Xbox CEO Asha Sharma has shared additional details on the restructuring announced yesterday, which will result in 3,200 layoffs.
“In order to grow, we made a bunch of bets,” Sharma told Fortune. “As we did that, we inherently didn’t focus on the core business.
“The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin.”
To realign resources and refocus on its core business, the company will divest five internal studios.
Compulsion Games and Double Fine will become independent, Ninja Theory and Undead Labs will seek new acquisition and funding, and Arkane Lyon will enter a consultation process to explore strategic options.
In addition to these organizational changes, the restructuring is driven by recent financial declines and the need to streamline Xbox’s management structure.
Last month, Sharma noted that Microsoft had spent over $20 billion on Xbox over the past five years (excluding Activision Blizzard), adding that revenue had dropped by an estimated $500 million per year.
“We are operating at margins that are three to ten times lower than comparable platform and publishing businesses,” she wrote in a memo to staff published yesterday.
“We entered this generation 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. 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.”
Sharma noted that Xbox’s management layers have expanded, with platform teams now 40% larger than at the start of the current generation, while both player base and overall play time have declined.
The Xbox CEO plans to reduce management layers to no more than five, and where possible, three, in response to some teams currently having up to 14 layers.
“As Xbox grew our headcount, we became more fragmented,” said Sharma. “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.”
Sharma concluded: “These changes are about a bigger future at Xbox, not a smaller one. I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect.
“I know we can achieve this goal. Xbox has been one of the most beloved franchises in entertainment history, with talented studios around the world, and we will return to growth in 2027.”
