The last few months since Asha Sharma took over as new XBOX CEO following Phil Spencer’s retirement have been pretty transformative, in mostly good ways.
The vibe shift was palpable, between saying all the right things about re-focusing on the brand and XBOX players, to decreasing the subscription price for Game Pass, to a return to exclusive games with Gears of War: E-Day and Clockwork Revolution. It felt like XBOX was back on track.
And now, another vibe shift. In the wrong direction. In what Sharma calls a “XBOX Reset” over the next 100 days, the picture painted is pretty bleak.
A company-wide memo from Sharma and Xbox Game Studios head Matt Booty painted a picture of “realities that we need to navigate,” and they spell some unfortunate doom in the form of “major layoffs” in July, as reported by Bloomberg’s Jason Schreier.
XBOX revenue has been declining to the point that a swath of job cuts is expected after the close of Microsoft’s fiscal year on June 30, but the exact impact is unknown. It’s likely to be an upsetting number of jobs lost.
“We will end this fiscal year at about a three percent accountability margin, down year-over-year,” the memo said. “Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.”
The “cannot continue” of it all is that what comes next “will be surprising and even frustrating to discover.”
“We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results,” Sharma said. “Like the ‘everyday wins’ mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together.”
It doesn’t end with layoffs. In the memo, Sharma mentioned that the industry is in “a hardware component crisis,” lamenting that console storage component prices had doubled when she took over in February, have since doubled again, and another “significant increase” is expected, “taking us over 5x the prices we paid only two years earlier.”
“Memory costs have followed a broadly similar trajectory,” she said. “While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to [the next XBOX console, codenamed Helix].”
As costs rise and customers end up paying the prices multiple times over, it’s not looking good for the future of gaming as a hobby at this point in time. I shudder to think of what Helix will cost when it launches, supposedly late next year. XBOX is not alone in this, as Sony and Nintendo have both had to hike the price of their respective consoles, too.
While Sharma is currently the face of the clean-up of a mess that saw big losses for Microsoft, the impact of the impending losses for its employees can’t be quantified with profit margins.
