If all of last week felt like waiting for the other shoe to drop at Xbox, today feels like wading through the rubble from a 7.0 magnitude earthquake. Microsoft's gaming division is officially undergoing its largest restructuring ever, which will result in the loss of 3,200 jobs by the end of the 2027 fiscal year. 1,600 of those cuts happened today to kick off what CEO Asha Sharma has been calling a "reset" for the brand.
It's been apparent to anyone watching that Xbox has been navigating an identity crisis for years now following an acquisition blitz and several subsequent restructurings, culminating in the dramatic departure of longtime Xbox boss Phil Spencer and president Sarah Bond. In the months since Sharma, who was previously president of Microsoft's CoreAI product, was announced as Spencer's successor, she's been frank about Xbox's struggles and has warned of an impending mass company reset. Today, that plan was unveiled in a company email shared to Sharma's official Twitter account.
"Our business today is not healthy," Sharma writes. "We are operating at margins that are 3–10x lower than comparable platform and publishing businesses."
That statistic is new and eye-opening even within the context of Xbox's challenging position in the hardware business. It does little to soften the profound human toll of such a fundamental restructuring, but it does underscore just how unsustainable the Xbox business model had become under previous leadership, especially when you consider the ongoing RAM shortages and the catastrophic economics of gaming hardware ahead of the next console generation, not to mention Microsoft's historic affinity for healthy margins.
In her letter to employees, Sharma speaks candidly about some of the specific strategic failures that drove Xbox into the hole it's desperately trying to claw its way out of now.
"We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content," she says. "While those businesses have created meaningful value, they did not grow at the pace we expected."
"As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX."
The cuts to Xbox's workforce are part of a downsizing that'll split off four studios: Compulsion Games and Double Fine are going independent, while Ninja Theory and Undead Labs are being sold to new, currently undisclosed owners. Meanwhile, Sharma says Xbox is looking at "potential strategic options" for Dishonored studio Arkane, whose future was uncertain as Marvel's Blade reportedly struggled in development.
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