When Asha Sharma passed the 100-day mark at the helm of Xbox last month, the consensus assessment was cautiously positive – but as I wrote at the time, Sharma’s role so far had mostly been crowd-pleasing positioning statements, and the genuinely hard choices would need to be made soon.
A month later, we’ve started to see those hard choices being made. Xbox cut 1,600 jobs on Monday, with another 1,600 planned to go by the end of the year, representing fully 20% of the Xbox organisation. Five internal studios are gone entirely, either to be spun off as independents or sold – Compulsion, Double Fine, Ninja Theory, Undead Labs, and Arkane. The remaining studios have also been hit, with some apparently losing as much as half of their developer headcount.
This is a very hard set of decisions to square with bullish statements about reinvigorating the Xbox business or ambitions of reaching a billion consumers. Lewis Packwood characterised it rather fairly as another retreat for Xbox – yet another “darkest day since the last one” for a business that seems to go through these violent spasms with increasing regularity.
If the actions and the words seem contradictory, though, it’s because Sharma and the rest of the new leadership team have been handed two wildly conflicting priorities that they must reconcile. The damaged, stumbling Xbox business must be put back on a growth path. At the same time, the Xbox division needs to get its spending under control and start delivering some return on the gigantic investment it has received in recent years.
You could make a decent argument for either of those priorities. Xbox really does need to get back on its feet as a brand and a platform, as it’s essentially lacked a coherent and compelling proposition for its consumers for years now. Equally, the widely reported figure of $20 billion being invested in the division in recent years (not including money spent on acquisitions!) only for revenues to decline rather than grow is very hard to justify given how productive that money could have been in Microsoft’s more rapidly growing and profitable business units.
“Consequences are for people whose jobs don’t come with a snappy acronym and a corner office”
The problem arises from trying to do them both at once. “Do more with less” is a great boardroom soundbite, but an insanely hard thing to implement in practice. Sharma’s attempt to square this circle, it seems, boils down to shrinking the division’s studio network. On the face of it, this seems like a move designed to deal with the financial issue – cut costs to make the bottom-line numbers glow a slightly less angry red next quarter – at the expense of tackling the problems with the Xbox platform itself.
The reality, though, is that slashing 3,200 jobs doesn’t make much of a dent in the financial troubles of a department that’s burned through $20 billion with nothing to show for it in the space of a few years. It’s not nothing – direct employee costs and ancillary costs racked up on the projects they were working on probably amounts to about half a billion dollars a year – but on the scale of Microsoft’s accounting, that’s at least living right next door to nothing.
So while cost saving is certainly part of the motivation, it’s largely performative: the Xbox division ritualistically shaving off its hair to show the rest of the company how contrite it is over strategic missteps and how serious it is about spending money responsibly. (Of course, the people whose careers are being sacrificed for this performance aren’t the ones who made those bad strategic decisions, or indeed were anywhere near the rooms where they happened; consequences are for people whose jobs don’t come with a snappy acronym and a corner office.)
The rest of the motivation is, I think, genuinely an attempt to make Xbox better at handling its first-party pipeline. I reserve judgement about whether it’s a good attempt at that, but the problem Sharma and her team have identified is real enough: the way that Xbox managed the studios it bought over the past decade was incredibly weak.
For years, the company has seemed to be entirely unable to get a grip of development processes or product priorities. Whether that was due to a lack of competence, a poorly designed management structure, or, as some have suggested, some noble but ultimately foolish “hands-off” oversight policies, the results speak for themselves. Xbox owns some of the most valuable IP and storied studios in gaming and has done little or nothing with most of them.
Whatever was going on within Microsoft, it seemed to affect every studio that came into its orbit. Companies it bought which had reliably released games on reasonable schedules for years suddenly slowed down to a crawl; the disruption of the COVID era didn’t help, but it in no way explains the extent of the phenomenon. Major projects sat in development hell for year after year – not in cheap, early-concept stages, but with full-scale development teams turning out massive amounts of work only to see it scrapped at the next dramatic change of course. Projects cancelled after the best part of a decade in development had, by some accounts, not made any meaningful advances towards the finish line in several years.
“Xbox owns some of the most valuable IP and storied studios in gaming and has done little or nothing with most of them”
Compared to the tight ships that Sony and Nintendo run with their first-party development efforts, this has been a motorway pile-up in slow motion. That’s not to say that either Sony or Nintendo are flawless executors, as they both struggle to keep their first-party pipeline on track at times, or misstep badly in their efforts (like Sony essentially wasting half of this generation on live service dead-ends). The point is that managing internal studios and first-party development is insanely hard, and bizarrely, I don’t think Microsoft ever fully appreciated that.
Perhaps this was a consequence of software being Microsoft’s core competence (yes, yes, insert whatever snide comment about Windows 11 you like at this point) while hardware is a field it has rarely dabbled in. Either way, while it feels weird to ascribe naïveté to one of the most ruthless corporate giants on earth, there does seem to have been a certain doe-eyed “we’ll buy loads of studios and magic will just happen” kind of thinking in some key parts of the company.
A few months after the dramatic leadership transition at Xbox, the new team reckons it has identified the major problems with first-party software, and while I’m not entirely convinced that its fixes are the right prescription, acknowledging the problems is a step further than the previous management achieved.
Problem number one: Xbox management lacks the experience and competences needed to oversee such a huge, sprawling network of studios and projects. Prescription: some of them have to go, and while I find the strategic thinking behind which studios to cut somewhat lightweight, cutting down to a size that allows the core team to retain focus and oversight makes sense.
Problem number two: Xbox-owned IP has been sitting fallow in many cases, which seems largely to be a consequence of core management choosing not to take an active role in IP management and matching the needs of the IP libraries with the abilities of its studios. Prescription: start doing that. We see the beginnings of a very different Xbox first-party strategy with the decision to put Obsidian to work on a Fallout title, thus finally making a move to rectify what’s arguably the single biggest piece of low-hanging fruit left to rot on the vine under previous leadership.
Of course, imposing top-down control of first-party development also means that you need to be very, very confident in your team’s ability to steer it effectively. It feels cruel to quote one of Sony’s most successful first-party titles here, but there’s a line about great power and great responsibility that applies. However, decentralised decision-making that seemed to leave nobody with genuine responsibility for the first-party software strategy has been tried and failed. A new approach is needed.
Nonetheless, it’s perhaps not a great sign that the first draft attempt at imposing this strategy boils down to “let’s just focus on really big commercially successful games and get rid of teams making smaller titles”. This is one of those bits of logic that occasionally pops up in the industry and looks like common sense on the surface – but breaks down the moment you apply any understanding of what the actual role of first-party software is in a platform ecosystem. The Catch-22 of software strategy has always been that you cannot build a mass-market platform solely on the back of mass-market games; look closely at the audience for any genuinely successful mass-market platform, and it turns out to be made up of countless niches loosely packed together.
“You cannot build a mass-market platform solely on the back of mass-market games”
Even so, the “reset” of Xbox shouldn’t be dismissed entirely. At least the problems seem to be better diagnosed now, even if the solutions still need work. Of course, in a week when 1,600 people have had their lives turned upside down due to terrible decisions made far above their heads – and thousands of others are left wondering when and where the axe will fall next – it’s more than fair to be angry at the destructive waste of it, rather than concerned with the strategic positioning of it all.
Nobody should forget that Microsoft actively chose to put itself in this position, spending billions buying studios it now can’t manage properly, thus playing havoc with the lives of thousands. This kind of thing is sadly something we’re getting used to in the industry; but it was contemptible behaviour when Embracer did it, and it’s no less contemptible when Microsoft does it. Even acknowledging the impossible, conflicting priorities Xbox is faced with, and even if this whole sorry affair does end up snatching victory from the jaws of defeat, it won’t quickly be forgotten how shabbily Microsoft has treated the people and studios it was responsible for. Attempting to earn back some of that lost goodwill can be another competing priority on Asha Sharma’s increasingly difficult to-do list.
