Where is Microsoft’s handheld Xbox?

Since the debut of the Xbox more than 20 years ago, fans have been clamoring for a portable version. During that time, Sony released the PlayStation Portable (PSP) and the PlayStation Vita, and it now plans to launch a $199.99 PlayStation Portal in November that will stream PS5 games. Microsoft has shown little interest in an Xbox handheld of its own, despite prototyping a seven-inch gaming tablet more than 10 years ago.

Instead, Microsoft has focused on a device-agnostic business model where Xbox players can stream games to phones, tablets, and other devices.

To cloud or not to cloud?

The cloud approach to Xbox allows Microsoft to market its Xbox Game Pass subscription to the millions, even billions, of potential iOS and Android customers. Mobile controllers are a popular companion here, turning a phone into an Xbox controller on the go even though the touch controls on Xbox Cloud Gaming are enough for many.

Cloud gaming on a phone isn’t a replacement for a true handheld, though. Phones are pretty terrible for cloud gaming, especially when someone’s trying to call you, there’s no Wi-Fi on a plane, or you get a notification in the middle of your game. Microsoft made its own Surface Duo better at handling cloud gaming, but there’s still room for improvement.

A dedicated cloud gaming handheld that can also run mobile games — like the Logitech G Cloud — is a good alternative that at least removes the notification and battery hassles. Microsoft worked closely with Logitech on its handheld, but there’s still no official Xbox cloud gaming handheld in sight.

Sources familiar with Microsoft’s Xbox plans tell me the company was prototyping a cloud-focused Xbox handheld previously. Microsoft has developed a lightweight version of the Xbox user interface that can run on handheld devices, dedicated cloud consoles, and TVs. While we’ve seen this interface appear on some Samsung TVs, the dedicated Xbox cloud console that Microsoft first announced in 2021 was canceled as Microsoft pivoted toward the TV streaming app instead.

The Xbox maker had been very close to launching its dedicated Xbox cloud console last year before scrapping its plans just weeks before an announcement. The device, codenamed Project Keystone, was then spotted on Xbox chief Phil Spencer’s shelf in October, confirming that the company had manufactured some units.

Work on Xbox Cloud Gaming has slowed over the past year inside Microsoft, sources tell me. Microsoft previously promised that Xbox Cloud Gaming would support your existing game library by the end of 2022, but that never happened. Microsoft also scrapped plans to launch a dedicated version of Xbox Cloud Gaming that players could subscribe to instead of paying for the Xbox Game Pass Ultimate subscription.

That’s likely all because regulators around the world have been focused on Microsoft’s cloud gaming efforts as part of a review of its proposed Activision Blizzard deal. The UK’s Competition and Markets Authority even blocked the deal citing cloud concerns, and the European Commission shared similar cloud concerns but approved the deal thanks to cloud-related remedies.

It was also a key part of the FTC v. Microsoft hearing. In the weeks leading up to that hearing, a source told me that Microsoft had started temporarily reassigning people working on Xbox Cloud Gaming to other parts of Xbox. During the FTC hearing, Sarah Bond, head of Xbox creator experience, revealed that Microsoft decided against a separate version of Xbox Cloud Gaming after the company got more data on the success and popularity of the service. “We’ve gotten more clear on the costs related to it, and we have signed partnerships with others who provide those services,” said Bond in June.

Windows handhelds need Microsoft’s help

All of this scrutiny about the future of Xbox Cloud Gaming makes it unlikely that we’ll see a cloud-powered Xbox handheld or console anytime soon. But Microsoft is also well placed to create its own Steam Deck rival that’s powered by Windows and provides access to PC Game Pass, Steam, and other key launchers. After all, cloud devices don’t beat playing PC games on the go where there’s no internet connection required.

Asus’ ROG Ally is emerging as the go-to device for PC Game Pass on portables. Spencer is a fan of the ROG Ally, describing the handheld as his “Xbox on the go” in a recent interview with Eurogamer. He also downplayed the idea of Microsoft making its own Xbox handheld in that same interview. “I don’t need people to buy a piece of hardware from us specifically to go play,” said Spencer. “[The ROG Ally is] an amazing Xbox experience, even though we didn’t build the device. And I think that’s totally fine.”

If Microsoft wants to stick to OEMs and partners leading the way on Windows handhelds, then it will still need to greatly improve the user experience. Most of the reviews of Steam Deck rivals have one gripe in common: Windows. Microsoft’s desktop-focused operating system doesn’t scale down well to smaller devices, especially when a touchscreen or analog sticks are involved. Both Asus and Lenovo have tried to create their own layers on top of Windows, but with everyone from OneXPlayer to Aya and GPD trying to solve the Windows problem, it really needs Microsoft to step in.

“We are focused on making the Xbox and GP experience great on devices like the Ally ... More to do,” admitted Spencer in a tweet in July. That more to do may include bringing features like Quick Resume to Windows gamers.

A leaked hackathon project for a concept Windows gaming handheld mode offered some hope earlier this year, but there’s still no sign from Microsoft that the company is willing to provide its own launcher and special Windows 11 UI for handhelds that’s designed for touchscreens and controllers.

I truly hope Microsoft is seriously working on improving the experience of Windows-based handhelds. Otherwise, we’re in for years of hacked-together projects from OEMs that never really work that well. Valve put a lot of effort into the underlying SteamOS that powers the Steam Deck so that you don’t have to navigate around a desktop Linux environment to get to your favorite games. Windows deserves something similar.

With analyst estimates of the Steam Deck hitting 3 million sales this year, Linux overtaking macOS on Steam, and rumors of a Nintendo Switch 2 on the horizon, PC gaming handhelds look set to grow beyond their initial niche of the past decade. Microsoft is fully aware that these handhelds are growing in popularity and that it has to do something. “I don’t think those are going to be niche devices - those are going to reach scale,” said Spencer in the Eurogamer interview.

If Xbox Cloud Gaming is at a potential standstill, Microsoft may well need to invest more into the Windows side, particularly as there’s more potential for PC Game Pass growth rather than console right now. We might not get the Xbox handheld that people have been demanding for years now, but if Microsoft can give the ROG Ally and other Windows-powered handhelds a more Xbox-like user experience, then we could have an army of Xbox handhelds on the way.