Xbox handheld rumoured to be 'essentially cancelled' but the new Asus Xbox Ally is actually a preview of all future Xbox consoles, not just handhelds

A new report on the Verge is claiming that the Xbox handheld console is toast. Or to quote directly, "it's essentially canceled". That initially seems confusing, after all hasn't the first Xbox handheld only just been announced?

There are plenty of caveats to cover off here, not least that this is a rumour about a product that hasn't even been confirmed to exist, let alone been launched. But there is something interesting going on that's worth understanding.

The Asus ROG Xbox Ally X and ROG Xbox Ally handhelds announced a few days ago aren't true Xbox devices. They're PC handhelds using existing PC chips with a bit of a redesign, plus a new build of Windows that strips out the unnecessary gunk in order to create an OS that's streamlined for playing games.

And that, as it happens, is what many industry observers think the model for all future Xboxes will be. In other words, the narrative goes that Microsoft won't make Xbox consoles itself. Instead it with partner with companies like Asus on the hardware.

To be really clear, that won't just apply to handhelds. That'll be for all Xbox consoles. According to this version of the future of Xbox, it's all about retaining Gamepass subscribers. Microsoft wants to keep them while transitioning away from making hardware itself.

So, that means creating this new streamlined version of Windows and licensing out Xbox branding to third parties. Microsoft can then use emulation or even streaming to support legacy Xbox titles running on what is essentially thinly disguised but standard PC hardware powered by a tweaked version of Windows.

As the Verge says, "the next-gen Xbox platform is being built in the open, with devices like the ROG Xbox Ally and Xbox Ally X. These handhelds seem like a market test for where Microsoft goes next with the combination of Windows and Xbox, and the company’s goal to turn any screen into an Xbox."

In the long run if all this is correct, it will mean gamers being able to choose from a range of different "Xbox" consoles, with price points and presumably performance to suit everyone.

Moreover, the real motivation in putting the effort in with the cut-down build of Windows and streamlined UI isn't for handhelds, which is a very small market. It's for this purported new generation of third-party Xboxes.

As Tom Warren says on the Verge, "I don’t think Microsoft is doing a bunch of Windows and Xbox work just to have this software running on handhelds. I think this work will give Microsoft the ability to control the console-like experience and UI on a variety of hardware, in a way where it can upsell Game Pass, its own Xbox PC games, and more."

This bears out in something we spotted in the latest Xbox Games Showcase: Microsoft switching to 'Xbox PC' in all its branding and noting Steam as a competitor. It could be nothing, but it does signal a change of approach for Microsoft, Xbox, and Windows gaming.

For now, none of this is confirmed. But the Asus ROG Xbox Ally X and ROG Xbox Ally, plus that streamlined version of Windows, definitely indicate a new direction for Xbox. We'll be watching closely.