3,200 layoffs at XboxXbox CEO Asha Sharma has made a number of big changes since taking over from former chief Phil Spencer. Some of them—dialling back Game Pass, leaning into exclusives—collectively represent a pretty clear repudiation of Spencer’s strategies. In a new interview with Fortune (via Game Developer), Sharma was more explicit about her belief that Spencer got it wrong, saying that as a result of his approach, “[we] spread ourselves too thin.”
“In order to grow, we made a bunch of bets … and as we did that, we inherently didn’t focus on the core business,” Sharma said. “The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin.”
That belief reflects Sharma’s approach to the job, which—as much as any of it can be described as a coherent strategy at this point—seems to be built around a return to treating the Xbox as a conventional console. Naturally, layoffs are also a part of it: The Fortune interview was published on the same day that Sharma announced 3,200 layoffs at Xbox, and the spinoff of four of its studios.
Sharma also returned to one of her key points in that layoff announcement: That the Xbox business is not “healthy.”
“A healthy Xbox could weather the shock of the hardware crisis,” Sharma said in the interview. “With an unhealthy Xbox, it becomes really challenging, and it accelerates a lot of the changes we need to make.”
The reference to “health” presumably means that, with better profit margins, Xbox would be able to better absorb the hit of the rampocalypse (that Microsoft, ironically, is helping make happen) because it would have more flexibility when responding to price hikes: Profits might go down in order to keep retail prices palatable, but there’s more room for them to shrink without actually causing losses.
But does that do you any good? Regardless of the “health” of the Xbox, component prices are astronomically high and likely to get worse, and that impacts everyone. Materials costs alone for the next PlayStation console are currently estimated to exceed $900, and the cheapest Steam Machine you can buy is $1,049.
That’s an enormous amount of money for a game console, and while I assume Sharma expects that people might be more inclined to fork over such breathtaking sums if the next Xbox offers generation-defining performance and an amazing slate of exclusives, the fact remains, at risk of repeating myself here, that is is an enormous amount of money. Reverting to a more conventional platform-focused approach to the next generation of Xbox doesn’t change that—if anything, it accentuates it. True Xbox optimists might imagine that Microsoft could use those wider profit margins Sharma aspires to in order to bring prices down to a less eye-watering level, and sure, it could. I wouldn’t hold my breath.
Sharma said Xbox executives are also experimenting with new business models, such as “buy now, pay later” financing program, which will nominally reduce the barrier to entry but—speaking as someone with a bit of experience in the retail electronics field—may also leave customers who don’t read the fine print and sufficiently mind their money burdened with far heavier debt than they expected.
However it shakes out, Sharma said the process is going to take time, and hinted at the possibility of more unpleasantness ahead: “I think our core has to be healthy, and that will be necessary but not sufficient.”
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