Asha Sharma used the word “hoping” in a layoff memo.Not planning. Not betting. Hoping. “We added more teams, more investment, and more time,” the Xbox CEO wrote on Monday, the morning 1,600 people lost their jobs, “hoping for a better outcome.” That’s the tell. You use “hoping” about a raffle, not a strategy. And the strategy in question ran to roughly $80 billion over a decade—the biggest sustained spend the games business has ever seen. That much money is supposed to buy a plan. What it bought, on Sharma’s own telling, was a hope.So let’s take the memo at its word and go through what’s actually wrong here. Not the cuts, the 3,200 jobs, the five studios pushed out the door. Those are this week’s symptoms. The disease is older, and Xbox has been living with it for eight years.
Nobody plays games the way you watch Netflix
Everything Xbox turned into came out of one idea. Games could be Netflix. Flat monthly fee, a library that never stops growing, play forever.Lovely pitch. It has one hole, and the hole is the whole market.People don’t consume games the way they consume television. A Netflix subscriber burns through thirty shows a year, half-watched, on in the background. A gamer buys a thing and moves in. Same Call of Duty. Same Fortnite. Same Minecraft world, for months. Circana’s numbers put a floor under the instinct: most American gamers buy two titles a year at most, and a third of them buy nothing at all. You can’t build a Netflix on customers who want two things and will replay the same one three hundred times.Microsoft set a target of 77 million Game Pass subscribers by this fiscal year. It has 30 million. Not a miss—a different postcode. Less than half the goal, and four million down on the 34 million it last admitted to in 2024. The line isn’t plateauing. It’s reversing.And how it reversed is its own small comedy. Last October the old regime pushed Game Pass Ultimate up by half, to $30 a month. The reasoning: day-one Call of Duty, the single biggest release in the industry, dropped straight into the sub at launch, so the premium paid for itself. What happened instead, per chief strategy officer Matthew Ball, is that Xbox “shed millions of subscribers over the span of a few months.” The one franchise meant to make Game Pass unmissable became the reason people quit. Sharma has since dropped the price back to $23 and yanked new Call of Duty out of the day-one slot—a polite way of conceding the premise was upside down.And the churn wasn’t even the worst of it. Day-one blockbusters on Game Pass didn’t just fail to grow the sub fast enough. They set fire to the games’ own sales. Call of Duty ran $70 standalone. On Game Pass, that same game plus hundreds of others cost less than half of one copy. In 2024, Xbox waved off more than $300 million in Call of Duty sales on its own platforms. PlayStation, with no subscription eating its numbers, took 82% of Black Ops 6 that year. Xbox built a machine that turned full-price hits into loss leaders, then looked shocked when the margin fell out.The worst part is that none of it was a surprise. Some staff warned internally, years ago, that dropping high-budget games into the sub on day one would cannibalise the copies. They were told scale would cover it. It didn’t.
They bought Call of Duty. They already had Call of Duty.
Then the shopping. Between 2018 and 2023, Xbox spent like the chequebook had no floor. Ninja Theory, Double Fine, Obsidian, Compulsion, Undead Labs—the indies. Then the big ones. $7.5 billion for ZeniMax and Bethesda’s crown, Fallout and Elder Scrolls, in 2021. And the whale: $69 billion for Activision Blizzard in 2023, the largest deal the industry has ever done. Call of Duty, Candy Crush, Warcraft, one roof.The theory was scale. Console losing? Go multiplatform. Sub not growing? Buy Call of Duty, put it on the sub. Not enough hits? Buy more studios. Get so big (Sharma’s own word for the old logic) that you become “inevitable.”It never became anything. Sharma’s arithmetic is the part that should stop you: in a typical year, Xbox lost 64 cents on every dollar it put into its studios. Not a thin margin. A 64% loss rate on the core thing the business does. The overall accountability margin, Microsoft’s internal read on profit, had sunk to 3%. Nadella said it flat, like a man reading off a screen—the money would’ve earned more sitting in an index fund. And at a live event in June he named the deeper problem, the one the acquisitions were meant to fix and never did. “We’ve not been monetizing that entertainment,” he said. “In fact, if anything, we’ve been subsidizing that entertainment.” Twenty-five years in, $80 billion deep, and the man at the top was describing Xbox not as a business that earns but as one that pays for the privilege of existing.Activision is the monument to the whole idea, and the sharpest case against it. For $69 billion, Xbox bought franchises it was already selling: on its own store, on PlayStation, on PC. Call of Duty didn’t need Microsoft’s name on the deed to make Microsoft money. And because the antitrust regulators forced Microsoft to keep the big franchises multiplatform, it couldn’t even wall them off as Xbox exclusives, the one lever that might have justified the price.What the deal actually delivered was two years of regulatory limbo, layoff after layoff to justify the spend, and a subscriber base already stalling by the time it closed. Spread that sum across twenty small studios and you might have bought a decade of strange, specific exclusives. Xbox bought the biggest thing on the shelf and found it had bought its own tail.
The everywhere that ended up nowhere
Under all of it sits the first wound, the one the rest was supposed to close. The console lost.Xbox came into this generation (Gen 9, in Sharma’s shorthand) with a smaller install base and a higher cost base than its rivals, and never clawed it back. PlayStation now takes close to half of global console sales. Switch holds 27%. Xbox sits at 23%. Distant third in a three-way race, and the gap keeps widening.The response to losing the war was to stop fighting it. Under Phil Spencer and Sarah Bond, Xbox went “everywhere.” Your phone is an Xbox. Your TV is an Xbox. You don’t need an Xbox to play Xbox. A marketing line that told the people most likely to buy the hardware, in plain English, not to. It offended the teams building that hardware. It dissolved the one thing a console has to have—a reason to sit in your living room as its own object. Bond staked her name on that everywhere-strategy, even promising a mobile Xbox store that was due in mid-2024 and still doesn’t exist. If Xbox is everywhere, it’s nowhere in particular. And nowhere in particular is a hard place to move a $500 box.You can measure how badly the identity had frayed by what Sharma did about it. One of her early moves was to scrap the “Microsoft Gaming” label the division had operated under and rename the whole team, simply, XBOX. “Microsoft Gaming describes our structure but it does not describe our ambition,” she wrote in April. It’s a small thing and a telling one: the fix for a brand that had spent years insisting it was everything, everywhere, on every screen, was to walk back to the one word people recognised and stand on it. Years of “this is an Xbox,” and the reset began by remembering what an Xbox was.The box costs more than that now. Three price hikes in thirteen months, driven by the same AI-fed memory and storage crunch mauling every hardware maker alive. Sharma has told staff Xbox expects to pay five times as much for memory and storage in 2027 as it did in 2024. The next console, codenamed Project Helix, is pegged by analysts north of $1,000. A thousand-dollar machine, from the platform in third, into the worst hardware crisis the industry has seen. Spencer once said you don’t grow the market with $1,000 consoles. He was right. Xbox is about to prove it from the worst seat in the house.
Fourteen layers of management, fewer people playing
For all the money and all the misses, the failure that explains the rest is the quiet one, and it’s where Sharma spends the most ink. Xbox got too big to work.Some decisions passed through 14 layers of management. The platform teams grew 40% bigger than they were at the start of the generation, while the number of players, and the hours they put in, dropped. More managers over fewer gamers. The org swelling as the actual business shrank.That’s what buying your way to scale does when there’s no mission to hang it on. Every studio, franchise, sub tier, cloud service, mobile plan got bolted to the same sprawl, none of it aimed at a shared target because there wasn’t one. There was “grow.” Sharma flattens management to five layers, three where she can, halves vendor spend, and installs Helen Chiang as the division’s first-ever COO with real end-to-end ownership of the P&L. Sit with that last one. A business that has spent $80 billion in ten years did not, until this week, have one executive on the hook for whether the whole thing made money. The empire got built with nobody watching the till.
A billion people a day
So Xbox resets. Four studios go: Compulsion and Double Fine independent with their catalogues, Ninja Theory and Undead Labs sold to buyers nobody will name, Arkane in France unwinding slowly through its works council. The studios that stay brace anyway. Obsidian has reportedly already lost a quarter of its people and had its Avowed sequel killed so the team can be shoved onto a new Fallout instead. Bethesda pivots to franchise-first, everything riding on Fallout and Elder Scrolls, with id reportedly cut in half and staff at ZeniMax Online hit hard. The read from the top, as one pair of analysts put it, lands like an anti-ad: don’t buy an Xbox.And into that, Sharma plants a number so big it reads like a dare. She wants Xbox to entertain “more than a billion people each day.”It isn’t a slip of the pen. Back in April, in a memo grandly titled We Are XBOX, Sharma had already named the metric: “Our new north star will be daily active players.” Not consoles sold, not subscribers, not revenue. Daily players—the one number that flatters a platform sprawled across phones, TVs, cloud and Candy Crush, and the one least tethered to whether any of it makes money. The billion is just that north star followed to its most quotable extreme.A billion. This is a platform that just conceded it can’t hold 30 million subscribers, shipping a $1,000-plus console into a memory shortage with a smaller team than it had last week, and the goal is one in eight people alive, every day. The maths doesn’t close from any angle. Not through King’s 200 million monthly players. Not through Fallout’s TV audience. Not through the mobile and emerging-market push, India and China included, that Sharma’s banking on. It’s a figure picked for its size, not its odds—which, if you’ve read this far, is the exact instinct that built the hole.Because that’s the thing about what’s wrong with Xbox. It isn’t a pile of separate errors: a bad sub here, an overpriced deal there, a lost console, a bloated org. It’s one error, run on a loop for eight years. The belief that big enough would eventually stand in for good enough. That you could buy the games, bundle the games, stream the games and scale the games until the market had no choice left but to call you inevitable.Sharma put a line at the very bottom of that memo, meant as a warning to herself for the road ahead. Read after everything that comes before it, it isn’t a warning. It’s an obituary she doesn’t yet know she’s writing.“History is full of companies that mistake longevity for inevitability. We will not be one of them.”Xbox was one of them.
