The Memo That Undid 10 Years of XBOX Strategy

On July 6th, a roughly thousand-word memo undid a decade of XBOX strategy.

Asha Sharma, five months into her tenure as CEO, announced the largest restructuring in XBOX history: approximately 3,200 roles eliminated through FY27, with about 1,600 gone immediately. The move came just two months after we examined Sharma's first months as CEO.

In practice, that means cuts across numerous studios, with four studios leaving altogether. Compulsion Games and Double Fine become independent with their IP and catalogs, Ninja Theory and Undead Labs move to new owners, and Arkane in France has entered a consultation process that typically precedes a sale or wind-down. Finally, Mojang and King no longer sit inside the content organization. Instead, they report directly to Sharma.

The memo reads as the end of an era. Phil Spencer’s Game Pass dream, fueled by years of studio acquisitions, has been declared over by the company itself. But the more interesting question isn't whether Sharma is fixing XBOX, but whether she's positioning it to be spun off.

The Arithmetic Finally Caught Up

XBOX ended the fiscal year at about a 3% margin, down YoY — a figure Sharma's memo lay out with unusual candor. And the 3% flatters the picture: it almost certainly includes King and Call of Duty, among the most profitable assets in gaming, propping up everything around them.

According to Sharma, the studios now being divested lost, in a typical year, 64 cents for every dollar invested. Meanwhile, platform teams have grown 40% larger than at the start of the console generation even as the player base and playtime shrank.

That’s before counting any M&A. On top of Activision Blizzard, XBOX spent over $20 billion on content, platform, and hardware subsidies over five years with nothing to show for it. In fact, annual revenue declined by nearly half a billion dollars over that same period.

The investment spree was justified by Game Pass, which plateaued somewhere around 30 million subscribers, down from the reported 34 million some years ago. It’s a big number, but a disappointing one for a strategy premised on a hundred million. In April, XBOX cut prices and explicitly removed future Call of Duty titles as day-one releases. It’s unlikely to be the last adjustment that Game Pass will see.

Finally, there's hardware, where the situation has gone from bad to worse due to rapidly rising component prices. When Sharma took the job in February, XBOX was already paying over twice as much for console storage as it had the previous fall; those prices have since doubled again, and by the 2027 holiday season XBOX expects to pay over five times what it paid just two years earlier, with memory following a similar curve. As we wrote earlier this month, the component crisis continues to reshape the economics of console hardware.

The traditional console model sells the device at a loss and recoups the loss through software and services. This model assumes that component costs trend down over a generation. At least for now, that assumption is dead, and XBOX says openly it cannot build as many consoles as players want to buy. Console prices are increasing $100–150 globally on August 1, and Sharma now talks openly about needing "a new business model and partnerships for hardware."

From Loose Empire to Platform-and-Franchise

The new XBOX is built on concentration. The clearest evidence lies in what got pulled closer versus what got pushed out.

Mojang and King now report to the CEO directly. The stewards of the Minecraft and Candy Crush franchises are the two largest businesses by monthly active players and, by most accounts, quietly fund the rest of the portfolio. Anything not large enough to matter, by contrast, is being divested. Sharma's phrasing was telling: it is "neither possible nor desirable to own every great independent studio," and XBOX has learned it is "not the best home for every type of studio."

Exclusives are back. Once the hundred-million Game Pass dream is off the table, this is the only sensible move left. Starting with Clockwork Revolution and the next Gears of War, XBOX will again have content you can't play on a PS5.

Middle management is getting gutted. Sharma wants to cap management layers at five, ideally three, in an organization where work has passed through as many as fourteen.

XBOX now gets a consolidated P&L. Sharma has nominated Helen Chiang as XBOX’s first-ever chief operating officer (COO). She now holds end-to-end profit-and-loss responsibility across content, hardware, platform, and services. As basic as that sounds, it means that for the first time, it's possible to see what each part of XBOX actually earns and hold it accountable.

Every one of these moves is defensible, and several of them are greatly overdue. That's the pattern with this whole reset: everything so far is the part that yields to a spreadsheet. Identifying which assets make money and which lose it, cutting unprofitable assets, and flattening the org chart — all of this is difficult but consequential work, and Sharma has executed it faster and more cleanly than most expected.

Still, it is the easy part.

The Questionable Goal of 1 Billion DAU

The stated goal of the new XBOX is a billion daily active users (DAU). It's a memorable number, but it's also the wrong one.

First, consider that there are roughly 900 million PC players and about 630 million console players on the planet, and nothing close to all of them play daily. A billion DAU is only reachable through mobile, which means the target effectively hands XBOX's future to King and Minecraft. That's presumably the point, but it treats wildly different things as interchangeable. A Candy Crush Midwest mom, a Minecraft kid, and a hardcore gamer sinking two hours a day into console shooters are not the same unit of business, and adding them together produces a number that means very little.

More importantly, user growth is not revenue growth. Across PC, console, and mobile, the audience has been roughly flat for years; revenue growth has come from monetizing existing players better: higher prices, deeper live services, and tighter content cadence. In other words, higher average revenue per user (ARPU). Chasing DAU in a business whose growth is all about ARPU is how you end up with broken incentives.

Which brings us to the elephant in the room. The two crown jewels are the two assets XBOX understands least. King has been an island since the acquisition precisely because no one else in the organization does mobile free-to-play, and King itself hasn't shipped a meaningful new hit in a decade. Minecraft's creator-driven culture is arguably even further from XBOX's DNA.

The bullish take is that this is exactly why they now report to the CEO: direct access means Mojang and King get to make moves that would have died in one of the 14 layers of management before. Perhaps unshackled, King can move faster and genuinely challenge modern Turkish casual puzzle operators; perhaps Minecraft will now turn free-to-play on mobile and test how far the IP can stretch. There is real, untapped opportunity in both, but pulling them close is not the same as knowing what to do with them.

Is Sharma Packing the Boxes?

We argued a year ago that XBOX's best path ran outside Microsoft. At the time, that was a provocation. Now, a surprising amount of the separation work has already been done voluntarily.

Pulling Minecraft and King out of the content organization draws cleaner lines. The console and PC business remains intact, housing Call of Duty, Fallout, Elder Scrolls, Forza, Diablo, and World of Warcraft along with the studios that make them, while mobile and Minecraft become their own verticals reporting straight to Sharma.

The separation makes sense: King and Minecraft shouldn’t run the same playbook as a console publisher. (In fact, why should Microsoft own them at all? Microsoft has neither the mobile free-to-play muscle nor the creator-driven culture to run these better than a focused independent owner could.)

What's left of the core, meanwhile, is a very large multiplatform publisher with a hardware business that XBOX itself says "needs a new business model and partnerships." XBOX seems to have returned to its hardware roots and now leans on exclusives again. But committing to exclusives is committing to hardware, and it's fair to ask whether that's the right bet right now. There may be no winning hardware move on the board today, and it’s likely Project Helix will look very different by the time it ships.

Adding it all up: the crown-jewel franchises are now their own verticals, Game Pass is quietly sliding from central pillar to a side perk, and XBOX’s hardware is getting pushed to third parties with experiments like ROG XBOX Ally. These are the moves you'd make whether you were fixing XBOX or preparing to let it go. Sharma has been ruthlessly effective at the part of the job that rewards clarity and nerve.

Wherever XBOX ends up — inside Microsoft or out — the next phase is not about which assets to keep, but how to grow the things you kept. Cutting studios and hoping the survivors ship more with less isn't a strategy; it's a wish with a budget attached. The executives Sharma brought in come from outside gaming. That can be a strength, but to deliver on the harder half of this reset, she'll need people who can bridge her spreadsheets with the messy reality of making and operating games.

Sharma has shown she knows what to cut. The next test is whether she knows what to build.

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In Other News

💸 Funding & Acquisitions:

• Wemade founder sells controlling stake to NeoPulse in $593M deal.
• TYLsemi raises $43M to launch first full-stack chiplet for AI.
• Israel-based Velocity has raised $27M in a Seed round.
• South Korea-based adtech company AB180 has raised $13.9M.
• UK-based Worldmodeldata has raised $9.4M.
• Türkiye-based mobile games developer Royo Games has secured $1.4M in non-dilutive UA financing.

📊 Business & Products:

• Steam revenue reaches $11.1B, marking highest half-year on record.
• Royal Kingdom surpasses $750M with 42% of all revenue made in H1 2026.
• Zenless Zone Zero hits over $600M on mobile in two years - but it's just 17% of Genshin Impact.
• EA removes microtransactions from EA Sports College Football 27 following backlash.
• Ukie welcomes UK government's IP-backed lending plans for games studios.
• Aurion11 launches MDN11, bringing plug-and-play yield optimization to mobile publishers.

👾 Miscellaneous:

• Savvy Games Group partners with King Salman Science Oasis to expand games education.
• Inside Poki's vision for the future of browser gaming.
• GDAI launches Supernova to support India's next generation of game studios.
• Xsolla partners with Sabah.hub to support Azerbaijan's games ecosystem.
• What Burny Games learned about building puzzle games over four years and 65 million downloads.

Content Worth Consuming

Grand Games Spotlight: Sniper on the Game, Shotgun on the Ads (sett.ai): “Grand Games launched Block Out at roughly $300K a day, iPhone only, from a studio almost nobody's heard of. The playbook is a contradiction: being strict on which games to make (nearly a year without greenlighting one), going nuts on the ads (1,000+ creatives for a single launch). It's the same logic both times, a great game in a proven category is knowable, so be patient there, but the winning ad isn't, so flood the space until the winners surface. You can't predict a hit. You build the machine that finds it.”

Steve Ganem(Unity VP of Product): Why Unity Made DTC Payments Free — and What It’s Really After (GameMakers): “I sat down with Steve Ganem, VP of Product at Unity, to unpack the real strategy — and it turns out the story isn't about payments at all. It's about data. Steve brings a rare vantage point: 19 years in games (EA, Activision's Tony Hawk franchise, 11 years running his own studio through the free-to-play transition), then a decade at Google Analytics. In this conversation we cover why "free" is a rational move rather than a giveaway, why going D2C without Unity could actually cost developers ad signal, the conversion tradeoff most coverage skips (web checkout is harder than Face ID), and how this connects to Unity's advertising business and its AI platform, Vector.”

He Gambled His Last $500K on a Roblox Game! (Building Better Games): “When outside capital flooded into WonderWorks Studio following Roblox’s IPO, founder Zach Letter did what every investor screamed for: he scaled his three-person team to nearly 100 employees, built a massive physical studio, and hired a traditional AAA C-suite. The result was a toxic corporate culture, a mountain of high-maintenance work-for-hire contracts, and the near-death of their original IP. In this episode, Ben sits down with Zach Letter to deconstruct the grueling reality behind those decisions. Zach shares the timeline of cutting his studio back down to a core group of 12 people, bootstrapping a high-stakes licensing deal with Paramount on raw grit, and shipping a chart-topping SpongeBob Tower Defense game on their final weeks of runway.”

Is Netflix the Future of Video Game Story-Telling? (The Game Business): “In today's The Game Business, we are joined by Netflix's Sean Krankel, who runs Night School Studio and is the general manager of Netflix's narrative video games. Krankel has just launched Unhinged, a 30-minute horror game that is streamed via Netflix and stars Sadie Sink (Stranger Things), Zoë Kravitz (The Batman) and Troy Baker (Indiana Jones). It's a game controlled by your mobile phone, where you'll direct the main character and also receive calls from the supporting cast. It's been a breakout hit, and we chat to Sean about building games for people who might not own a console or gaming PC, what might come next, and what the goal is for Netflix.”

Following Up Disco Elysium with ZERO PARADES: For Dead Spies with Studio Head Allen Murray (The AIAS Game Maker’s Notebook): “Adam Orth chats Allen Murray, Studio Head of ZA/UM Studio and Head of Production on ZERO PARADES: For Dead Spies. Together they discuss the legacy of the studio and the pressure of following up a beloved debut in Disco Elysium; the deliberate choices they made around the setting and themes; how they implemented over 700,000 words of dialogue; making every decision and moment impactful to avoid ludonarrative dissonance; and balancing their creative vision while deescalating risk.”

Understanding Rewarded User Acquisition(with Tricia Han and Sampsa Jaatinen) (Mobile Dev Memo Podcast): “On this week's episode of the podcast, I am joined by Tricia Han, CEO of Mistplay, and Sampsa Jaatinen, Chief Data and AI Officer at Mistplay, to explore the rapidly evolving world of rewarded user acquisition. We dive into how the rewarded model has matured from a niche Android-focused strategy into a primary growth engine for mobile gaming across both major platforms. ”

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