(Bloomberg Businessweek) -- Xbox Vice President Sarah Bond had reason to be optimistic when she sat down at the desk in her Seattle home office an hour before midnight on April 25, 2023. About 15 months earlier, Microsoft Corp. had announced it was spending $69 billion to buy Activision Blizzard Inc., the maker of Call of Duty and Candy Crush, a deal that would be the largest acquisition in the history of gaming. One of the last major barriers remaining was the UK’s Competition and Markets Authority, and the regulator was scheduled to send its decision that night. Bond and her team had gathered on a video call, where the company’s outside counsel for the case would share the news.
The CMA had initially raised concerns. But Microsoft made some concessions and the CMA narrowed its probe, which onlookers and company executives took as an encouraging sign. Bond’s boss, Microsoft Gaming Chief Executive Officer Phil Spencer, wasn’t there, opting instead to abide by his customary 10 p.m. bedtime.
Then the Microsoft team heard that the CMA had rejected the deal. In its explanation, the agency wrote that it was worried the company would leverage Activision assets such as Call of Duty to dominate the nascent cloud gaming market. It went on to say it wasn’t satisfied with Microsoft’s plans to ensure that Activision’s games would remain widely available on competing gaming platforms. Several staffers broke down in tears.
Bond managed to hold it together. “How I feel right now doesn’t matter,” she recalls thinking. Almost immediately, she began to focus on the rationale for the ruling, looking for an alternative to accepting defeat. There was no precedent for the CMA changing its mind in such a situation, but Bond, who’d been a rising star at Microsoft since joining in 2017, had to try. She had volunteered to lead the effort in handling Activision-related regulatory approvals. It was a task that meant months of weekends poring over spreadsheets and regulatory documents with her merger team, most of whom were women, and shuttling back and forth across the Atlantic. She was soon back on a plane to the UK to give it one last shot.
Bond’s strategy was to satisfy the CMA’s desire for structural changes rather than to simply offer promises of good behavior. She told the agency that Microsoft was willing to sell off some rights to stream its video games. This would help mollify the CMA’s concerns without cutting too much into what Bond saw as the real prize: a foothold in the enormous mobile market.
In mid-October, the CMA announced it would indeed reverse its previous rejection, with the agency’s senior director of mergers saying the changes made it a “new and substantially different deal.” To celebrate, Bond invited the merger team to her living room for a Champagne toast. Two weeks later, Spencer promoted her to president of Xbox.
It was bound to be a difficult job. Microsoft is viewed as a fading giant in the games industry; the Xbox is a distant third in the console market, behind Sony Group Corp.’s PlayStation and Nintendo Co.’s Switch. A former T-Mobile US Inc. executive, Bond was brought on to apply her expertise in telecommunications and subscription businesses to shake up the traditional gaming business model of selling consoles and exclusive games for them. Seven years into her tenure, she can still seem like a newcomer in an industry whose prominent leaders are often lifers. And given the demographics of the industry, a Black woman who tends to wear 4-inch heels is easy to pigeonhole as an outsider.
At a time when blockbuster console games cost $70—and hundreds of millions of dollars to develop—the action has been moving steadily toward mobile games. The overall market has stagnated in recent years, and the number of households buying consoles hasn’t budged much in more than a decade. Companies are going to move into different types of gaming and win over different types of gamers. According to the Entertainment Software Association, half of US gamers today are women, and 25% are non-White, mirroring the demographics of the country itself. “The thing that’s concerning me is the player growth—that gives me real pause,” Bond said in an interview in March.
In her role leading Xbox’s hardware development and relationships with publishers, Bond splits herself between shoring up its traditional gaming business and reaching into untapped areas. She’s hinted at new Xbox hardware—Spencer has repeatedly professed his interest in a potential handheld device—while the company has also begun to release Xbox’s exclusive games on competing consoles and promoting Netflix-esque subscriptions that don’t need a console at all.
In theory, buying Activision, with its popular titles across Xbox, PlayStation, PCs and phones, helps Microsoft on all these fronts. But if Bond is going to pull off this transformation, she’s going to have to navigate her division through some pain first. Microsoft has already cut more than 2,650 games jobs this year, with a quarter of the cuts announced in mid-September. These are part of industrywide job losses totaling 11,500. Its gaming unit is operating under a challenging set of revenue and profit goals, according to people familiar with Xbox’s business, who declined to be named while discussing private financial matters.
Ominously, the mobile gaming market has softened significantly since Microsoft decided to buy Activision. In part this is the result of changes that Apple Inc. has made to its privacy policies, making it harder to find new customers on iOS devices, the largest source of revenue for the industry. Global consumer spending on mobile games dropped by 2% in 2023, to $107.3 billion—the second consecutive annual decline, according to Sensor Tower Inc.
Bond acknowledges the headwinds while also insisting the gravest risk is being too conservative. “The opportunity on the other side is way bigger for all of us,” she says. Still, almost a year after pushing through the deal of the century, Bond’s biggest challenge may be proving that doing so was worth the effort.
Bond grew up around many of the classical trappings of American success. Her father was a Division I college football player who went on to become a telecommunications executive; her mother was a beauty queen. Bond went to a British boarding school and three Ivy League universities. But the Bonds were also a Black family inhabiting spaces where not many other people looked like them. Her parents, she says, anticipated and tried to offset the messages they knew she’d get about not belonging there. “A lot of my upbringing was grounded in instilling in me that I was good enough, because they grew up in a world where they were told repeatedly they weren’t good enough,” she says.
As a girl, Bond didn’t lack for self-assurance. Her father, Bruce, once held a dinner for Coretta Scott King. Sarah somehow managed to disappear with the guest of honor for a private chat, in which the 8-year-old told King that she was going to grow up to be president, then thanked her and her late husband for laying the groundwork for that to happen. King led Bond back to her father by the hand and declared her a “remarkable young lady.”
Bond’s parents divorced, and when she was 10 she moved to England with her father, where he was an executive at British Telecom Plc. Bond was away at boarding school during the week, but she and her father kept up their relationship playing video games on the weekends. When she was back at school, she would give her dad advice about Super Mario Bros over the phone. She’d listen to a certain level’s music over the receiver and know exactly how to talk him through it.
Bond returned to New Jersey, where she was born, to attend Princeton University. She excelled in classes. At the same time, she struggled to deal with a kind of racism she hadn’t experienced abroad. A student in her dorm displayed a Confederate flag on his door and constantly commented on her race. She was stung when she was turned away from one of the school’s posh eating clubs, she says, while an Irish friend was admitted.
Bond left Princeton and took a year off—though she says these experiences were not specific to Princeton or the reason she left—and eventually got a degree in economics from Yale University. She started her career as an analyst at McKinsey & Co., where, her father remembers her saying, she thought her voice didn’t carry the same weight as those of her peers and felt invisible when meeting with some clients. She eventually found her stride after impressing an executive at a client by quickly calculating complicated business outcomes from a spreadsheet. Still, Bond has said, there were multiple times in her pre-Microsoft career when she resorted to sending White colleagues, or men, to meetings where she thought she wouldn’t be taken seriously.
She rose through the ranks at McKinsey before leaving in 2011 for T-Mobile, where she would eventually become chief of staff to John Legere, its eccentric CEO, just as he was transforming the Seattle-based carrier from a dreary also-ran into a legitimate player that was reshaping how the entire telecommunications market worked.
Most phone carriers enjoyed a temporary boom in the early smartphone days. As growth slowed, Bond says, people began to make the uninspired suggestion that T-Mobile “just do whatever Verizon does.” Legere ignored this and instead dumped common but enraging practices such as steering customers into inflexible contracts with punitive termination fees. It was a counterintuitive strategy that boosted sales and generated a more than fivefold return for investors.
When Bond joined Microsoft, she saw similar dynamics in the gaming industry. Console companies had thrived during their own growth era but had become set in their ways at a time when shifting customer habits demanded imaginative changes. Xbox was losing ground to PlayStation, and it would have been easy to just do whatever Sony did. But when Spencer needed to fill a spot vacated by a retiring business development executive in 2017, he was compelled by the idea of someone like Bond, who not only came from outside the industry but also had specific experience in mobile. “Looking at the games industry, it was pretty clear that the things we knew were not going to be enough to get us to where we were going,” he says.
When he hired Bond, Spencer warned her that the job was going to be frustrating. Microsoft is a notoriously difficult company for those who come in at executive levels. Bond would be replacing someone who’d been at Xbox for almost two decades and reporting to a guy who’d been at Microsoft since he was an intern. Colleagues say she’s a consensus builder who quickly set about winning over her team. “No one can just see a situation and quickly grasp exactly what’s going on faster than Sarah,” says Chris Charla, one of her reports, who oversees indie developers. He also remembers how, during Bond’s first Game Developers Conference for Microsoft, she agreed to an impromptu spelunking expedition through San Francisco’s underground tunnels—even though she was wearing heels.
At first, Bond’s and Spencer’s personal styles clashed, and the two sought out Microsoft human resources chief Kathleen Hogan for coaching, an unusual step that Hogan found admirable. Bond recalls Spencer and others at Microsoft telling her that her tendency to “push the envelope” and “not let something go” was new to them. She says she found that Spencer’s communication style sometimes left her unsure of what he actually wanted from her. At one point, she stuck a Post-It note to her computer with some advice about interacting with him. “I’m not being paid to do what he says,” it read. “I’m being paid to do what he meant.”
Questions of chemistry aside, there was bound to be tension surrounding Bond’s role at Xbox. Spencer had hired her, after all, to force his operation to take the uncomfortable step of moving beyond the device it existed to promote. For the last two or three Xbox generations, “we’ve been selling consoles to the same 200 million global households,” he says. “I’m happy to do that. But it’s not really growing the business.”
A few months after Bond started, Microsoft introduced Game Pass, one of the major planks of its strategy to reach new kinds of gamers. The subscription service, which was introduced at $10 monthly, would give users access to a wide range of games from Microsoft’s own studios as well as from game publishers it had partnerships with. Eventually, people would have access to Game Pass on PCs, mobile devices and smart televisions.
Game Pass was a potentially fundamental change to Microsoft’s operations and business model. Instead of seeking the big paydays that come with the release of a few blockbuster games, it would focus on making a steady revenue stream from its diverse game library. “There’s a difference between managing a network effect and maximizing the value of a single game,” Bond says. That meant taking the risk of undermining the company’s existing business model—but, she says, “if we don’t do it, someone else is going to.”
Game Pass was also a major adjustment for publishers. To sweeten the deal, Microsoft now spends $1 billion a year getting third-party games on the subscription service. The largesse has been more than enough to win over small publishers, to whom it offers flat fees of millions of dollars upfront to include their titles, along with a portion of subscription revenue and the promise of exposure they couldn’t count on getting otherwise.
Mutual affection was apparent in March at this year’s Game Developers Conference, when Bond showed up for a meet-and-greet at a San Francisco event space known for its chicken and waffles. Winning Bond over can be a big deal, given the role she plays in determining which games are featured in Xbox’s periodic showcases, events that can propel obscure developers into household names. Publishers vied for her attention from the moment they heard her heels clicking across the floor, as she stopped to play a game about stocking shelves in a Japanese convenience store, then a farming simulator.
Larger publishers, which are well- practiced in generating release-day hype for their games, remain more skeptical, even as Game Pass subscriptions have reached 34 million. Strauss Zelnick, CEO of Grand Theft Auto and NBA 2K publisher Take-Two Interactive Software Inc., speaks highly of Bond, calling her thoughtful and warm, while also acknowledging that she “will not be dissuaded” from accomplishing Microsoft’s goals, even when they don’t align with his own. Take-Two continues to have a limited presence on Game Pass; Zelnick says he doesn’t think offering big-time games on their release date “would make any sense at all.”
Before Microsoft bought his company, former Activision CEO Bobby Kotick took a similar stance, saying he opposed including new versions of Call of Duty in Game Pass the day they were released. But after the deal closed, Microsoft announced it would include it after all, for customers who pay for the service’s highest tier. It later increased the price by $3 in anticipation of the release—one of the specific concerns the CMA had raised when rejecting the deal in 2023.
Sooner or later, every gaming executive will inspire the fury of the gaming public, which tends to be suspicious of the motives of the people running the industry. Bond always considered herself a gamer, but she worked with Spencer to ensure she presented her history in a way that would resonate with Xbox fans. When strategizing over a 2019 speech, for instance, she and Spencer decided to mention her affection for King’s Quest II, the 1985 fantasy-adventure game, after Spencer confirmed that King’s Quest was “legit.”
Both executives are periodically subjected to waves of angry feedback. But as a White man, Spencer is spared the racial and gendered abuse that Bond receives. As she often does when facing unpleasant aspects of her job, she puts the online vitriol she faces in perspective by reflecting on how much harder things have been for other people in her family: Her uncle, who aced the civil service exam, was stuck in a job sorting mail, and her aunt was an Army colonel when the military was still segregated. (At her house, Bond has a collection of Xbox controllers, each named after a family member, to keep their stories in mind.) “My attitude is, my grandmother had to face the Klan,” she says. She’s remained visible online and doesn’t plan to change that.
As Xbox moves away from its sole focus on console gaming, it finds itself more at odds with a particular vocal segment of its customer base. Earlier this year, Xbox announced it would make versions of games previously exclusive to Xboxes available on Nintendo Switch or PlayStation. The move shouldn’t have mattered to Xbox’s own customers, whose enjoyment of Sea of Thieves theoretically has little to do with whether someone can also play it on another device. But many gamers seem to think buying a console is taking a side, not least those Xbox gamers who’ve stayed loyal despite its third-place position. One Xbox blogger referred to the move away from exclusivity as a “breach of trust and credibility.” To Jez Corden, a Microsoft blogger for Windows Central, it felt like a slap in the face. “Sony and Nintendo wouldn’t do that,” he wrote.
With the Activision deal closed, Bond and Spencer also began making even harder financial decisions. In January, the company cut 1,900 jobs. Then, on a Tuesday morning in May, Matt Booty, head of Xbox Game Studios, said it would close four studios under its ZeniMax subsidiary, purchased by Microsoft for $7.5 billion in 2021. To Xbox’s executive ranks, the moves seemed to be the kind of belt-tightening an evolving business does to try to maintain efficiency. Others saw Microsoft as kicking its workers aside during a period of jaw-dropping profits. YouTube videos with titles like “Can We Trust Xbox Anymore?” and “Microsoft Has Lost the Plot” amassed thousands of views. The day of the announcement, the co-CEO of independent game developer Iron Galaxy Studios LLC posted a screenshot of an article showing Microsoft’s profit had risen 20% in the previous quarter, to $21.9 billion.
The vast majority of Microsoft’s profits, of course, come from parts of its business that have little to do with gaming. It is Bond’s job to reassure Microsoft CEO Satya Nadella and Chief Financial Officer Amy Hood that gaming is still a growth business. Two days after the announcements of the studio closures, she teleconferenced into a board meeting from a hotel room in San Francisco to present a plan she’d spent months developing. As she advanced through her slide deck, Spencer watched the faces of the board members to gauge their reactions. “You could see the board grasp how Xbox could be so much bigger than it is today,” he says.
Bond signed off from the board meeting and headed to the Bloomberg Technology Summit to sit for an onstage interview. Officially, her agenda was to break the news that Microsoft was introducing a mobile video game store. The idea was to offer gamers an alternative place to buy digital items such as the Gold Bar currency in Candy Crush, perhaps at a discount, given that Microsoft wouldn’t have to share 30% of the revenue with the mobile app stores.
The store was crucial to Bond’s plans for mobile. But the prospect of using the news to change the subject evaporated quickly after she stepped onstage in an Xbox-green dress. Early in the interview, she stumbled over a question about the rationale for shuttering Tango Gameworks, one of the studios slated to close. It was hard to see Tango as a failure—it had recently published the critically acclaimed Hi-Fi Rush, an adventure game featuring a wannabe rock star with a music player embedded in his chest. Bond sighed, explaining that “what success is for each game and studio is really unique,” then launching into a vague explanation of factors that go into long-term success.
Those looking for signs that Microsoft was committed to investing in high-quality games were unmoved. “She seemed visibly shaken, and some of her comments just didn’t make sense,” says Destin Legarie, an Xbox commentator and strategist at entertainment site IGN. Bond hadn’t made the decisions about which studios to close, but for fans wanting a more satisfying explanation, it didn’t much matter.
The vibes around Xbox had recovered a bit by July, when Bond invited two Bloomberg Businessweek reporters to the same house where she’d toasted the Activision deal. She ticked off a list of her team’s achievements: growth in cloud and PC gaming, highly positive reviews from Game Pass users. Even on consoles, engagement hit an all-time high this year. The players she worried about attracting, she said, were showing up: “They clearly like what we’re doing. Right?”
Microsoft has said Game Pass subscribers spend 50% more on games than nonsubscribers, and industry observers agree Bond has helped pull the operation out of its malaise. “Xbox has always been a bridesmaid and never a bride,” says Joost van Dreunen, a lecturer at the New York University Stern School of Business. “It knows that and is comfortable with that, but it’s changed its ambitions, and I’d attribute that to the arrival of Sarah Bond, among other things.”
Still, Bond also acknowledges that she’s “making decisions now that we’re going to live with in the next decade” in an industry where very few things seem certain. In the most recent quarter, global downloads of mobile games were down 6% year over year, the worst period since the Activision deal was announced, according to Sensor Tower. After a long run as the top-grossing game on Apple and Google devices, Candy Crush fell several spots this year. Two of Activision’s mobile teams, including Call of Duty: Warzone Mobile, were hit by September’s layoffs. Xbox’s mobile store, once slated for July, has been delayed.
At some point soon, Bond will also have to make decisions about the thing that got Microsoft into gaming in the first place. In January, rumors circulated among Xbox gamers that there would never be a new version of the console.
There’s reason to question whether Microsoft would want to build another Xbox. Console makers cannot count on profiting from hardware sales alone—Spencer said in 2022 that Microsoft loses between $100 and $200 per sale. The company has also cut back on its ambitions to build other hardware such as its Hololens headsets and mobile devices.
Yet Bond has said there will be a new Xbox, and that the next generation of the console will feature “the largest technical leap you will have ever seen.” And then there’s the flirtation with the idea of launching a handheld gaming device. The company has made no commitment about this, though Spencer says he tasked Bond with building a “more diverse” hardware future for Microsoft. He has taken every opportunity to say he loves portable gaming devices and says the company would just have to come up with something different from what’s already on the market.
Diving into the multiyear project of building a new console could seem like Microsoft backsliding into the model it hired Bond to break out of, even before it’s figured out how to make money from its new hybrid business of subscriptions and smartphone gaming. But she talks about a handheld device as another way to insert an Xbox-specific experience into the lives of future gamers whose habits have yet to be formed. For Xbox to succeed, she says, it has to meet gamers wherever they are. “I want people to think no matter who you are, you can come to Xbox and find a game,” she says. “It’s for you.” —With Jason Schreier
©2024 Bloomberg L.P.
