But Microsoft has a plan to turn things around for the Xbox One by bringing it closer in to the rest of the Microsoft business. You can see the hint in an unlikely place: The announcement earlier this week that "Quantum Break," a forthcoming Xbox One flagship game, will also be coming to Windows 10.
We've seen it with Microsoft Office, which is shifting its model from boxed software to a subscription-based service available via the Internet. With the Office 365 service, customers pay their $10/month (or more if they're a business) and get access to all the Office apps they want on phones, PCs, tablets, and pretty much everything else, straight up.
That includes old standbys like Word and Excel, alongside new and neat experimental apps like the GigJam work-sharing app. And with products like Microsoft OneDrive cloud storage, your work and documents can follow you between devices. So far, so good, with Office 365 booking big numbers.
Now, it's the Xbox's turn to make that same exact jump. Not everybody is going to love it. But the potential opportunity here for Microsoft is, for lack of a better term, game-changing.
Even though Microsoft is no longer announcing Xbox console sales, the company recently announced another interesting statistic in its quarterly earnings: There are 48 million monthly active users of its Xbox Live gaming service, across both the last-generation (but still popular) Xbox 360 console and the newer Xbox One.
The Xbox Live service comes in two subscription tiers: Silver, which is free, and Gold, which is $60 per year. Silver subscribers can buy games, movies, and TV shows from the Xbox's digital store. But subscribing at the Gold level gets you some crucial perks, including the ability to play multiplayer games online and a handful of "free" games every month.
In the same way that Microsoft Office is shifting away from a boxed product you buy once, Microsoft is maneuvering Xbox Live to be the center of your gaming world, whether you're gaming on the Xbox One console or on a Windows 10 PC.
Gamers, who have already noticed the shift in Microsoft's thinking, have dubbed the concept "Xbox as a service." And it's real.
This is where "Quantum Break," a stylish action game starring Hollywood talent like Shawn Ashmore and Aidan Gillen, comes in.
When it was originally announced in 2013, "Quantum Break" was billed as an exclusive game for the Xbox One video game console. This week, it was announced that there also be a PC version, which buyers of "Quantum Break" for the Xbox One get for free. Most important, you also can sync your saved games across the two via the cloud.
Furthermore, Xbox boss Phil Spencer went to the gaming press and said that this would be a "platform feature" for the Xbox and Windows 10. Buy the game once, get two copies that you can play anywhere. It's a stark contrast to the usual way these things go, which is where publishers put a game on the Xbox One or the PlayStation 4 first, where the market is considered to be most lucrative, and then release a PC version later, if ever.
So by putting "Quantum Break" on Windows 10, two things will happen:
First off, it makes this big, flagship, flashy game something you can only play on Microsoft devices, whether that's an Xbox One console or a Windows 10 computer. Second, it paves the way for more Xbox-exclusive games to come to the Windows 10 PC in the future. Judging from Spencer's comments, that second part is a done deal.
Sony has offered this kind of so-called "cross-buy support" for some while on select games, letting you buy a game once and play it on your PlayStation 4 or the handheld PlayStation Vita console.
Not all of those Windows 10 users are interested in gaming. But if you assume that 30% of 200 million Windows 10 users are interested in gaming, that's already a potential audience of 60 million customers for "Quantum Break" and any other Xbox game available on Windows 10.
Compare that with the 35.9 million PlayStation 4 consoles sold, and suddenly Microsoft's position in gaming doesn't look so bad.
The "Quantum Break" news caused a stir in the gaming world when Phil Spencer responded to an unhappy fan who said that they canceled their preorder of the game in protest of the decision to bring it to Windows 10. Spencer stood by Microsoft, saying that it's good for everybody if more people get to play more high-profile games.
That angry gamer is an outlier — most customers don't really care much where they play games, so long as they can play them.
But it highlights two important questions that Microsoft is going to have to answer going forward, if it really wants to make this "Xbox as a service" thing happen.
Namely: If Xbox games are coming to Windows 10, then why own an Xbox One? And why should PC gamers pay $60 a year to get online gameplay, a feature they've gotten for free since PC gaming was invented?
It means a tightrope walk for Microsoft. If it focuses too heavily on Windows 10 gaming, it alienates the passionate gamers who have sunk lots of cash and time into Xbox games. If it focuses too heavily on the Xbox One side, it won't ever get to turn those PC gamers into Xbox subscribers.
The potential upside is tremendous, though. If Microsoft can walk this tightrope and change people's thinking about the Xbox brand, turning it from a $350 piece of hardware into a $60 service that enables a better gaming experience for gamers no matter where they might be, it can tap a huge and growing customer base.
With Windows 10 already on the Xbox One, that shift is already happening under people's noses. And it all suits Nadella's master plan of shifting Microsoft towards a services business.
To put a fine point on it, I leave you with a tweet from Phil Spencer:
@rickl420@Microsoft We have more focus on Xbox at the company from the CEO down than we've ever had.