, "Hey, the first acquisition is Minecraft."

In hindsight, he loves the Minecraft acquisition, which is great and it's turned out incredibly well. But whenever you do these acquisitions you don't know how it's gonna end up, and he was right there with full skin in the game to be supportive.

microsoft-hackathon-5160
James Martin/CNET

It's funny because in his book he talks about how Bill Gates and Steve Ballmer weren't entirely convinced of it.
The company in almost all the things we do was an enterprise company. We've had a couple consumer businesses — gaming is one that Bill started, to his credit. He and Steve originally greenlit Xbox project. The analogy I use with some people is we were like the garage band for a long time. As long as we didn't play our music too loud, we're allowed to keep practicing.

And now we've moved more into the mainstream. But for that time, when we were the garage band, Bill and Steve were — as long as we're not messing things up and we continue to make progress, things were good.

Bill's been incredibly involved in what we're doing and I still see Steve every so often. He asks how Xbox is doing and how things are going.

And like I said, with Satya leaning in in this area and being incredibly supportive, it's an awesome opportunity for us.

CNET's Connie Guglielmo contributed to this report.

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