Microsoft to Cut 4,800 Jobs in Xbox Division
Microsoft is planning to lay off around 4,800 employees in its Xbox gaming division as part of a strategy to revitalize a struggling business. Recently, a relatively inexperienced young executive from India was appointed to lead Xbox, adding a unique twist to the company’s direction.
In a memo to staff, Xbox CEO Asha Sharma announced that 1,600 workers from the gaming sector will be let go this week, with an additional 1,250 cuts planned for the rest of the fiscal year, which begins this month. Furthermore, the company is looking to sell or spin off four game development studios and is weighing options for a fifth, resulting in at least 350 more positions being eliminated. In total, these layoffs will bring Microsoft’s job cuts to just under 5,000, comprising about 20% of the department’s workforce.
Sharma candidly stated in the memo, “Our business today is not healthy. You need to reset your Xbox.” This reflects a broader trend in the video game industry, which has seen layoffs following a hiring spree driven by increased demand during the pandemic. Once the world returned to normal, the unexpected surge in business diminished.
To bolster its gaming offering, Microsoft has been acquiring game studios, including a notable purchase of Activision Blizzard to enhance its Netflix-style subscription service, Game Pass. Documents associated with the Activision acquisition indicated that Microsoft anticipated reaching approximately 77 million Game Pass subscribers this year, though the current figure is about 30 million. Subscription service performance has been notably below expectations.
Sharma acknowledged that Game Pass “did not grow at the pace we expected.” Xbox saw a 5% decline in sales year-over-year for the quarter ending in March, and its profit margin dropped to 3% for the year ending in June, signaling challenges within the gaming sector.
In February, Microsoft CEO Satya Nadella appointed Sharma, a former chief operating officer at Instacart with no gaming industry experience, to lead Xbox. Almost immediately, she initiated significant changes aimed at turning the business around.
Sharma is reducing the number of games published by Microsoft while focusing investments on its most popular franchises like Minecraft, Candy Crush, and Fallout. After a previous price increase that led to a loss of subscribers, she has lowered the cost of Game Pass and paused new offerings. For instance, Call of Duty will now require separate purchases, shifting the focus toward boosting direct game sales rather than relying heavily on subscription revenue.
Additionally, Microsoft plans to increase the prices of its Xbox consoles, attributing this decision to a global shortage of memory chips, which has been amplified by rising demand from the AI sector—an issue also faced by competitors like Sony and Nintendo. This shortage is causing supply chain difficulties across the gaming hardware industry.
As Xbox operates a digital game store for Windows PCs, Sharma is aiming to pivot Microsoft to become a more attractive distributor for independent game developers, moving away from a traditional publishing model toward acting as a platform provider.
This reorganization comes at a pivotal moment for Microsoft’s gaming goals. The company has invested billions into gaming acquisitions and infrastructure, hoping that gaming would serve as a significant driver of growth. Yet, the results have not aligned with those ambitious expectations.
