This week, Microsoft posted financial results for the company's first financial quarter of 2021, and the results reflect massive success for the company. Continued success with the company's Azure cloud computing infrastructure, continued adoption of Windows 10, a burgeoning PC market due to the Covid-19 pandemic, among other factors contributed to Microsoft's impressive revenue report. One of the most important factors of that revenue stream, which rose by around 50% in total revenue year-over-year, is Xbox. Reflecting a drastically different initial outlook from the beginning of the PS4/Xbox One generation, Xbox has never been better in 2021.
Even as other portions of Microsoft's business continue to see unprecedented success, the tech giant's gaming extension is often overlooked outside of tech and gaming-focused circles. Those familiar with the gaming industry, however, are well aware of the heel-turn Microsoft has made with the Xbox brand in the last decade or so. Even in the last few years, the Xbox brand has taken great strides towards a consumer-friendly approach that's affecting the gaming industry as a whole, both directly and indirectly. The increase in Microsoft's "personal computing" market segment, where Xbox revenue is denoted, was most greatly affected by its console gaming brand.
Xbox is an Important Revenue Slice for Microsoft
Obviously, gaming revenue from Xbox is not the main money maker for Microsoft, but it's still an important portion of it, especially this year. PC sales, Windows, server infrastructure like Azure and other cloud services, as well as OEM hardware like Microsoft Surface, all contributed similar gains to Microsoft's Q3 2021 success. However, the across-the-board increases in Xbox-related revenue played a significant part in the company's overall 19% increase in revenue. A mixture of renewed hardware sales with the release of the Xbox Series X/S, software sales from first and third-party games, as well as Xbox Game Pass subscriptions rose significantly this year so far.
Specifically, Xbox hardware altogether rose 232% year-over-year, which frankly isn't as surprising a number as it seems at face value. The release of a new console generation always fuels hardware sales, and undoubtedly Sony will have a potentially similar increase in revenue as well. Both the Xbox Series X and PS5 continue to sell out consistently whenever each console goes up for sale, even in April of 2021. What's more impressive is the 34% increase in "content and services revenue" for Xbox, which essentially means impressive game sales for first and third-party titles, Xbox Live Gold subscriptions, and the ever-growing Xbox Game Pass subscriptions.
Huge Increases Reflect How Much Xbox Has Changed in a Decade
All of these aspects of the Xbox gaming brand led to the 50% increase in revenue compared to 2020's fiscal year, and it's all thanks to the way Microsoft has adjusted the Xbox brand's strategy. Many of the efforts overseen by Head of Xbox Phil Spencer have transformed the Xbox brand into a perception of consumer-friendly and gaming-focused. Arguably beginning with the implementation of the now wide-sweeping Xbox backwards compatibility program, Spencer and the gaming team at Microsoft have made a slew of positive and forward-thinking changes since 2014. By the end of the last console generation, Xbox had significantly reversed its public image around.
Perhaps the biggest driver of future growth for Microsoft in the gaming space is Xbox Game Pass, which continues to grow and expand exponentially over time. From its humble beginnings of just over 100 games, Xbox Game Pass has since expanded to over 600 games across Xbox One, Xbox Series XS, and partially on PC as well. Fans have clearly responded to Xbox Game Pass quite positively, with the service jumping to over 23 million subscribers as of this month. The last reported number of Xbox Game Pass subscribers was 18 million in January, meaning around five million new subscribers signed on to the Netflix-style gaming subscription.
Obviously, with the Covid-19 pandemic and health concerns, overall console sales haven't particularly reflected as much of a success as the software/subscription revenue reflects. Component shortages, console shortages, as well as issues with botting/re-selling of PS5 and Xbox Series X consoles, mean that Xbox's most recent launch doesn't particularly exceed last generation. That being said, a 232% increase in hardware sales is certainly no joke. In 2020 alone, the Xbox Series X/S sold 2.8 million combined consoles, which means console sales have grown exponentially since the start of 2021, even though there's no official sales numbers for 2021 just yet.
Xbox is just a notch in the belt of many notches for Microsoft's revenue breakdown, but Xbox has taken up a much larger share in 2021 than any previous year. Next-gen Xbox consoles continue to sell out as they go live, and will likely continue to do so moving into the rest of 2021, especially when Microsoft finishes up its fiscal year next quarter.
The Xbox Series X/S are available now.