Microsoft wants Xbox to hit 30% margins, explaining price hikes and layoffs

[Daniel Sims]

Ripple effect: Microsoft has cut more than 27,000 jobs since early 2020, with the Xbox division hit especially hard, even as the company raises Game Pass fees and console prices. The aggressive cost-cutting underscores a pivot toward higher profit margins that is being shouldered by both its workforce and its customers.

According to anonymous Bloomberg sources, Microsoft began demanding 30 percent profit margins across all divisions starting in 2023. This target far exceeds the video game industry's average. The aggressive demand forced the Xbox division to implement drastic policy changes in an attempt to meet it.

Trend data from S&P Global Market Intelligence shows that gaming companies generally maintain profit margins of 17 to 22 percent. Over the last six years, Xbox's average has ranged between 10 and 20 percent. For most of Microsoft's 2022 fiscal year, the margin was just 12 percent.

The push to more than double profit margins drove several unusual moves by the Xbox division, including releasing first-party games on rival consoles. It likely also contributed to two Xbox console price hikes this year, with the priciest model now at $800. Other companies have similarly raised prices in response to tariffs and supply chain challenges.

Microsoft also recently raised the price of its top-tier Game Pass subscriptions by 40 to 50 percent. Launching first-party titles on Game Pass likely affects profit margins from traditional sales, though Microsoft reportedly applies a complex metric to account for estimated lost purchases.

Unpredictable tariffs and heavy spending have made reaching the 30 percent target more difficult. In recent years, acquiring game companies such as ZeniMax and Activision Blizzard has cost the Xbox division over $76 billion, while launching Activision's Call of Duty titles on Game Pass reportedly resulted in roughly $300 million in lost sales. Microsoft has also invested around $80 billion in AI infrastructure.

Moreover, the mandate may partly explain repeated rounds of layoffs. Between 2020 and early 2025, Microsoft cut roughly 12,500 positions and has eliminated 15,000 more this year alone. The layoffs reflect a broader trend, with over 100,000 tech workers losing their jobs so far in 2025. Meanwhile, Microsoft CEO Satya Nadella's executive compensation rose to $96.5 million this fiscal year, up from $79 million last year.

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Microsoft wants Xbox to hit 30% margins, explaining price hikes and layoffs

 

[OortCloud]

You might want 30% margins but you certainly don't get them by just raising prices astronomically. It doesn't work. I've cancelled GamePass as it's way too expensive now as have a few other people I know. It already had too much stuff on there to possibly play and now with the Blizzard stuff too it's ridiculous. They needed to consolidate what they had not buy more publishers and then expect even more per month. The way MS are running Xbox at the moment is just bizarre. It feels like they want to dismantle 20 years of brand building overnight and they are doing a fantastic job.

 

[gamerk2]

Finance in a nutshell: The end result will be higher margins but fewer sales, leading to less profit. If you work for any decently sized corporation you know *exactly* what I'm talking about.

 

[Theinsanegamer]

Activision lost $1.3 billion last year, and this years sales are worse. Microsoft should probably fix its fundamental issues before demanding industry leading margins.

Or, better yet, spin off xbox as its own company. MS clearly does not know what it is doing.

 

[PXAbstraction]

Anything to keep feeding the AI bubble's money furnace while keeping profits up as long as possible before it pops: https://geekbravado.com/xbox-is-being-destroyed-for-the-ai-bubble/

 

[Revolution 11]

There is no way to raise margins without also losing market share in a competitive market unless you are providing drastically more value to the customer (and capturing the same fraction for yourself).

Microsoft is providing progressively less and less value over time, so any attempt to boost margins is only going to crater their market share.

Very shortsighted of Microsoft but what do you expect from the likes of Nadella, he doesn't give a damn about Microsoft's long-term survival, he is going to cash out big time before the AI bubble pops.

 

[scavengerspc]

I think it would be very possible, if not fairly easy, for XBOX to hit a 30% margin.
All they have to do is reverse 90% of what they have done and said in the last 3 years.

 

[godrilla]

They are raising prices by purpose to push the steaming services with ads. If you can't afford the hardware play a game for free for a few hours by watching a few ads with low bit stream.

 

[AlphaTech]

Can somebody explain to me what Microsoft does these days? They are selling office and OS licenses for pennies on the dollar these days in comparison to where the pricing was historically. What exactly does Microsoft bring to the market that excites consumers and increases their brand recognition?

 

[godrilla]

Activision lost $1.3 billion last year, and this years sales are worse. Microsoft should probably fix its fundamental issues before demanding industry leading margins.

Or, better yet, spin off xbox as its own company. MS clearly does not know what it is doing.

From what I am hearing is that they are beta testing their streaming services on impoverished parts of the world with ads for their lowest quality streaming services. If people can't afford the games and hardware they be left with the only monopoly left streaming low bit rate quality games. This is their end goal. You'll own nothing and be happy!

 

[Kirby1]

Seems like execs at Microsoft really just want to kill the Xbox brand entirely. The only other logical conclusion is deep deep incompetence.

 

[Coisa]

Microsoft’s abusive price increase in gaming is the behavior of a monopoly. So too true also in this year’s increase for Office 365, prices are up 30%. We are all but forced to use the MS Cloud for Windows and Office, and the cost for services that come with it. Nadella’s compensation increased 22% this year; I guess he is shooting for something higher next year. Welcome to the new age of the robber barons. Yeah, and I forgot to mention the console hardware hikes too

 

[ScottSoapbox]

Execs trying fix vastly overpaying for studios before it catches up to them personally.

 

[p51d007]

It's all about the stock price. That's all MS cares about.

 

[OortCloud]

Can somebody explain to me what Microsoft does these days? They are selling office and OS licenses for pennies on the dollar these days in comparison to where the pricing was historically. What exactly does Microsoft bring to the market that excites consumers and increases their brand recognition?

Most of MS's revenue comes from Azure which is getting close to 100Bn per annum, followed by another large chunk from MS corporate licensing for OS and Office ('Microsoft 365 Business') which is definitely not sold for pennies! It's only cheap for home users but big organisations play plenty, for the whole suite with exchange, AD etc etc They make a fair bit from LinkedIn and some now from copilot too. XBox is around 20Bn too which is not insignificant.

 

[MasterAce]

Insane layoffs left and right. I hope these people, freed from the corpos, go and do something new and exciting.

 

[toooooot]

I am curious to see how it turns out. They are the first subscription service to up the price so high at once. I would to do that right, you would need to add more features as well.
What if in a year they lose subscribers and instead of 30% more, they lose 10-20%.
Are they going to up the price again?
It just does not seem like a reasonable business decision.