Microsoft has confirmed that a free, ad-supported version of Xbox Cloud Gaming is currently in testing. This new service would mark the company’s first game streaming platform offered entirely independent of Xbox Game Pass.
A Standalone Streaming Service in the Works
The first version of Microsoft’s cloud gaming service debuted as xCloud in late 2019 before being rebranded as Xbox Cloud Gaming ahead of its 2020 launch. Initially tied exclusively to Game Pass Ultimate, it gradually expanded access to additional subscription tiers — though PC Game Pass users remained excluded.
Now, Microsoft appears ready to take a significant next step. In a statement to The New York Times, a company official confirmed internal testing of an ad-supported version of Xbox Cloud Gaming. This aligns with a report from The Verge, which revealed that some Microsoft employees have had access to the free-tier test since early October 2025.
Details Remain Limited on Public Availability
At present, Microsoft has not shared how long the internal testing will last or whether it will extend to a public beta. This isn’t the first time the company has explored free or ad-supported gaming models — in 2023, Xbox CFO Tim Stuart hinted at a possible ad-backed Game Pass option that ultimately never materialized.
If the current test proves successful, the new version would likely use the bring-your-own-game feature introduced in late 2024, allowing users to stream titles they already own instead of relying solely on Game Pass.
Is Ad-Supported Cloud Gaming Viable?
Documents from Microsoft’s legal proceedings with the FTC revealed that operating Xbox Cloud Gaming costs roughly $0.03 per hour for 1080p at 60 frames per second. The infrastructure, built on modified Xbox Series X consoles running Series S profiles, has since expanded to support 1440p resolution — increasing costs further.
To break even, Microsoft would need to balance ad revenue against these operational costs. Based on internal estimates:
| Scenario | CPM | Ads/hr | Revenue/hr | Margin* |
|---|---|---|---|---|
| Conservative | $2 | 3 | $0.006 | -80% |
| Balanced | $8 | 3 | $0.024 | -20% |
| Optimistic | $12 | 3 | $0.036 | 20% |
| Aggressive | $20 | 4 | $0.08 | 167% |
Assumes $0.03/hour cost at 1080p 60fps.
A Statista study from November 2023 estimated that the average cost per mille (CPM) for online ads ranges from $1.20 to $7.17, depending on the platform. Given these figures, the service would likely operate at a loss unless Microsoft could attract premium advertisers or command higher CPM rates through a highly engaged audience.
As such, the free Xbox Cloud Gaming tier may serve more as a strategic expansion tool — aimed at attracting new users into the Xbox ecosystem — rather than an immediate source of profit.
