Microsoft to test free Xbox Cloud Gaming with ads

Microsoft has initiated internal testing of an ad-supported Xbox Cloud Gaming service, marking a significant shift in the company's cloud gaming strategy. The software maker began testing the free streaming service internally on October 3, 2025, with plans for a public beta before full launch in coming months.

According to The Verge, sources familiar with Microsoft's plans confirmed that employees can now access select games through cloud streaming without requiring a Game Pass subscription. The free tier operates on an advertising model that includes approximately two minutes of preroll ads before gameplay begins. Current testing parameters limit sessions to one hour, with a maximum of five hours available per month, though these restrictions may change before public release.

The ad-supported service will provide access to three categories of content: personally owned games available for streaming, eligible Free Play Days titles that allow weekend gameplay trials, and Xbox Retro Classics games. This represents Microsoft's first attempt at combining cloud gaming infrastructure with advertising revenue, diverging from the subscription-only model that has dominated the service since its inception.

Platform availability and technical specifications

The free streaming option will function across multiple devices when publicly launched. Users will access the service through PC, Xbox consoles, handheld gaming devices, and web browsers. This multi-platform approach mirrors Microsoft's broader strategy of expanding gaming beyond traditional console boundaries.

The timing of the internal test coincides with significant changes to Xbox Cloud Gaming's subscription structure. Microsoft expanded cloud gaming access to Xbox Game Pass Premium and Essential tiers for the first time during the same week as the ad-supported testing began. These changes accompanied a 50 percent price increase for Game Pass Ultimate subscribers, reshaping the service's pricing architecture.

Xbox Cloud Gaming emerged from beta status this week with enhanced streaming capabilities. Game Pass Ultimate members can now stream select titles in 1440p resolution with bitrates up to 30Mbps. Other games streamed at 1080p resolution receive up to 20Mbps bitrates for Ultimate subscribers. Premium and Essential tier subscribers face limitations of 1080p resolution with 12Mbps bitrate caps.

Development timeline and strategic positioning

The concept of free, ad-supported Xbox Cloud Gaming has existed within Microsoft's roadmap for an extended period. Microsoft Gaming CFO Tim Stuart first suggested the possibility nearly two years ago. More recently, company executives have emphasized accessibility as a core objective for cloud gaming expansion.

Jason Ronald, Microsoft's VP of next generation, discussed the strategy during an Xbox podcast in August. "I think for us, it really opens up the opportunity to make it much more affordable, and make it more accessible to players. Whether that's going into new regions, or new ways to actually access the [Xbox] cloud," Ronald stated.

This approach aligns with broader gaming industry trends toward advertising-supported models. The IAB established standardized metrics for gaming advertising in June 2025, addressing transparency gaps as 80 percent of U.S. internet users identify as gamers. The framework established baseline metrics for gaming ad formats across display, video, audio and custom implementations.

Implications for digital advertising

The integration of advertising into premium cloud gaming services represents a notable development for the digital marketing sector. Microsoft's move follows the company's expansion into Connected TV advertising, which included partnerships with Netflix and other streaming platforms.

Microsoft Advertising's revenue has shown substantial growth, surpassing $20 billion annually across all business units. The company's advertising infrastructure includes Copilot-powered formats, LinkedIn campaigns, and gaming platforms like King and Microsoft Casual Games. Adding Xbox Cloud Gaming to this portfolio could provide advertisers with access to engaged gaming audiences across multiple touchpoints.

The preroll advertising format Microsoft has selected for testing represents a traditional approach to video game monetization. Research indicates gamers demonstrate superior purchasing activity across numerous product categories compared to non-gaming consumers, making them valuable targets for advertisers.

Previous Microsoft initiatives have explored various advertising implementations within gaming environments. The company introduced Cross-Screen Gaming packages in 2024, allowing advertisers to reach audiences across both Connected TV and mobile gaming platforms. These packages leveraged partnerships with premium CTV providers and Activision Blizzard mobile properties.

Market context and competitive landscape

The introduction of ad-supported cloud gaming occurs against a backdrop of significant changes within Microsoft's gaming division. The company announced 9,000 job cuts across gaming divisions in July 2025, signaling strategic repositioning toward software and services distribution. This shift moves away from traditional console exclusivity models while addressing stagnant Game Pass growth.

Industry observers have questioned Xbox's long-term direction following these workforce reductions and game cancellations. The emphasis on Game Pass, cloud gaming, and multiplatform publishing indicates Microsoft's gaming future may prioritize software and services over hardware manufacturing. Consumer acceptance of these strategic changes remains uncertain, particularly regarding subscription services and multiplatform gaming approaches.

Competing cloud gaming services have adopted various monetization models. Samsung's mobile cloud gaming platform expanded to Europe in August 2025 with AI-powered advertising optimization through Moloco partnership, featuring an 80/20 revenue sharing model for developers. This demonstrates growing convergence between cloud gaming distribution and advertising technology.

The advertising measurement infrastructure for gaming continues maturing. IAB's Gaming Measurement Framework addresses key challenges including partner selection, creative planning, reporting alignment, and campaign evaluation. The framework supports cross-platform measurement integration, enabling advertisers to compare in-game campaign reach against other media channels.

Technical implementation and user experience

Microsoft's current testing parameters reveal specific details about the user experience for ad-supported cloud gaming. The two-minute preroll ad duration represents a significant interruption before gameplay begins, though this falls within typical video advertising standards for premium content. The one-hour session limit with five monthly hours total creates clear usage boundaries that may encourage conversion to paid subscriptions.

The service will utilize Microsoft's existing cloud gaming infrastructure, which has undergone substantial improvements following beta completion. Enhanced resolution options and increased bitrates for paid subscribers create clear differentiation from the free, ad-supported tier. This tiered approach mirrors strategies employed across streaming video services that offer both advertising-supported and premium subscription options.

Free Play Days integration provides Microsoft with a promotional mechanism for new game releases while generating advertising impressions. Xbox Retro Classics inclusion may appeal to nostalgic gamers seeking access to older titles without purchase requirements. The ability to stream personally owned games addresses a key limitation of cloud gaming services that typically restrict access to subscription libraries.

The web-based access component removes installation barriers, allowing potential players to test cloud gaming without downloading dedicated applications. This frictionless entry point could expand Microsoft's gaming audience beyond traditional console and PC players. Handheld device support acknowledges the growing popularity of portable gaming hardware like Steam Deck and competing devices.

Microsoft employees participating in internal testing will provide critical feedback on advertising integration, session limitations, and overall user experience. This testing phase allows Microsoft to refine parameters before exposing the service to public scrutiny. The company has not disclosed specific timelines for public beta testing or full commercial launch.

The success of ad-supported Xbox Cloud Gaming will likely depend on balancing user experience with advertising revenue requirements. Excessive ad loads or restrictive session limits could discourage adoption, while insufficient advertising may fail to generate meaningful revenue. Microsoft's extensive experience with advertising platforms across Bing, LinkedIn, and gaming properties provides relevant expertise for this implementation.

Timeline

• October 3, 2025: Microsoft begins internal testing of ad-supported Xbox Cloud Gaming with employee access
• October 3, 2025: Microsoft expands Xbox Cloud Gaming to Premium and Essential tiers with 50% price increase for Ultimate
• October 3, 2025: Xbox Cloud Gaming exits beta with 1440p streaming at 30Mbps for Ultimate subscribers
• August 2025: Samsung expands mobile cloud gaming to Europe with Moloco AI advertising partnership
• August 2025: Microsoft launches Premium Streaming campaigns including Netflix and Roku inventory
• July 2025: Microsoft announces 9,000 gaming division layoffs amid strategic repositioning
• June 2025: IAB releases Gaming Measurement Framework establishing standardized metrics
• May 2025: Microsoft advertising revenue surpasses $20 billion annually across all platforms
• March 2024: Microsoft Advertising expands CTV capabilities with Netflix partnership
• September 2024: Microsoft introduces Cross-Screen Gaming packages for CTV and mobile
• August 2023: Jason Ronald discusses making Xbox Cloud Gaming more affordable and accessible
• November 2023: Microsoft Gaming CFO Tim Stuart first hints at free ad-supported cloud gaming

Summary

Who: Microsoft Gaming division, led by executives including CFO Tim Stuart and VP Jason Ronald, targets gaming audiences through internal employee testing before public release. The initiative affects Game Pass subscribers and potential new users seeking free gaming access.

What: Ad-supported Xbox Cloud Gaming service featuring two-minute preroll advertisements, one-hour session limits, five monthly hours maximum, and access to owned games, Free Play Days titles, and Xbox Retro Classics. The service operates across PC, Xbox consoles, handheld devices, and web browsers with varying streaming quality based on subscription tier.

When: Internal testing began October 3, 2025, with public beta testing planned before full commercial launch in coming months. The announcement coincides with Xbox Cloud Gaming's beta exit and Game Pass restructuring with 50 percent price increases for Ultimate subscribers.

Where: Service availability spans multiple platforms including personal computers, Xbox console hardware, portable gaming devices, and web-based access. Microsoft plans global distribution following testing completion, expanding beyond current Game Pass geographic limitations.

Why: Microsoft aims to increase Xbox Cloud Gaming accessibility and affordability while generating advertising revenue from non-subscribing users. The strategy addresses stagnant Game Pass growth, aligns with broader shifts toward software and services distribution over hardware exclusivity, and responds to industry trends favoring advertising-supported gaming models as 80 percent of U.S. internet users identify as gamers.