Xbox is planning major layoffs and hinting at "radically different" console business model

[Daniel Sims]

What we know so far: As Microsoft faces rising component costs and declining hardware sales, Xbox's new CEO recently suggested that major changes are in store for the gaming division. While specific details are scant, reports indicate that yet more Microsoft employees will lose their jobs in the coming weeks, adding to the tens of thousands laid off over the past few years.

Although Xbox chief Asha Sharma didn't say "layoffs" in her recent memo to staff, the message's tone certainly gives off the feeling that they're coming. Sources recently informed Bloomberg that layoffs are indeed on the horizon as Microsoft tries to save its console gaming business.

In an email to employees that Microsoft later published on the Xbox blog, Sharma stated that the company overextended itself when purchasing numerous large studios to bolster its in-house content pipeline. These included Elder Scrolls owner ZeniMax, celebrated RPG studio Obsidian Entertainment, and, most famously, the $69 billion acquisition of Call of Duty publisher Activision Blizzard.

Microsoft layoffs since 2023

Date (announcement)	Reported headcount cut	Main business areas hit
18 Jan 2023	10,000	Windows & devices, Xbox, HoloLens, recruiting & marketing
25 Jan 2024	1,900	Activision Blizzard, Xbox, ZeniMax after the ABK deal closed
3 – 4 Jun 2024	≈1,000 (internal est.)	Azure for Operators, HoloLens/mixed-reality, other "moon-shot" teams
12 Sep 2024	≈650	Xbox publishing & game-studio support teams
Jan – Feb 2025	≈2,000	Company-wide "low-performer" cull (no severance in many cases)
13 May 2025	≈6,000 (Microsoft says "< 3% of staff")	All geographies; focus on middle-management, LinkedIn
2 Jun 2025	305	Redmond, Washington HQ roles; additional WARN-notice layoffs following the May cuts
2 Jul 2025	≈9,000 (Microsoft says "< 4% of staff")	Company-wide; Xbox, sales, management layers, and other divisions
23 Apr 2026 (opens May)	Up to ≈8,750 offered voluntary exit	US employees at senior director level and below whose age plus tenure equals 70 or higher; certain sales staff excluded

The Xbox CEO revealed that, excluding Activision, Microsoft's gaming division has spent more than $20 billion in the past five years on acquisitions and hardware subsidies. During the same time period, annual revenue has fallen by almost $500 million, and the company expects to end the fiscal year with a 3% decline in profit margins.

Bloomberg expects Microsoft to announce the job cuts shortly after its fiscal year ends on June 30. Although the scale of the upcoming layoffs remains unclear, Giant Bomb recently claimed that about 1,000 employees might be affected, which would bring Microsoft's total since 2023 to around 40,000.

Sharma also outlined the supply challenges the company has faced since the buildout of AI data centers has sent digital storage prices skyrocketing. When the new CEO took over in February, Microsoft was paying twice as much for Xbox storage as last fall, and prices have since doubled again. Sharma expects prices to have risen by a factor of five between Fall 2025 and the 2027 holiday season, suggesting that this remains the company's desired release window for the next Xbox console, codenamed Helix.

Rumors based on leaked chip design documents have always suggested that Helix would be expensive owing to its robust hardware. However, the RAM crisis, partially driven by Microsoft's investments in AI, is expected to push console prices into uncharted territory. In the memo, Sharma stated that Microsoft plans to "reset" the Xbox business, and in an earlier interview with Fortune (above), she explained that Xbox is exploring new business models to reach more prospective customers.

"I think we've reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation," the Xbox CEO told the outlet. "And so I think we will start to see radically different business models that we never expected start to come into orbit later this year." Despite flagging sales, Sharma also confirmed that Xbox Series consoles are currently supply-constrained.

One of Sharma's first major decisions as CEO was to partially reverse last October's sharp hike to Game Pass subscription prices. Xbox chief strategy officer Matthew Ball recently admitted that the decision cost Microsoft millions of subscribers.

– Parris (@vicious696) June 7, 2026

The company's changing strategy also includes an attempt to pivot back toward console exclusives. Microsoft recently confirmed that Gears of War: E-Day, coming this October, and Clockwork Revolution, launching in 2027, will remain console-exclusive to Xbox indefinitely. This comes despite reports and leaked logos indicating that Xbox studio The Coalition was ready to showcase a completed PlayStation 5 version of E-Day. The two games are still set to launch on Steam.

Microsoft later explained that it is still determining its approach to exclusives, but live-service games such as Call of Duty will continue to support PlayStation and Nintendo consoles. The company will handle single-player titles on a case-by-case basis and react based on the commercial impact. Early sales numbers from the United Kingdom suggest that Forza Horizon 6, coming to PlayStation 5 later this year, has already boosted Xbox Series sales.

Ubisoft is also expected to announce layoffs soon. Sources informed Insider Gaming and Game Developer that around 380 roles are set to be eliminated at the publisher's Belgrade and Winnipeg studios. Ubisoft Belgrade will refocus solely on the Rainbow Six franchise, while Winnipeg primarily develops the company's proprietary Anvil and Snowdrop graphics engines. Controversially, Ubisoft also placed the news under embargo when it informed outlets.

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Xbox is planning major layoffs and hinting at "radically different" console business model

 

[yRaz]

Let me guess, instead of games they're gonna sell a living room AI box connected to your TV that asks you to use Edge and subscribe to OneDrive.

 

[Megalomaniac]

The 9th generation of video game consoles has been a complete letdown to me. And it's only been getting worse since the Xbox 360/PS3/Wii era (seventh generation). We have fewer and fewer 1st party exclusives, fewer games, fewer choices of genre. We went from Dance/rhythm games, music games and attempts at other types to basically FPS and role playing. It's boring. And then they delay GTA6.

 

[m4a4]

The company's changing strategy also includes an attempt to pivot back toward console exclusives.

Eww, the last thing we need is more walled gardens. Why listen to the anti-consumer minority wanting more exclusives for no good reason? Why are people getting excited for artificial walled gardens and fragmented gaming??

Exclusives don't and have never made games great.

 

[NumberNine]

Hey check it out, she's getting ready to do the thing she was specifically installed into that role to do! I'm shocked, I tell ya, completely shocked.

 

[mbrowne5061]

Let me guess, instead of games they're gonna sell a living room AI box connected to your TV that asks you to use Edge and subscribe to OneDrive.

Given how she has been running things since she took over, I think they are going to pivot even harder into just being a game distributor. I can see them trying (and probably failing) at competing with Steam.

By 2027, the new Xbox will be here, and the Steam Machine will be here, and you'll be able to play games you bought on Steam and Xbox on PC hardware. Aside from Linux support, the two platforms could look very similar to one another. If Microsoft leans hard into attracting indie devs, game sales, secondary digital collectables (I.e. Steam Market, with their CSGO loot boxes, trading cards, etc), I can see them making a go at it. I don't seem them beating Valve, since I don't see them supporting Linux gaming or games with adult themes, but I can see them giving it an earnest go of it.

But odds are better that you're right. Some bonehead executive above her will overrule her decisions, and demand "organization synergy" with the rest of Microsoft's products. Glass cliff, and all that. If she succeeds at saving Xbox, she won't be thanked; if she fails, she will be blamed; and most people will want to see her fail.

 

[GFitzpatrick47]

Eww, the last thing we need is more walled gardens. Why listen to the anti-consumer minority wanting more exclusives for no good reason? Why are people getting excited for artificial walled gardens and fragmented gaming??

Exclusives don't and have never made games great.

Exclusives worked when there were significant hardware and software differences between the various consoles. Because of that, you could make an argument that they inadvertently made games better because developers could focus their full attention on the game development itself, rather than splitting their attention between vastly different hardware and software packages (which could result in longer development times, cut content, or outright bad ports).

In fact, there are examples where console exclusivity directly made games better/great. We wouldn't have FFVII (and because of that, VIII and IX) is Squaresoft continued to attempt development for the Nintendo 64 (as an exclusive, no less). However, they realized that the hardware was simply incompatible with what they desired, game-design wise, and Sony would gladly have them work on FFVII for the PS1...as an exclusive. I'm sure there are other examples, but that's one that immediately springs to mind.

However, with the Xbox Series X and PS5 essentially being glorified AMD-based PCs with various software layers on top, exclusivity based on significant hardware differences simply isn't a thing anymore, and there's no incentive for either company to go back to that era of design thinking. Further, unless there's a serious decrease in hardware prices, or Sony/Microsoft can find production efficiences and economies of scale we simply haven't seen, there isn't much financial incentive to use exclusives as a driver of console sales.

 

[m4a4]

Exclusives worked when there were significant hardware and software differences between the various consoles. Because of that, you could make an argument that they inadvertently made games better because developers could focus their full attention on the game development itself, rather than splitting their attention between vastly different hardware and software packages (which could result in longer development times, cut content, or outright bad ports).

In fact, there are examples where console exclusivity directly made games better/great. We wouldn't have FFVII (and because of that, VIII and IX) is Squaresoft continued to attempt development for the Nintendo 64 (as an exclusive, no less). However, they realized that the hardware was simply incompatible with what they desired, game-design wise, and Sony would gladly have them work on FFVII for the PS1...as an exclusive. I'm sure there are other examples, but that's one that immediately springs to mind.

However, with the Xbox Series X and PS5 essentially being glorified AMD-based PCs with various software layers on top, exclusivity based on significant hardware differences simply isn't a thing anymore, and there's no incentive for either company to go back to that era of design thinking. Further, unless there's a serious decrease in hardware prices, or Sony/Microsoft can find production efficiences and economies of scale we simply haven't seen, there isn't much financial incentive to use exclusives as a driver of console sales.

Yes, exclusives were a necessary "evil" back when gaming hardware and software were in it's infancy. I won't deny they had an important place not too long ago.
But I don't see the FFVII situation as making the game "great", as it was exclusive out of necessity, not choice (a different story than that of games these days).
If there's a choice to port it to other platforms (and the platform can support it), the opportunity should be taken (as it's pretty much "free money" if you do it right), and it doesn't make it better or worse.

And exactly, In this digital age where it is easy to port games to other platforms, the practice of exclusives is now archaic and only serves to lock you into an artificial walled garden. I refuse to pretend it's better for anyone.

The only "exception" would be where special hardware is needed to play them like VR. But that is "exclusivity" out of necessity, not choice.

 

[Northy]

XBox promises "radically different" console business model.

Games and a console that doesn't suck could work.

 

[LemmingO]

No one should be surprised. Sharma was always meant to "transform" XBox, but we wanted to know "Into what?"

Every single customer-facing piece of hardware is a marketplace for Microsoft to sell something. XBox will become a terminal in people's living rooms and gamestreaming will be the new norm... no matter how inefficient it is. GeforceNow is losing $4 for every $1 earned.

I just find it quite disgusting that it is framed as a failure of the consumers and not of the companies who are driving the RAMpocalypse. Quite literally: "Yes. We cannot afford a console that costs thousands of dollars... but WHY does it cost thousands of dollars?!" (hint: because they have created a fake AI economy tantamount to crypto, slapped on it aspirational promises to save humanity from itself, got billions in investment, and still failed to make it work as a business model)

I think humanity in general needs to touch the literal grass. Get out of the house. Stop playing games and "subscribing" to things, shift the economy of the world from a pure "services consumption" to "everything consumption". Buy tools. Learn a skill. In a few years' time we'll need tradies because there will be none.