Microsoft Gives Xbox Hard Reset with Mass Layoffs

Microsoft is all but declaring “Game Over” on Xbox. 

Xbox CEO Asha Sharma announced plans to eliminate about 20% of the gaming console’s staff by the end of fiscal 2027, starting with 1,600 Xbox employees who got the pink slip yesterday. Across Microsoft, 3,200 total jobs were eliminated, with 6,400 total planned, or about 3% of the wider company.

The layoffs are part of a massive restructuring meant to reset Microsoft’s struggling gaming biz. The company will also sell off four game-making studios and consider parting ways with a fifth. 

Stuck at the Same Level

Sharma took the Player 1 controller as Xbox’s CEO in February and has already decided the company needs a hard reset. She wrote in a memo last month that annual revenue fell by half a billion dollars over the past five years despite the company pouring in $20 billion. Microsoft also spent a whopping $69 billion acquiring “Call of Duty” publisher Activision Blizzard in 2023. 

Xbox’s problems aren’t a new game. It has been losing the console wars to competitors Sony and Nintendo, whose PlayStation 5 and Switch 2 have dominated. 

While rivals captured more playtime from Xbox over the years, AI simultaneously ramped up the difficulty mode:

• Demand for AI chips has caused a crunch for the gaming industry, which needs high-tech chips to power its games. Console makers have raised their prices in turn: Sony jacked up prices of its PlayStation 5s by $100 to $150 this spring, while Nintendo said the price of the Switch 2 will jump by $50 this fall. Sharma said last month Xbox expects its memory and storage costs to be five times higher in 2027 than they were last year.
• At the same time, AI is starting to revolutionize how games are made. Last year, the Indie Game Awards retracted the prestigious Game of the Year Award from “Clair Obscur” for its use of generative AI. Microsoft’s chief people officer said roles aren’t being replaced by AI but did caveat that “AI is changing how work gets done.” The company has set aside $190 billion for AI.

Low Score: Xbox had already shifted its priorities away from physical consoles and toward its gaming subscription service Game Pass, which has less than half the subscribers the company had targeted this year. Under previous CEO Phil Spencer, Xbox scooped up smaller studios to create games for Game Pass and compete with indie titles known for low costs and high returns … when they’re hits. Sharma said it’s not possible to compete with indie studios and major game publishers at the same time and Xbox will instead focus on the latter. Mojang and King, the businesses behind “Minecraft” and “Candy Crush,” will report to Sharma.