Can Microsoft Discover Its Next Breakthrough in China?

The Xbox Series X/S has achieved a remarkable turnaround for Microsoft in the console market, putting the company on a more even footing with Sony. However, the elephant in the room remains the lack of a strong exclusive software lineup, which could have been a major issue for any other console. Microsoft has managed to sustain consumer enthusiasm by promising that the games are coming, backed by significant investments in acquiring publishers and building a portfolio of first-party studios. The company's recent financial results showed an unusual trend, with hardware revenues up but software revenues down, indicating that people are still buying Xbox consoles but fewer games for them. The decline in software revenues was mitigated by the success of Game Pass, which has been a key factor in positioning Xbox for success. As the third year of the console's lifespan approaches, Microsoft is aware that it's on thin ice and needs to deliver on its software promises. The company is not resting on its laurels and is actively seeking new games and studios, including in China, where it hopes to find the next big thing. However, this approach feels reactive, as if Microsoft is trying to make up for missing out on Genshin Impact. The company needs to focus on improving its ability to recognize and nurture potential successes rather than chasing after the next big hit. China is an important market with a growing number of skilled development teams, and signing great games from the region could help Microsoft build out its Xbox software pipeline. Nevertheless, the company must learn from its past mistakes, such as passing on Grand Theft Auto 3, and change its decision-making processes to ensure it doesn't miss out on the next game to achieve massive success.