An official memo from the new Xbox leadership, headed by Asha Sharma, is shaking up the gaming world today. Microsoft executives are declaring the previous Xbox strategy a failure and announcing a radical reboot of the entire brand – the great Xbox reset.
The bitter diagnosis from Redmond
Internally, Microsoft is no longer beating around the bush. The C-suite is no longer hiding behind PR phrases about transformation or market research, but is instead being more critical of itself than ever before. “Our business today is not healthy”, it states unequivocally in the memoThat's it, and it's the final proof that the facade of recent years has developed cracks.
The reason for the state of emergency is money. Xbox simply isn't generating enough revenue. The memo specifies the problem in concrete terms: “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.” Profit margins are therefore lagging far behind the competition. This is unsustainable in the long run, even for a trillion-dollar corporation like Microsoft.
The admission: Game Pass and studio purchases are at their limit.
For years, Xbox Game Pass was considered the gold standard in the industry. This was accompanied by multi-billion dollar acquisitions. Now comes the rude awakening. Microsoft openly admits that this expansion strategy was a dead end. "We bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected."
The plan backfired. Subscriber numbers apparently stagnated while production costs skyrocketed. Worse still, the acquisition spree hollowed out the brand. “Our core business weakened”, The paper dryly states that instead of strengthening the platform, the massive expansion has weakened its foundation.
The profitability of their own development teams, in particular, was a complete loss-making venture. “In a typical year, we lost 64 cents for every dollar we invested.” Such a yield would raise alarm bells for any tax controller. The logical consequence follows immediately: “It is neither possible nor desirable to own every great independent studio.” The era of big purchases is finally over. Xbox The first studios are already being divested..
The hardware crisis and the great reset
The problem isn't just software-related, though. The classic console itself is at a dead end. According to the memo, the industry is facing a paradigm shift. “The industry is facing the most severe hardware crisis in its history.” Console sales are weak worldwide.
That's why Microsoft is now pulling the plug. It's no longer about minor cost-cutting measures or eliminating 3.200 jobs in the Xbox business, 1.600 of them with immediate effect. That's just the symptom. The real message is: "We must reset XBOX." A complete reboot on three levels. The content portfolio is being streamlined, the platform structure is being flattened through less management, and the company's leadership is being completely reorganized. Xbox is rebuilding itself from the ground up.
This isn't a normal restructuring; it's the controlled dismantling of a years-long strategy that spiraled out of control under Phil Spencer. The dream of endless, cheap Game Pass growth is over for gamers. Microsoft will have to calculate very carefully which games it will continue to fund. From now on, the focus is on pure numbers, no longer on acquiring studios. Xbox has to grow up and deliver profits. The party's over.
What do you think of the admission in the memo: Do you believe Xbox can reinvent itself through this radical reset, or will the brand definitively lose face to Sony and Nintendo?
Well, I don't have a crystal ball and I don't know for sure if this will work. But since the Xbox hardware concept, with over 100 billion in investment, already failed, it certainly won't work without this investment. It's not just that the studios spent too much money, but also that the interest in the Xbox simply isn't there to that extent, resulting in too few subscriptions and hardware sales.
I still think it would be best for Xbox if they completely divested themselves of the hardware, except for controllers and headsets, and acted as a major publisher.
If that's true, then games like Gears will indeed be released on PlayStation, since money can be made there, see Forza 5 or Gears Reloaded.
Marko Schultze: The Gears of War remake already exists 🤷
Yes, but not the new one that's still to come.
Karma 🤣
Miscalculated, overplayed, and taken over – mismanagement par excellence. It's unbelievable what's become of Xbox. Phil Spencer, the celebrated savior of Xbox back then, has apparently left behind a mess that could hardly be bigger, and the chaos is only now slowly coming to light. I can't understand how they've overshadowed the hardware so completely. Even though they acquired one amazing studio after another and their content, you'd think users would be flocking to them. But the opposite has happened, despite Game Pass and other features that were supposed to attract customers. I'm curious how much time they'll give Asha to turn things around and get back into the black. Opening the floodgates and abandoning exclusive content shows Xbox's desperation to generate any revenue at all.
It remains exciting, but Xbox doesn't have much time left, and if Helix flops, Xbox will finally become just a software seller.
What's going on in the industry right now...
Crazy times 🙁
Back in late 2017, I already thought that bigger productions, meaning AAA games, had no place in a subscription model with a flat fee. An Indy Pass for A/AA games and AAA games at full price would have made more sense, for example. Generally speaking, I find game software in a subscription model unsuitable…at least that was my initial gut feeling.