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Phil Spencer, head of Microsoft's Xbox Division
Microsoft had considered a similar smaller Xbox back in 2013 when the Xbox One first launched, but scrapped it.
Sams, a long-time Microsoft reporter and blogger, says that he's heard that this smaller Xbox One console would be designed to only run games and apps from the Windows Store app market - so no disc-based blockbusters like "Call of Duty" or "Halo 5: Guardians."
If it happens, Microsoft is thinking about a late-2016 launch window, per the report. It would be sold alongside existing models of the Xbox One, not replace it.
In a lot of ways, this plan makes sense: The current iteration of the Apple TV is making waves by providing access to a huge variety of apps and games on your big-screen TV, via the existing Apple App Store.
It's basically the same thing Microsoft has been doing since 2005's Xbox 360 video game console, which both played games and let users watch videos from services like Netflix and Hulu. The 2013 Xbox One console accelerated that concept with split-screen viewing modes and the ability to plug in a TV tuner to watch while you play.
We're seeing the culmination of a race between Apple and Microsoft to get a PC in the living room.
But this go-around, Apple has the price and size advantage. The smaller Apple TV, priced at $149, is cheaper and less obtrusive on a shelf than the $349 Xbox One, which looks and feels like a giant black brick.
So by shrinking the Xbox One and giving it a "much lower" price point than the current incarnation, it would hypothetically open the market up.
Combine that with the fact that the Xbox One now runs a modified version of Windows 10 at the core, paving the way for Windows apps to run natively on the console, and you start to see where Microsoft might be going with this.
Microsoft tried making a device that could only run Windows Store apps once before, in the form of the original Microsoft Surface tablet and its limited Windows RT operating system. That time, it didn't work out so well.
We've reached out to Microsoft for comment and will update when we hear back.