The good reset for Xbox started today. There were silver linings. Double Fine and Compulsion Games are going independent, while Ninja Theory and Undead Labs are being sold to new owners, meaning those studios can continue to thrive outside of Xbox. Arkane Lyon, on the other hand, remains uncertain.
But there is no getting around human costs. Microsoft has confirmed that around 3,200 people will lose their jobs across Xbox throughout FY27, with around 1,600 roles being cut today and a further 1,600 to follow over the remainder of the financial year.
Xbox has now officially confirmed the extensive report in a new message posted to Xbox Wire, simply titled “XBOX Reset.”
Xbox CEO Asha Sharma wrote an open letter, outlining the future challenges facing Xbox, the company’s vision, and the plan it now intends to pursue.
“I know this hurts,” Sharma wrote. “These changes will directly affect the people who have poured their creativity into building XBOX. Many have joined us by buying, and others are employed here, or seek us out because they love the industry and love XBOX. Today’s decisions do not reflect their talent or dedication.”
But perhaps the most important line is the one we’ve already seen with previous reporting:
“Our business today is not healthy.”
This is not the first time Sharma has said this publicly about the green product. He explains that Xbox apparently operates on three to ten times lower margins than similar platforms and publishing businesses. He also says that Xbox has entered the ninth generation with a smaller install base and a higher cost structure.
According to Sharma, Xbox is betting on Game Pass, multi-platform releases and a broad portfolio of content. While those areas create “significant value,” he admits they haven’t grown at the pace Xbox hopes.
“And now the industry is facing the worst hardware crisis in its history,” Sharma wrote. “We have to reset the XBOX.”
Sharma then begins to lay out the real meat of the reset by going back to 2018, when Xbox began aggressively expanding its studio portfolio.
Since then, he says, the number of games created each month across the industry now exceeds the previous decade combined. In other words, Xbox spent years buying studios to produce more games at the same time the entire industry exploded with more games than anyone could realistically keep up with.
“It is neither feasible nor desirable to own every major independent studio,” Sharma wrote, while admitting that Xbox has learned that it is “not the best home for all kinds of studios.”
Worse, Sharma says that in a typical year, Xbox lost 64 cents on every dollar it invested. That, more than anything else, explains why Microsoft is now reducing the number of studios it owns and the people it employs. Sure, Xbox has Microsoft’s money behind it, but the brand is still expected to operate as a business, not a charity project. Microsoft can afford many things. That doesn’t mean it is willing to continue funding a strategy it no longer believes is working.
At least there’s a bit of good news: Sharma says no first-party Xbox games have been publicly announced or projects canceled as part of the cuts. That doesn’t mean everything is magically safe forever, of course. But for now, it means that games like Senua, State of Decay 3 and Marvel’s Blade are still officially alive. Senua and State of Decay 3, in particular, will apparently continue with Xbox support despite the developers being sold to other companies.
Sharma also announces a major internal change: both Mojang and King will now report directly to him.
“These two studios have become arenas and are huge with players playing every month,” Sharma wrote. “They bring XBOX critical geographic, demographic, and segmentation.”
That’s a big strategy when Microsoft sees the future of Xbox. Minecraft and Candy Crush are not treated like regular studios. They are treated as platforms.
This also falls into the very dangerous line of Sharma’s memo: he wants Xbox to “entertain” a billion people a day.
One billion. In a day.
“I want XBOX to be one of the few companies that entertains more than a billion people every day,” he wrote, in one of those CEO sentences that are so big they stop sounding like language.
I have to think this is just CEO hyperbole. You have to. It should be so. OK? One billion. In a day.
For context, Game Business reports that the Xbox currently reaches around 500 million players per month. Naturally, that number comes from all possible platforms and games that can be counted: mobile, Steam, games published by Xbox on PlayStation, Minecraft and so on. That’s already a big number, but Sharma’s goal is not just to double it. He’s talking about turning Xbox into an everyday platform on a scale few entertainment brands on Earth can dream of. I’m not even sure how that’s accomplished unless Microsoft officially mandates that everyone have an Xbox chip implanted in their brain. And I probably shouldn’t give them ideas.
That is the desire behind this reset. Microsoft doesn’t want the Xbox to be smaller — at least, not in theory. It wants Xbox to be bigger, more focused, more global and more profitable. Some people think that Sharma’s job could be to slowly diminish the Xbox as a brand until it eventually disappears into the dust of Thanos. Instead, it seems that Sharma and Microsoft still believe that the Xbox can be a powerhouse.
To help with this goal, Sharma wants to simplify the company. According to him, in some parts of the Xbox, the work has to go through 14 stages of management. The goal is to reduce that down to 5 or even 3 layers to speed up decision making. Part of this means a reduction in platform teams too, which have grown by 40% since the start of the generation. We saw these cuts mentioned in today’s report.
“And we will streamline the way we work across our tools, based on clean code, shared services, and 50% reduced vendor spend,” Sharma said.
“As XBOX grew in size, we became more fragmented. Teams, studios, and operations often operate independently, and it became difficult to work toward a shared goal, make the right trade-offs, and get things done,” he said.
Part of the changes in leadership and management is the appointment of a Chief Operating Officer with “end-to-end P&L responsibility for all content, hardware, platform, and services”. That person is Helen Chiang, who will “unify our businesses under one operating model, ensure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.”
Despite everything, Sharma promises that Xbox will invest as much as possible, but with “great focus, good discipline, and great clarity”
“History is littered with companies that mistake longevity as an inevitability. We will not be among them,” Sharma said in his closing sentence.
It is a bold promise. It’s a great idea for the future. However, right now that idea is hard to care about as thousands of people are left standing in the rubble.
