If Microsoft made an Xbox phone, it would get traction. Ask your 10 year old.
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But is there room to really challenge? There are 4bn smartphones of which 800m are iPhones. Total Xbox One install base is 40m. Wouldn’t it at best be a niche player?
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A niche is a beachhead. Maybe it would become the tail that wagged the dog; maybe one day people would say "Did you know the xPhone began as a desktop computer for playing games on a TV?"
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