What the Microsoft Layoffs and Hardware Sales Could Mean for Xbox’s Future

Hot on the heels of the company reducing its global workforce by 3% in May (to the tune of about 7,000 total jobs cut), Microsoft announced yesterday that it has plans to reduce another 9% of its workforce. This latest round of layoffs will result in approximately 9,000 job cuts across Microsoft’s various divisions, including the Xbox division and the company’s gaming business. Coincidentally, these cuts are coming at a time when statements from current and former Xbox employees raise questions about Microsoft’s future commitment to the hardware side of the gaming industry. In a video on her industry-focused YouTube channel, Laura Fryer, one of the original founding team members of Microsoft Game Studios, noted that she thinks “Xbox hardware is dead”, pointing to the studio’s recent pivot toward Game Pass and making its formerly exclusive titles multiplatform.

With no games anchoring consumers to buy Xbox hardware and a push toward making sure that Xbox Game Studios titles are available on as many platforms as possible, Fryer’s comments do hold some water. That they come just days ahead of a massive round of layoffs — which Xbox Game Studios head Phil Spencer has since confirmed will affect his division — only adds fuel to the speculative fire regarding the future of Xbox. While Microsoft’s layoffs aren’t too surprising given the widespread job cuts and reduction in workforce across the entire tech sector, it is surprising to see just how many studios and in-development projects will be affected by the cuts. And with another round of cuts so close to the previous round of layoffs in May, this may just be the tip of the iceberg for a company-wide restructuring, potentially throwing its games divisions into turmoil.

Under Phil Spencer’s leadership, the Xbox brand has taken some interesting steps this generation, some of which have been to its detriment. While Game Pass is an unprecedented success for the platform and continues to be one of the biggest cash cows for Microsoft’s gaming business, users are finding they have fewer and fewer reasons to buy an Xbox console. Surprisingly, this is by design. Spencer has been vocal about the desire to make sure that Xbox’s first-party titles can be available on as many platforms as possible, which includes attempts to bring Game Pass to competitors’ hardware. Additionally, Xbox Game Studios has made a bit of history this generation by making its formerly console-exclusive titles available on PlayStation hardware. So, if you can get first-party Xbox titles on PC or PlayStation 5, why would anyone need to buy an Xbox?

In this context, Laura Fryer’s comments on the future of the Xbox platform almost feel like pointing out the obvious. The decision to pivot to a service-based model, rather than a hardware-based one, paints a future for Xbox in which it’s more of a brand than an actual platform, with the Game Pass service potentially becoming the industry’s answer to ubiquitous streaming services like Netflix or Spotify. It doesn’t help that the Xbox Series X/S is the clear third-place underdog in the current “console race” between Sony, Nintendo, and Microsoft. If Microsoft is indeed just at the precipice of more widespread and substantial job cuts, there’s every likelihood that Xbox hardware might be one of the casualties of those reductions.

The Coming Layoffs At Microsoft Are Just the Most Recent in a Long String of Downsizing Efforts

Following a period of sustained growth during the COVID-19 pandemic, many tech industries experienced a bit of a crash as normalcy returned and people went back to the workforce, with gaming taking some of the biggest hits over the last few years. At the same time, economic uncertainty and global turmoil have pushed people away from spending money on the hobby, with recent reports suggesting that some of the gaming industry’s target demographics are spending significantly less on games and hardware this year than in 2024. Layoffs and studio closures have been all too common this generation, and Microsoft’s latest round of cuts is simply the next in a long line of downsizing efforts.

In an internal memo from Phil Spencer (which you can read here), Spencer paradoxically claims that Xbox Game Studios’ “platform, hardware, and game roadmap have never looked stronger,” while following it up with the statement that cuts have to be made to retain that momentum. Remind you, this is the third such cut since 2023, when Microsoft laid off 10,000 workers of its nearly 230,000 employees. Reading about layoffs in the gaming industry is increasingly common, but it comes off as incredibly tone deaf when talked about by gaming executives whose livelihoods aren’t at stake, especially when they’re touting the company’s successes and begrudgingly firing thousands of the people that made it happen in the same breath.

Microsoft’s Pivot in Strategy Sheds Some Light on the Company’s Future Goals

The largest contributing factor to the widespread cuts across the tech industry is purportedly AI. Just last month, the Amazon CEO braced employees for upcoming job cuts as a result of AI making certain roles redundant. The same is happening at other tech giants like Meta and Google, and we can assume that AI is at least partially at the root of Microsoft’s latest round of layoffs. But when it comes to the Xbox division, specifically, there’s likely another factor at play. Game Pass.

The Game Pass service continues to be a major hit for Microsoft and Xbox Game Studios, with the company spending millions to secure partnerships for strategic day 1 releases on the service that routinely drive up subscription numbers. Together with the decline in Microsoft’s hardware sales, the success of Game Pass presents the Xbox division with an opportunity to pivot away from the costly manufacturing sector and instead operate strictly as a service provider and games publisher.

The Asus ROG Xbox Ally X Could Point to a Future Strategy for Microsoft

We’ve already seen evidence of Microsoft’s pivot away from hardware with its partnership with Asus on the ROG Xbox Ally X. After years of rumors suggesting that Microsoft was considering entering the handheld market with its own Xbox-branded portable gaming device, the Xbox Games Showcase brought the announcement that PC part maker Asus and Microsoft would be teaming up on an Xbox-branded version of its ROG Ally handheld PC with naive Game Pass support. This could be the first step in a larger strategy toward building up Xbox as a brand, rather than a hardware platform.

While we don’t have exact figures (as that information is closely guarded by Microsoft), it’s safe to assume that Game Pass is as popular on PC as it is on Xbox consoles, and the push to have Game Pass and Xbox Game Studios titles become available on every platform under the sun could point to a future strategy in which Xbox partners with other manufacturers for hardware, rather than producing it itself. As such, the Xbox division could easily reduce the number of employees it needs in those divisions while shifting its workforce to focus on those partnerships.

Every Microsoft First-Party Studio Affected by the Layoffs

Unfortunately, the very real and tangible impact of this latest round of layoffs comes in several first-party Xbox studios getting shuttered and their games being cancelled. According to reports circulating following yesterday’s announcement of layoffs, the following studios and games will be directly impacted:

• Blizzard: Reports suggest that Blizzard will be cutting around 100 staff members in addition to ceasing support on Warcraft Rumble.
• High Moon: Call of Duty support studio High Moon will suffer a number of job cuts as a result of the layoffs.
• The Initiative: Newer studio The Initiative is being closed, with its in-development reboot of Perfect Dark cancelled.
• Rare: Longtime Xbox first-party studio Rare is cancelling its in-development game Everwild as part of the cuts.
• Raven Software: While the exact reduction in force is currently unknown, Call of Duty developer Raven Software will reportedly be impacted by cuts. The studio is currently working on Call of Duty: Black Ops 7.
• Sledgehammer Games: Sledgehammer is one of several development studios working on the Call of Duty franchise to suffer cuts as a result of the newest round of Microsoft layoffs.
• Turn 10 Studios: According to reports, nearly 50% of Forza Motorsport developer Turn 10 Studios staff will be directly affected by the job cuts.
• ZeniMax Online Studios: ZeniMax Online Studios, developer of The Elder Scrolls Online, has reportedly had its in-development MMORPG cancelled. Additionally, studio president Matt Firor is stepping down.

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