Windows 11 crosses 1 billion mark, as Xbox revenue falls

Microsoft’s fiscal Q2 2026 earnings call was anything but boring, with Satya Nadella presenting both good news related to Windows 11 operating system and slightly more bad news related to gaming and Xbox. 

The headline here couldn’t be more bold, as Microsoft CEO Satya Nadella announced hitting 1 billion active Windows 11 users. Microsoft clocked that milestone in 1,576 days vs Windows 10’s 1,706, as pointed out by CEO Satya Nadella. 

His exact line? “Windows reached a big milestone, 1 billion Windows 11 users, up over 45% year-over-year.” Obviously, it’s a celebratory moment for anyone who uses Windows on their PC and laptop.

Windows 11 adoption boom

That Windows 11 milestone figure is a key piece of narrative that’s not surprising, if you think about it. Because the holiday quarter saw a big boost to Windows 11 adoption, thanks to Windows 10 reaching its official end of life. End-of-support nudged enterprises and consumers alike to upgrade or lose security updates. 

That uptick in adoption – paired with solid OEM PC shipments – gave Windows 11 some much needed momentum. This fact was corroborated by Microsoft’s earnings data, where Windows OEM and Devices revenue went up slightly, driven by that same Windows 10-sunset effect.

Also read: Microsoft scrambles to fix Windows 11 after security update causes unexpected failures

With a billion devices running the latest OS – and doing so faster than its predecessor – Microsoft doubled down on its consumer relevance. Sure, cloud AI gets all the applause, but a platform that touches literally billions of machines is equally relevant.

Xbox and gaming struggles

Now pivot from the bright lights of Windows 11 to the slightly less sparkly gaming business.

This is where the bad news starts, where Microsoft gaming revenue fell a chunky 9% year-over-year, shaving roughly $623 million from the company’s books. Hardware sales struggled, as Xbox hardware revenue plunged 32% on lower console volumes. 

And if you think subscriptions and content might have helped shore up some of that gaming business drop, think again. Because Xbox content and services,  including Game Pass, also slid about 5% for Microsoft in the past quarter.

Microsoft CFO Amy Hood framed this drop in gaming revenue as a natural drop when compared to a killer prior year. The year-ago, in 2024, gaming figures benefited from blockbuster first-party titles and content rollouts that this past quarter in 2025 simply couldn’t match, suggested the Microsoft spokesperson. 

So what happened? Two likely things, I think. People just aren’t buying Xboxes in the same volume as before, probably because of console cycle maturity and market saturation. Secondly, this past year wasn’t great for first-party Xbox titles, despite all the additions in Game Pass.

For Microsoft, this past quarter is a tale of two extremes. Windows 11 rode a structural upgrade wave, while gaming likely wrestled with console cycles and content timing.

Why this juxtaposition is important is because it shows two perennial sides of Microsoft – the Windows adoption curve shows us where Microsoft’s legacy roots still lie, and its gaming revenue hiccups show us Microsoft’s transformational and diversification pain points.

Also read: Xbox Cloud Gaming may soon let players stream games for free, but there’s a catch