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The Founder's Notes

The Strat · Episode 23 · The Rise Of

26 June 2026 · 13 min

Xbox

Lose billions to buy a seat in the living room, then change the product from a box to a subscription.

Listen on Spotify Read the teardown

From the show notes

The Rise of Xbox

Published as

23- The Rise of Xbox

§01 — What to listen for

Microsoft entered the console business in 2001 for a defensive reason: the fear that Sony's PlayStation would become the computer in every home. Listen for how much money the first Xbox lost, and for the argument inside Microsoft about whether that was a price worth paying.

The strategy has changed shape twice since. Xbox Live turned the console into a network with a monthly fee, and Game Pass turned the games themselves into a subscription. The episode ends where the full case begins: with Microsoft spending tens of billions on studios and asking whether it needs to sell a console at all.

The episode tells the story. The written case does what twelve minutes cannot: the business model, the moat, the statements, the valuation, and a verdict. Read the Xbox teardown.

§02 — The strategy, named

The mechanisms this episode demonstrates, in the same vocabulary the case library uses. Where a pattern has been written up, the claim is here; otherwise the tag is still in the queue.

§03 — Go deeper

23Gaming

Xbox

Eroding moat · Watch it

Verdict

Watch it

If Microsoft discloses Game Pass subscribers again and the figure is meaningfully above 34 million after the October 2025 repricing, the subscription business has pricing power and I would move to Own it. If instead Microsoft continues to withhold the number through 2026 while gaming headcount falls further, I will read that as confirmation that Game Pass revenue is not covering its content cost and move to Pass. A separate, cleaner falsifier for the platform question: if a major third-party publisher ships a AAA title on PlayStation and PC but skips Xbox entirely, the console platform is finished as a commercial proposition regardless of what Game Pass does.

§04 — More from The Rise Of

How twenty-four of the world's most valuable brands were actually built.

  1. 01NikeOwn the design and the demand, rent the factory, and sell what the shoe says about the person wearing it.6 min
  2. 02AmazonLose money on purpose for a decade, and build the infrastructure everyone else will have to rent.8 min
  3. 03AppleControl the hardware, the software and the store, and make leaving cost more than staying.13 min
  4. 04LululemonCharge double for a pair of leggings, and recruit the yoga instructor to explain why.10 min
  5. 05StarbucksSell the place, not the coffee, and charge a rent premium on every cup.12 min
  6. 06SephoraTake the makeup out from behind the counter, let the customer touch everything, and become the shelf every brand needs.11 min
  7. 07LongchampMake one folding nylon bag the entire company, and keep the family in charge of it.7 min
  8. 08McDonald'sSell hamburgers to the public, and sell real estate to the franchisees.11 min
  9. 09IKEAMake the customer do the assembly, the transport and the carrying, and give them the saving as the price.8 min
  10. 10ChanelStay private, never discount, and let the founder's myth do a century of work.10 min
  11. 11DiorLaunch a house with a textile magnate's money, change the shape of women's clothes in one show, and license the name to the world.10 min
  12. 12GoogleGive away the best product on the internet, and charge whoever wants to stand next to the answer.13 min
  13. 13GucciNearly destroy the brand through family and licensing, then rebuild it around one designer at a time.9 min
  14. 14PradaMake luxury out of nylon, keep the company in the family, and treat the intellect as the brand.13 min
  15. 15Miu MiuLaunch a second house with the founder's nickname, aim it younger, and let it outgrow the first.8 min
  16. 16Tiffany & Co.Own a colour, put it on a box, and make the box worth more than most of what goes inside it.11 min
  17. 17HermèsLet the artisans set the pace, and turn a production constraint into the most valuable waiting list in retail.10 min
  18. 18GlossierBuild the audience before the product, and sell them what they told you they wanted.14 min
  19. 19NARSLet a makeup artist with a camera be the brand, and price the point of view.9 min
  20. 20M.A.C.Make the product for the makeup artist first, and let the professional's endorsement sell it to everyone else.10 min
  21. 21JBLBuild the speakers the cinemas and studios use, then sell that credibility to everyone else at a lower price.12 min
  22. 22BoseStay private, give the company to a university, and spend on research the way a public company never could.13 min
  23. 24PlayStationSell the console at a loss, make the money on every disc, and let a betrayal by Nintendo start the whole thing.10 min

Next · 24

PlayStation

Sell the console at a loss, make the money on every disc, and let a betrayal by Nintendo start the whole thing.