Microsoft gaming chiefs call for Xbox reset amid thin margins
Asha Sharma and Matt Booty told Xbox employees the business is overextended, underfunded in key franchises and facing hardware supply strain.
By Maya Lindqvist · Senior Technology Correspondent
3 min read
Microsoft’s gaming leadership is preparing what it calls an “Xbox reset” after telling employees the division’s finances and strategy are falling short. In a staff message published on Xbox Wire, Microsoft Gaming CEO Asha Sharma and Xbox Studios chief Matt Booty pointed to weak margins, acquisition costs, hardware pressures and gaps in the game release pipeline.
The message came about 100 days after Sharma took over from longtime Microsoft gaming executive Phil Spencer. At the time, Sharma said she intended to understand and preserve what made Xbox work; the new message focused on what company leaders say must change.
Sharma and Booty said Xbox is producing a 3 percent “accountability margin,” which Ars Technica described as a profit-margin measure. They said the figure is down from a year earlier and below where the business needs to be. Bloomberg previously reported that Microsoft has pushed Xbox studios toward margins of about 30 percent.
The executives attributed part of the problem to Microsoft becoming overextended. They cited the $69 billion Activision Blizzard acquisition and said Microsoft had spent another $20 billion over the past five years on other acquisitions, platform investments and console subsidies. Despite that spending, they said Microsoft’s gaming revenue is nearly $500 million lower than it was five years ago.
Sharma and Booty also said Microsoft has failed to put enough money behind its “industry-defining franchises.” They said a steady supply of first-party and third-party exclusive games is critical to Xbox’s success, a notable emphasis after Microsoft moved some Xbox titles to other platforms in recent years.
Hardware pressures add to the reset
The executives said Xbox is also under pressure from rising storage and memory costs affecting the broader game hardware business. They added that Microsoft has been hit harder than some rivals because of choices the company made over the past half decade, though they did not spell out those decisions in detail.
Microsoft also said it cannot currently build as many Xbox consoles as players want to buy. The company has raised Xbox hardware prices multiple times in the past year, according to Ars Technica, though Sharma and Booty did not announce a new price increase in the employee message.
For Project Helix, Microsoft’s previously announced effort to support both Xbox and PC games, the executives said the company will seek a new hardware business model and partnerships. Ars Technica noted that Microsoft has already used the Xbox brand with Asus on the Windows-powered ROG Xbox Ally handheld.
The message did not put much emphasis on Xbox’s earlier cloud gaming push. Ars Technica reported that cloud gaming remains a limited part of overall Xbox use. IGN has reported that Xbox Game Pass lost millions of subscribers after Microsoft raised subscription prices last year.
More cuts may be coming as the reset begins. Bloomberg reported that Sharma is preparing layoffs across the Xbox division after Microsoft’s fiscal year ends June 30, with the number of jobs affected still unknown. Bloomberg also reported that Microsoft is planning significant reductions to marketing and other departmental budgets.
This story draws on original reporting from Ars Technica.