Microsoft is killing Xbox..

They're absolutely gutting Xbox.I'm not surprised.I'm not surprised at all.We'll see it.

In part one of this miniseries, we covered Asha's charm offensive.It's been a successful one.But now we cover the reason why she built up all that PR.And it begins with a quote.We won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results.So if you think that this is Xbox going back to the good old days, no, it absolutely isn't, because those days are quite literally gone.

But where it all really led up to, was on Wednesday when Xbox published a memo to staff.In the memo we learned the next 100 days would need to be a, and I quote, reset.That staff needed to hear hard truths that were holding them back.On that very same day, the press reported plans for an unknown number of layoffs and maybe even a studio closure.Xbox have spent the last hundred days trying to show you how they've changed, but now, for the next hundred days, they're already back to planning their fourth year of layoffs.

Bloomberg's - The fourth year - no, that's not true.The fourth year of layoffs so far.There will be a fifth year of layoffs.And there will be a sixth year of layoffs.The layoffs will continue until morale improves.

And the cuts are also planned to quote significantly slash budgets for marketing and some other areas of the business.But of course, we knew that this was coming.For the last few weeks, executives at Xbox have been parroting the not in a healthy spot line.And The Verge's sources actually suggest more.Cuts could even involve a studio closure or changes to the Xbox Studio line -up.Now, that resurfaced a claim from the Giant Bombcast that up to a thousand staff could be impacted by this.

None of this is surprising to me, but what may be a bit of a surprise is that before the layoffs have even happened, Xbox are already trying to do something.them.And that is very different to the way they have - Why do they need to think that they need to do PR for this?

You want to fire a bunch of fucking people, just put them out on their ass.Like, I don't want to fucking hear about this.Bring me another Gears of War trailer.I don't give a fuck how you run your company.Suck my di - Fuck, shut the fuck up.Don't tell me about why you're gonna fire some - I don't care why you fire some random developer.

Like, just make the fucking game.Like, what is this PR shit they're doing?Why does anybody care about this?Just make the fucking game!Like, I'm such an asshole, but like, I know, I think I'm right!I think I'm right!

Next hundred days, Xbox Reset.That is the title for the memo from CEO Asha Sharma and Chief Content Officer Matt Booty to Xbox staff.Now, this memo doesn't mention layoffs whatsoever.Rather, it is a call for understanding.What it does is it reviews the last hundred days where the work has, quote, started to revive Xbox.I like her, by the way.

Ashley Sharma, I think she's great.Some of that stuff is real.Tidbits like them doing more updates in this new era than they had in prior year, talking about more active partners than ever, that Game Pass is back to growth, and that players are being listened to.or, at the very least, feel listened to.FanFest, of course, is coming back, and the Xbox Showcase put the strength of their pipeline on display.It was a pretty damn good showcase.

There's exclusive games that give people something to look forward to.

She wants exclusives, though?That's an L. Fuck them, bro.Like, if Sony wants to keep pushing exclusives, then they should.Sony already pulled back into doing exclusives.They were releasing on PC for a while.Now they decided to roach out.

Like, is Soros on PC?Fuck you.Fuck you suck my dick.Why isn't it on pc?I'd play that game if it was on pc I don't want to play that shit on a ps5.I don't have to try to aim with a controller It's annoying of course all the wild likes of forza horizon 6 just show absolutely just the way it is

success.But of course, that stuff was in the past, and for the future, staff now need to be aware of that.of the reality of Xbox's situation.Because as much as all of that stuff is good news, numbers talk, right?Leadership claims we won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results.I think that's fair.

That's a great idea.Fire 343 and Halo Studios and get somebody that knows how to make video games do Halo.There are two franchises that sell Xboxes.Halo and Gears.and forza is a distant third that nobody really cares about because you can play it on pc anyway if you if those games aren't good xbox isn't good it's that simple enough so the next thing for us to do is to understand what those hard truths are i've got to be real this is the type of thing we don't usually get.

Let's dive into the numbers, then.As always with things like this, before any interesting numbers, they like to recap their wins.So they boast about Xbox having a billion players a year, with 72 billion hours played across all platforms.There's a caveat, which is that China and some other places are exempt.Beyond just play, there's shows and films like Fallout and Minecraft that are putting wins on the board for Xbox.That all seems good, and it's especially good to them because they are framing their biggest competition in the market right now as attention.

And they don't stop at games either.It's TVs, apps, any format that you can name, all of that stuff is competition that could take away Xbox's players.That language about attention seems to come directly from Xbox's new strategy boss, Matthew Ball.So yes, we've got Matt Ball and we've got Matt Booty.really like what the hell is what's fucking collecting all the mats basically the attention economy is his big theory here it's been the spine of his yearly reports it's his answer for why games correct about this by the way and now It's Xbox policy.It's a good analysis.

Hard financial data from I walked into this.And that is quite new because their numbers are usually buried inside Microsoft's larger reporting.And that's meant that we haven't had much transparency into how the company is actually doing.I wonder why.So for the last five years, they've spent over 20 billion dollars on investments in content, platforms and hardware.And that's, of course, not counting the Activision Blizzard King acquisition.

Slight problem big money, though, is that revenue declined by, quote, nearly half a billion.in that time.That's brutal, and it puts them at a 3 % accountability margin.Now obviously there'll be some internal accounting tricks in there, but for the sake of argument, that means Xbox are about 3 % profitable, and that is absolutely devastating.It's below the rate that you could get just putting your money into a savings account or into some relatively low -risk bonds.So if you're Microsoft and you're thinking about capital allocation, you're almost certainly not going to look at Xbox and think, wow, that's fantastic.

That's a way to make money.Now that phrase, accountability margin, might be ringing a bell for you.And well, yeah, it should be.And that's because a week ago, Asha Sharma told Bloomberg Tech this.

My mandate is not 30 % accountability margin.It's not enterprise software margins.It's to be the number one gaming and entertainment company.And that's what we're going to go do.

Now, seemingly, she still does have some margin.

I mean, I agree with that, actually.I do.And also, here's another thing.I'm a player.I don't give a fuck what your margins are.I don't care how much money you're making.

Like, I understand business realities, but like, if you're making 3 % or 30%, I don't give a fuck.Like, just make the game.

Just the way it is.She's adamant that 3 % is not enough.She says, going forward, this cannot continue.And let's be real with ourselves.3 % is too low, though.I mean, realistically.

3 % is really, really bad, and yes, this cannot continue.Next, we get to hardware, and I have to be real with you guys, this is the ugly one.Sharma explains that from autumn to February, storage components doubled in price, and that by holiday 2027, they expect prices to be five times what they were in 2025.The same also goes for memory, and where it's interesting is she claims that decisions made over the last five years left Xbox more impacted by this than other companies.Now, they claim to still be committed to Felix, but delivering it will require, quote, a new business model, and partnerships for hardware, and that's because they aren't even making enough consoles right now.As in, they're unable to make enough Xboxes to handle the current customer base.

Xbox, in my opinion, has... like, there's a lot of guys like me, like, I'd buy an Xbox if I had to.Don't tell her this.I'd buy an Xbox if I had to, but if I could just play it on PC anyway, I would never buy an Xbox.It's a waste of my money.That's really the truth.like and an xbox provides no playstation's the same way the only reason people buy playstations are to play the exclusive games i think and there's a lot of people like me that will like if you could play it on computer you would it's like five or six years outdated yeah like i mean my pc is i mean i've got 50 90 right that's not all that many units in the grand scheme of things and one of the big reasons why is well these companies sign contracts with their various suppliers and that's where xbox has passed as a problem they needed to be more profitable so they did not start

up to huge contracts of similar volumes to, say, the likes of Sony or Nintendo, and that means that now they're in an even weaker spot.So on the hardware front, it's extremely rough, but it does line up.

I feel like, because that reminds me, remember, because they had the original Halo Combat Evolved Xbox like this.No?I would give it away, right?Maybe I'll buy one, do an unboxing or something like that.It could be cool.And then maybe give it away.

I think, I don't know.

Sharma told Fortune earlier in the week, which was that players won't pay thousands for a console and that we could be seeing, quote, radically different business models that we never expected.Who knows?Maybe we will have phone or internet style contracts for how we acquire our consoles.Maybe they'll be less performant.And perhaps at the very worst, well, it could end up in a...

I think they're going to transition to making the consoles cloud gaming devices.I think that's what's going to happen.It seems like that's the way, uh, Microsoft has been developing their brand strategy over the last, like, five years.I think that's what they're gonna do.You will own nothing, and you'll be happy.You're gonna eat the bugs, you're gonna live in the pods, and you're gonna be gay.

You're gonna be gay.

And you're gonna love it.You're gonna love being gay.You're gonna be so happy.And you're gonna be gay.Yeah.industry -defining franchises but what year is this 2005 have not quote adequately funded them to compete and win thank you yeah you're right that's true halo 3 is one of my favorite games of all time yes

That statement very much resonates with me and I'll leave it at that.Perhaps it's the same for you.The balance between...

It is the same for me. I think, honestly, Halo sold Xboxes.There's nothing right now that sells an Xbox.

And their investment priorities will have to be reassessed.Is that crazy to say?And what that means is layoffs and cancellations.It's the same story with their systems and just company backend as well.And one framing stands out in particular, that Xbox have, quote, become too reliant on vendors to operate our systems and must become more self -reliant.

I think this is, I think they're passing the buck.I think that they're like, I really liked Phil Spencer too, but I really think that his hands -off approach with letting studios do what they want allowed games like Redfall and games like Halo to flounder and fail.And so the issue is that I think they're trying to pass the buck to these different studios, but the reality is that your primary first -party studios are failing and your third -party studios are failing.So this very clearly, I think, is a management issue, right?This is a management and leadership issue, and it's about basically the way that you produce and source games.It has nothing to do with the individual studios themselves.

I mean, really, really, I mean, how do you not come to that conclusion when you have a control variable, right?I mean, come on.

That does make a hell of a lot of sense to me.And I do think that tracks with where a lot of software is going to be going.So in plain terms, that's basically her talking about paying third parties for tools or support.Have you had awful support experiences with Xbox?I'm sure I heard from many of you that that has been the case.I haven't any support experience.

I put on my Warcraft hat for running the other channel.I remember keenly a story of Blizzard customer service, you know,being farmed out to other companies, and in particular one being basically shut down in the way that it used to be with Blizzard and then outsourced, I believe, to a firm in Egypt.To put it mildly, the Activision Blizzard -related customer service stories are coming in frequently enough that I could almost run a full channel about it.I suppose it would be some sort of brim comedy.But one thing you'll notice in that is she's talking a little bit like an engineering leader.

And of course, that's not a surprise.The previous org she headed up at Microsoft was Core AI.And basically, that is move fast, keep everything internal, and deliver updates fast regardless of scale, which In fairness to her, at least for the easy and low -hanging fruit, that's happened over the last hundred days.But while it's true guns are software, they are of course also pieces of art, and the art bit won't always line up with the needs of the engineering culture.The final suggestion is probably the most interesting part of all of this.You see, while generally they say they'll be rebuilding and reviewing, there is still the potential for more mergers and acquisitions to deliver on the future that she's laying out.

And she says this is across hardware, PC, mobile and streaming, because Xbox can afford that somehow.

I mean, they can afford it.It's just about them being able to capitalize on it.That's the problem they have.It's not that they don't have the money.It's that they don't have the leadership expertise to maximize the money.That's the issue.

It's just there's other things they can't afford.And so across the whole memo, there is a clear trend.And it is this.What Xbox have been doing just isn't good enough.One statement in the studio section seems to underline Sharma and Booty's point.Here's the quote.

We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming and devices.In the process, we have found ourselves overextended as we executed on changing strategies in a landscapeof more readily available content.Overextended is basically them setting up that layoffs are due to happen.

Being real - Oh, I mean, did they even need to set that up?I mean, the moment, like, harsh truths we need to recognize and this is coming before anything happens?Oh yeah, you're done.

with you, I do also feel that that statement is broadly right.And, of course, that's a reflection of Xbox not really being run in a strategically cohesive way over the years.And really, this is why they keep talking about a reset.The idea is that Xbox were great, but they lost their way, especially in those five years where the revenue fell.So basically, It is a fairly simple make Xbox great again strategy.They basically kept expanding, and as they expanded, which of course will have increased loads of their costs, they also kept changing strategies.

And that meant that they...

The tone and the focus of their games is wrong.Like, they need to understand this.Like, the way that you develop video games, like if you look at, for example, the characters in Forza, they look like disgusting abominations.Why does Cortana look like she's 45 in the Halo remake?This kind of stuff matters.Like, it does.

And why are you making video games that aren't appealing to the audience?Fundamentally.And until they're willing to, like, put the foot down on their development studios for doing garbage like this, then they're going to keep having problems.And this stuff does matter.It matters a lot because people don't want to see these characters.They don't want to look at these characters.

They don't want to see them.Like, it's just that simple.That's why you look at God, like, look at the two games, right?Stourblade and God of War Laufey.Which one have we seen more fan art and more cosplays of?Oh, geez, guys, that's a hard one.

So the entireconcept of this is that you keep developing video games that are not necessarily what players want.And I think that this is a meta -level problem.It manifests inside of the media and it manifests inside of game design as well.I think people notice that immediately and it's off -putting.It's a huge problem.

bought things for one purpose, then had their strategy change after the fact, leading of course to chaos and mess.But here's the thing that as a community we really need to understand.Everything Sharma is talking about as being a hard reality, the constraints are set by Microsoft.The hard reality is set by Microsoft, a CEO of Xbox, That's the reality she has to operate in.Across five years, excluding Activision Blizzard King, there was $20 billion in games investment.All that was a waste for a 3 % profit.

Now, a since -denied report did suggest that buying Activision Blizzard King was the alternative to just closing Xbox entirely.And that's because Xbox, in addition to losing this generation, also lost the generation before it.

They didn't lose the generation.They actually actively sabotaged themselves.They intentionally failed.They did the most consumer unfriendly product reveal that I think we've ever seen in media, at least recently.And they were totally beaten in the market.What?

They were forced, the Xbox One forced you, was it Xbox One?I forgot even which one it was.I think it was Xbox One forced you to be always online and to not be able to have used games and resell them.And it required you to have a webcam attached to the Xbox at all times.That's right.And thanks to Sony that didn't do any of that with the PS4.

that Xbox had to go back on it.

have the hardware sales.Console production took the back seat because Xbox needed to be more profitable.The 30 % margin was effectively a target.That meant the end of exclusivity and the entire, this is an Xbox thing.That all spread from a reality set by Microsoft and their risk tolerance, their tolerance for short term pain in service of a medium term strategy.Now here's the thing, right?

their multi -platform strategy is still in effect.They've just realized that they can't market Xbox by saying that Xbox is weak and you can get their games anywhere.So their new plan is to market perfectly to the Xbox fan base.But in terms of the other calls - This game looks very good.I'm gonna play this.It's all still within that same reality set by Microsoft.

So the easy way to put this is, their strategy is to have their cake and eat it.Elsewhere in the memo, Game Pass is said to be recovering after more than eight months of decline.That's of course because back in October, Microsoft pushed for higher margins and Xbox quite simply didn't have any other levers they could pull.They couldn't just rush out games, especially when a unique storyof a Call of Duty failure hit their business.Think about them.

Yeah.Probably a good thing if they killed it.Yeah.banding together and massive teams like, say, Overwatch and World of Warcraft unionizing.

But at the end of the day, how did they let those people do that?Union, bro?Like, where are the Pinkertons?

Where are they, bro?

I thought we got rid of this.

percent is not enough, there is no real way they can get a huge influx of money.That means more layoffs, cancellations, and studio closures are coming.Now I want you to think about the whole five years and 20 billion dollars in investment, right?Think about that.By comparison, Microsoft intends to spend 10 times that on AI alone in just 2026.And to give you an example of the economics in this, XAI's Colossus One data center is said to have cost around 8 to 9 billion dollars because of the compute crisis the shortage of compute they are currently renting that to anthropic for one billion a month and then there's the google deal with xai which is pretty much another billion a month everybody's trying to make god they're all trying to build god nobody knows how to do it i think that they're all just expecting to get lucky isn't it crazy the amount of money that they're spending on this Basically, that is the return on investment that you can get just by building compute focused data sets.

So in a world where the likes of Colossus One can quite literally repay itself in a matter of months, what do you think about money going into Xbox?Because at the end of the day, opportunity cost is a thing.They only have so much capital to throw into things.Why throw into Xbox?when you can throw it into something that has a demonstrably higher rate of return, a faster rate.

or some other way to get people and users inside of the Amazon or the Microsoft ecosystem, that's where the value comes, right?And so, like, I don't agree that Xbox has to make money, because Xbox exists as a small piece of a massive product strategy.That's my opinion, right?But they have to expand what Xbox is in order to capitalize on that.

rate of return, and is in comparison to the 3 % accountability.But where Sharma's position gets even more grimly funny is if we connect the dots.The memory that Xbox cannot afford is the memory that Microsoft's AI data centers are buying up.Somehow, Asha Sharma left her job of two years as president of core AI products at Microsoft and is surprised that hardware prices are up.I do not believe that she is surprised about hardware prices being up.to state the obvious.

But what it all does add up to is pretty much the same position.An Xbox that has to cut costs, that has to become more profitable.It seems Sharma has been given enough wiggle room tooperate on a longer time horizon than Bond and Spencer were and that probably will be - I don't - I actually think it's the opposite.

I think that she probably was given a shorter time frame because like I mean Sarah Bond was the - I mean she was running Xbox for like three or four years I'm pretty sure and like Phil Spencer was there for a really long time so I bet they're probably fed up with this.

for Xbox, but it absolutely doesn't mean... alongside.Yeah, I'm pretty sure they don't.

GameCube or PlayStation 2.So I think that the problem is that consoles are effectively, they're becoming antiquated media, like an antiquated media platform, right?Like a VCR almost.So I don't know necessarily what's connecting.Yeah, they're on, yeah, people on their phones, they're on a tablet, they're, you know, doing this on a computer, or like they're, you're using an Xbox, but like the Xbox is just simply a portal, right?It's not like the Xbox unlocks anything that's unique, same as the PlayStation.

core fans, and making names of things all caps again.That's what it was like in the past, and if modernity's taught us anything, if you want people to get in your side, just say, current day bad, past was better, make future like past, thumbs up.I guess that's how it all works.But with that said, when the new leadership took over, Booty made a promise.Here it is, quote, to be clear,there are no organizational changes underway for our studios.

But didn't they just close the studio last week or was that somewhere else?I forgot.

By the time he was there, maybe they were being planned in his head, but they certainly weren't underway, so he didn't lie.But it's just over a hundred days later, and now we're in an era of describing Xbox as, quote, not in a healthy spot, of saying that a reset is needed.That's because fundamentally what Sharma is proposing is, in its very essence, no different to what has been materially happening over the last five years.It just has a different coat of paint.They are fighting an attention war by doing bold strategies such as cutting the people who made the things worth paying attention to.She's maybe got a different set of - You mean nobody?

own leadership judgment.It seems that she's decently trusted by Nadella and the rest at the top of Microsoft.

They probably put her in charge because she was doing something that was successful.

Perhaps that level of trust means that yes, Sharma is a company woman but they actually do trust her to use her own judgment to push back on some of the maybe short -sighted things from the board and maybe it's the case that the board quite simply didn't trust Spencer and Bond in that same way.And what happens if Xbox does not deliver now?I think there's a better question.How much more can Xbox be cut?I'll leave you with that and a simple recommendation.What we've talked about here is the reality of the situation.

What we talked about in part one is the Charm Offensive.And now is actually a brilliant time to go and watch part one, because you can see the difference.

between the charm offensive and reality I think it's going to be honestly, I think they're going to have to fire away more people because like you're seeing this across the entire gaming industry.There's some studios that are doing it a lot less, like, for example, Capcom.But like there are also foreign studios.So the way that layoffs and things like that are being publicized, it's not really the same thing like Square Enix.You got to remember that like last year, Square Enix let go like the majority of their English division.Right.

Like all of those people that were involved all pretty much got got let go.They should hire you for content.consultation, they wouldn't tell me what I need to know.like, so the plan, I bet the plan for Xbox is something that is like a, like an executive board level plan.Because I like this is my, my, my conspiracy theory is that I think that they're trying to design for cloud gaming.I've thought I've thought this for years.

I think this with the game pass, I think this with like, this is an Xbox, I feel like they're trying to use that messaging, like that's their goal.And so they're just waiting until they can bring a product like that to market.And I think that's also the reason why, you know, we've had the current Xbox out for so long.It's because they know that like right now, like, for example, the Nintendo Switch 2 was and Nintendo Switch, for example, was like a transcendent device, right?The Wii was a transcendent device.A PlayStation 5 really wasn't, but I would say like a PlayStation 3 was a transcendent device because it could do Blu -ray.

And so like, what does the Xbox bring to the table that's unique, that adds a user that brings a user into the ecosystem that would not naturally be there?And I don't think that they have that.And so that's probably why they're holding back Xbox handheld.I don't think people care about that.Nintendo already has that you already have the you know, the what is the Asus whatever the fuck and then you have the Steam Deck.So you already have too many other things that are inside of that market.

So I don't know man input lag.I think that I have a very unpopular opinion about this and people disagree, but I think it's true.I think that input lag affects less than 10 % of gamers.like input lag inside of cloud gaming, assuming that you're on a wired connection that is a high speed wired connection.I think that less than 10 % of gamers experience a tangible decline in quality through through input lag with cloud gaming.I think that's accurate because like and the reason why it affects me heavily.

Well, like and I'll go through the list of why that is.Number one, not every game really matters for input lag.If you're playing a turn based game, it doesn't make a difference unless it's Expedition 33.If you're playing a if you're playing a game badly, it doesn't matter.If you're playing a video game that is single player, that's easy.It doesn't matter.

So like there's a lot of things and a lot of types of games that, you know, surprisingly large amount of people are playing, not in a Not everybody's playing Elden Ring, not everybody's trying to play Valorant.Like, they're playing bullshit games.Soulslike, it matters.Yeah, but Soulslike is one, it's one genre.Like, there's everything else.Pulit, I think overwhelmingly people in my chat will say input lag matters because look at the selection bias.

We're talking about, we're watching YouTube videos about Xbox's product plan.We're nerds.We're absolute loser nerds.Of course we care about input lag because we're video game players that play constantly.talking about people that are beyond that, right?But like, average people, like, and I think average people, that's not the case.

So are you supposed to dodge enemy attacks in 33, you have to factor in friend generation that's being popularized?Well, again, the way that they can do that is netcode, right?I mean, the same as they have rollback and netcode for Street Fighter six, or for Valorant, I mean, like, the input lag is is not an impossible problem to solve.You just have to solve it through an aggregate and not necessarily improving theright?And so that that's really what I think is going to happen.

And several years we didn't stand in.I get hit by that thing.Yeah, exactly.That's been happening for a long time.So that's where I think things are going.That's where you're such a nerd.

I mean, I will know this is the way it is. I mean, that's, that's, I mean, these are, that's what the words are.Those are the games that I can use as examples.That's just how it is.