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Gaming is “critically important” to Microsoft, according to Xbox head Phil Spencer

With the Xbox One X reveal at E3 2017, it’s up to head of Microsoft’s Xbox division to sell the world on the company’s most powerful console hardware to date. In an interview with TIME, Phil Spencer not only sells the Xbox One X but discusses the state of gaming as well as Microsoft’s place in it.

The interview covers a wide range of items including Microsoft’s current and future plans in gaming, backward compatibility, the importance of Xbox Live and perhaps most intriguing, the state of augmented and virtual reality.

How is Backward Compatibility going?

According to Spencer, it’s doing very well among its user base with over half of players having played some backward compatible game since its introduction.

“Over half our players have played a backward compatible game,” says Spencer. “We’ve seen things like when [Call of Duty] Black Ops 2 was released as a backward compatible game, it hit top 10 NPD sales, and this is a game that’s five years old. It’s not true of all games of course. I’m not saying every backward compatible game gets played.”

Xbox One backward compatibility

Spencer continues to praise Backward Compatibility as being a developer friendly addition for Xbox gamers, “so without the developer having to touch anything, we’re finding that those games on either Xbox One S or Xbox One X, run at better frame rate.” Similar to Windows 10, the Xbox division wrote its emulator in such a way that developers have little to nothing to do to see initial benefits of Backward Compatibility but for those who put in the minimal effort can take advantage of new capabilities of the newer hardware.

Xbox Live is more important than the console

Similar to the iPhone, the Xbox team seems to be using the consoles as lock in for its Xbox Live service which Spencer believes is the “most critical asset,” they have.

“So when I think about our strengths in gaming, today the Xbox brand is iconic with console gaming. We are also Windows, as Microsoft, so we’ve placed a big focus on Windows gaming and that’s a large addressable market that we haven’t really played in that we’re expanding in. I see Xbox Live from a platform perspective as the most critical asset we have. Xbox Live is on iOS, it’s on Android, we talked about cross-play with Switch, and it’s obviously on PC and Xbox.”

The reality of the Xbox One X

Even as Spencer sells the virtues of the Xbox One X he remains realistic about its position in the gaming community right now. While industry pundits continue to pit the Xbox One X and PS4 Pro as the second round of console jockeying between Microsoft and Sony, the reality is that both devices remain niche products for certain gaming sections.

“But nobody should think that of the billion gamers on the planet, that most of those people are going to buy an Xbox One X. That’s not the goal and has never been the goal. We’ve always said it’s a premium console.”

“Xbox One S in the console space will be our value product. It’s great, it’s got Blu-Ray, 4K upscale, it’s got HDR. We’ve got millions of people who come into Xbox Live via Android, they don’t own any of our devices and they come in. We’ve got a lot of people who come in through Windows, millions of people. It’s why on a quarterly basis now Microsoft talks about Xbox Live MAU [monthly active users] as our gaming metric.”

HoloLens and the metaverse future

The interview wraps up with talk about how far out augmented, virtual and mixed reality is from mass consumer adoption as well as where the could be best applied in the future.

Due to the hardware “limitations,” Spencer believes that mixed reality is still  5 to 10 years out from your average Joe using the technology. Spencer bases his prediction on the recent history of the cellphone which spans beyond the iPhone but back to Gordon Gekko and Zack Morris size handsets.

“I think we’re 5 to 10 years away from a true untethered device that’s at a consumer price point that has the fidelity of experience and the kind of ease of use that you need to get to scale,” says Spencer. “You can look at the cellphone transition from the Gordon Gekko I’m holding a shoebox on the side of my head in Wall Street, to what you have in your hand now. If you actually look at the timeline of that, it’s years. People think it happened overnight but it didn’t.

Furthermore, Spencer also sees a future where the Xbox and mixed reality play a big part in sort of metaverse that includes avatars and AI interacting in the real world.

“I work a lot with [Microsoft technical fellow] Alex Kipman and Harry Shum in thinking about how gaming in this space comes together. I’m a big believer in a metaverse future, where the volumetric world mixed with something like Xbox Live with A.I. components around you, avatars and some of them real world, that’s what we’re really talking about. When we talk about that 5 year future, I think that is the space that we have to land, where everything I interact with from creatures to people to the objects around me, the world blends between real and physical and virtual, and the characters and A.I. capability do the same.”

Due to Sony’s unprecedented lead with the PS4, Microsoft has to shift its focus from pure console sales to a broader focus on gaming and the future of user behavior. The shifts in gaming culture and behavior have thus far been glacial and whether or not Microsoft’s pivots and bets will pay off in the short term will be continuously tested as the company looks to ride out “losing” this generation of console gaming.

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