The business is about selling your more subscriptions.

He is right. Buying a console and throwing it in a closet or buying a couple of games for the console isn't going to help Microsoft or Sony much.

Yes.  They have essentially said this outright.  

And, it makes sense.  Consoles sales are notorious money losers.  Why not let someone else make (or lose) a few pennies on hardware, while you make recurring subscription revenue?

Except that nobody has ever made an real money on sales of consoles.  They're a loss leader.  They're used to get you in the "store", so you'll buy the other merchandise (software, subscriptions, and peripherals) where they make real money.  

But, your other points are right.  Selling consoles is an important part of the overall recipe for success, as the industry works now.  But, with MS selling subscriptions to PC users, and games to users of nearly every platform, the recipe is changing.  And, in that context, Phil's statements make sense.  

Phil - "If you think about games that are in development today, most of the studios out there are using engines that span multiple platforms, whether it’s Unreal or Unity. Many of the games are using engines that are on multiple platforms. You’re probably shipping your game on four or five platforms if you’re trying to reach as many customers as possible anyway. You’re going to ship on PC, which means multiple GPUs. You’re obviously going to ship on PlayStation, you’re going to ship on Xbox, you’re going to ship on Switch."

More games on your platform means more opportunity for success. The more people who purchase a certain platform, the more reason to put your games on it. The reason isn't so much about how many people PS has playing consistently, while that does come into play to some degree, it's the fact that there's close to 100 million PS4's out there, vs half that many XB1's. 

There is also customer/consumer loyalty to take into account. While it matters less with casuals in western nations, if you live in a country where your internet is garbage or just weak, you're much more likely to end up a fan of PS or Nin vs MS if they keep pushing in the digital services and cloud direction. Customers from poorer countries with less options tend to be more loyal overall. If they were able to buy a certain companies hardware and physical games for an extended period of time, odds are good they will stick with them if possible when they can go digital through the cloud later on.

MS seems to understand the long game from a tech perspective, they just don't understand it from a present consumer's perspective overall and how that leads to a future customer worldwide. Either that or they're just more worried about making money, and focusing on digital is a safer bet vs physical in terms of profit in general.

He's right?....Can you envision any other scenarios aside from the 2 you mentioned that might draw into question how stupid this idea is in 2019? If you buy a console and smash it in the parking lot is literally an equivalent to one of your 2 arguments as to how Phil Spencer is right. Out....standing.

Is niche console OK ?

I know some people hate niche games.

Sounds weird theory.

I’m aware that Xbox has been under new management since last gen, but they clearly didn’t have this philosophy when their hardware sales numbers were actually more competitive. I only disagree because I think their metrics for success are far more vague than putting out hard sales numbers, and I feel that they’re implying that putting out hardware numbers somehow equates that company’s console not being consistently used by the majority of its buyers.

Well hardware sales effect active user base, active user base effects both software sales and subscriptions, so... It is a pretty major factor...

Say for example that, PS5 and Switch both sell 100m+ consoles, and then the XB4 only sells say 12m consoles.

That would have a huge effect on total software sales and subscriptions going forward, and it would also effect how many games come to Microsoft's platform.

It also would effect how often the Xbox brand is spoken about (Smaller user base would mean less word of mouth).

Basically, a lot of things synergize off of console gaming hardware sales, even if the profit margin on hardware itself is basically nothing.

Sure, Microsoft can become a third party publisher and just run their own storefront, but how do they then keep their slice of the pie from shrinking against all the other alternative storefronts/services if their brand word of mouth gets diminished from its current position?

Sony's hardware/software/service ecosystem contends as a fairly strong competitor with the entirety of PC gaming because of hardware sales supporting the brand, etc. its influence is self synergizing and to forgo that focus is to become a smaller competitor, not larger.

You don't think Sony and Nintendo are making money on their HW? Oh, they are. Especially Sony. The PS4 HW was profitable just 7 months after launch. And they have been able to sell their HW at $299 for almost three years now. They are making a killing on HW.

I think the beginning of this gen proves your last statement to be true. MS is one of the foolish who believes that killing the used game market will bring them larger profits. Of course, the truth is that it would more likely result in increased piracy and lower game sales. 

Funny enough, they don't seem to like to give out any hard numbers, SW or HW. It's always vague metrics, like how many hours played or how many times a specific goal in the game was met. Their position is no matter how poorly or well they are doing, they're great.