Xbox’s great reset began today. There have been some 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 have life outside of Xbox. Arkane Lyon, meanwhile, remains uncertain.
But there is no getting around the human cost. Microsoft has confirmed that approximately 3,200 people will lose their jobs across Xbox throughout FY27, with around 1,600 roles eliminated today and another 1,600 set to follow over the remainder of the fiscal year.
Xbox has now officially confirmed the broad reporting in a new message posted to Xbox Wire, simply titled “Resetting XBOX.”
Xbox CEO Asha Sharma penned the open letter, laying out the future challenges facing Xbox, the company’s vision, and the plan it now intends to follow.
“I know this is painful,” wrote Sharma. “These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.”
But perhaps the most important line is one that we had already seen through earlier reporting:
“Our business today is not healthy.”
It isn’t the first time Sharma has publicly said this about the green brand. She explains that Xbox is apparently operating at margins three to ten times lower than comparable platform and publishing businesses. She also says Xbox entered generation nine with a smaller install base and a higher cost structure.
According to Sharma, Xbox bet on Game Pass, multi-platform releases and a broader portfolio of content. While those areas created “meaningful value,” she admits they did not grow at the pace Xbox expected.
“And now the industry is facing the most severe hardware crisis in its history,” Sharma wrote. “We must reset XBOX.”
Sharma then begins laying out the actual meat of the reset by going back to 2018, when Xbox began aggressively expanding its studio portfolio.
Since then, she says, the number of games being created each month across the industry now outpaces the previous ten years combined. In other words, Xbox spent years buying studios to produce more games at the exact same time the rest of the industry exploded with more games than anyone could realistically keep up with.
“It is neither possible nor desirable to own every great independent studio,” Sharma wrote, while also admitting that Xbox has learned it is “not the best home for every type of studio.”
Even more brutally, Sharma says that in a typical year, Xbox lost 64 cents for every dollar it invested. That, more than anything else, explains why Microsoft is now cutting back 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 like a business, not a charity project. Microsoft can afford a lot of things. That does not mean it is willing to keep funding a strategy it no longer believes is working.
There is at least a bit of good news: Sharma says none of Xbox’s publicly announced first-party games or projects is being cancelled as part of these reductions. That does not mean everything is magically safe forever, of course. But for now, it means 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 still continue with the help of Xbox despite the developers being sold to other companies.
Sharma also announces a major internal change: both Mojang and King will now report directly to her.
“These two studios have increasingly become platforms and are our largest by monthly active players,” Sharma wrote. “They bring critical geographic, demographic, and differentiation to XBOX.”
That is a big hint at where Microsoft sees the future of Xbox. Minecraft and Candy Crush are not being treated like normal studios. They are being treated like platforms.
This also feeds into the wildest line in Sharma’s memo: she wants Xbox to “entertain” one billion people per day.
One billion. Per day.
“I want XBOX to be one of the few companies that entertains more than a billion people each day,” she writes, which is one of those CEO sentences so enormous it briefly stops sounding like language.
I have to assume this is just CEO hyperbole. I have to. It has to be. Right? One billion. Per day.
For context, The Game Business reports that Xbox currently reaches around 500 million players per month. Naturally, that number stems from every single possible platform and game that could be counted: mobile, Steam, Xbox-published games on PlayStation, Minecraft and so on. That is already an enormous number, but Sharma’s target is not simply to double it. She is talking about turning Xbox into a daily platform on a scale few entertainment brands on Earth can even dream of. I’m not even sure how that gets accomplished unless Microsoft legally mandates that every human being has an Xbox chip installed in their brain. And I probably should not give them ideas.
That is the ambition behind this reset. Microsoft does not want Xbox to become smaller – at least, not in theory. It wants Xbox to become vastly bigger, more focused, more global and more profitable. Some people thought Sharma’s job might be to gradually wind Xbox down as a brand until it eventually vanished in a puff of Thanos dust. Instead, it seems Sharma and Microsoft still believe Xbox can become a powerhouse.
To aid in this goal, Sharma wants to streamline the company. According to her, in some parts of Xbox, work has to pass through 14 layers of management. The goal is to reduce that to 5 or even 3 layers to speed up decision-making. Part of this means cutting down the platform teams as well, which have apparently grown by 40% since the start of the generation. We saw these cuts mentioned in today’s reporting.
“And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend,” said Sharma.
“As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done,” she said.
Part of the changes to leadership and management is the appointment of a Chief Operating Officer with “end-to-end P&L responsibility across content, hardware, platform, and services”. That person is Helen Chiang, who will “bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.”
Despite everything, Sharma is promising that Xbox will invest as much as it ever has, but with “greater focus, great discipline, and greater clarity”
“History is full of companies that mistake longevity for inevitability. We will not be one of them,” Sharma says in her closing sentence.
It is a bold promise. It is a beautiful vision for the future. Right now, though, that vision is hard to care about as thousands of people are left standing in the wreckage.
