Xbox CEO amidst layoffs: ‘I think our core has to be healthy’
Xbox CEO Asha Sharma wants the company’s core to be healthy, amidst a debacle of 3,200 job cuts and multiple divestments.
In an interview with Fortune published yesterday—the same day as the start of what Microsoft describes as the “most significant restructure in Xbox history“—Sharma outlined a number of steps to regain that “health.” The company will experiment with business models for hardware, such as lowering the barrier to entry with “buy now, pay later” programs, and Sharma emphasized that Xbox must be available on mobile and PC to meet players where they are.
Will this be enough? Even Sharma seemed unsure. “I think our core has to be healthy, and that will be necessary but not sufficient,” she told Fortune.
Yesterday, the CEO told employees in a memo that Xbox’s operating margins are three to 10 times lower than comparable businesses. As such, Sharma said Xbox needs a new business model. She stated the company has been battered by surging component costs, overextending its studio system, underfunding its popular franchises, and relying too heavily on vendors instead of fostering a self-reliant engineering culture.
“A healthy Xbox could weather the shock of the hardware crisis. With an unhealthy Xbox, it becomes really challenging, and it accelerates a lot of the changes we need to make,” Sharma said.
The hardware crisis the CEO refers to—which involves a component shortage driven by rampant investment in AI data centers (thanks, Reuters)—has been at the hands of companies like Microsoft. In the memo to employees, Sharma said the company must reset to navigate the crisis, which has dramatically inflated memory prices and by extension console hardware.
The memory crisis isn’t the sole culprit behind Xbox’s current state. Yesterday’s job cuts marked the fifth major round of layoffs announced by Microsoft since the company acquired Activision Blizzard in 2023 for almost $70 billion. Despite taking ownership of major franchises such as Call of Duty and World of Warcraft as a result of that merger, Sharma said Xbox’s core business has “weakened” in recent years.
“It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realize their vision.”
The layoffs are far from over. Xbox cut 1,600 jobs yesterday, with 1,600 more to follow during the next financial year. Multiple Xbox-owned studios have been caught in redundancies, including Obsidian and idSoftware. Meanwhile, Hitman developer IO Interactive announced the closure of its Istanbul studio, a direct result of Xbox choosing to pull financing for Project Fantasy, which was announced back in 2023.
