Microsoft's Xbox made some big bets that haven't paid off.
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The video game industry's problems are crystallizing inside Microsoft's Xbox.A fresh round of layoffs at the tech giant's games division shows how those pressures are coming home to roost as costs rise and players devote more time to a just a handful of favorites. Plus, there are some Microsoft-specific problems to address."Our business today is not healthy," new Xbox CEO Asha Sharma wrote in an email announcing the layoffs, along with plans to divest four studios and make leadership changes — efforts all aimed at turning the gaming unit around. "We are operating at margins that are 3-10x lower than comparable platform and publishing businesses."Sharma started the job in February, succeeding longtime Xbox chief Phil Spencer. She joined Microsoft in 2024 from Instacart and previously served as president of product in Microsoft's Core AI business.The Xbox layoffs will immediately affect 1,600 roles, and be followed by another 1,600 cuts throughout fiscal 2027, Sharma said. The combined total will account for roughly 20% of the Xbox unit, and two-thirds of a companywide reduction also announced Monday, affecting 4,800 workers.Some of the company's game employees told Business Insider they had seen cuts coming because the business had been struggling, but were surprised by their scale."Nobody was expecting it to be this bad," a laid-off employee from one Xbox studio said.Harder to level upThe pandemic drove a boom in consumer spending for the games industry that has since faded, giving way to a steady drumbeat of layoffs.
