This Monday, Microsoft confirmed what was an open secret in the world of video games with something that, although it already saw it coming, is still a strong blow for the industry. Asha Sharma, CEO of Xbox, confirmed via an internal email that the company will begin “the most significant restructuring” in its entire history, and the numbers speak for themselves.

How many employees lost their jobs today?

The figure is overwhelming. Xbox will eliminate approximately 3,200 positions over the course of fiscal 2027, and this isn't going to happen in one fell swoop. Just this Monday, around 1,600 people were notified that their role has been eliminated, representing half of the total announced cuts.

Sharma was very direct in her message in acknowledging that stretching layoffs over almost a year creates “additional challenges” for everyone, but she was also clear in explaining that it was not possible to execute all the changes in a single day given the magnitude of the adjustment. That transparency, although painful, gives a different tone to this statement compared to other similar announcements we have seen in the tech industry.

In addition to the direct staff cut, four studios will no longer belong to Xbox and will pass into new hands. Compulsion Games and Double Fine Productions will become independent studios while retaining their intellectual property and catalog. For their part, Ninja Theory and Undead Labs have already signed terms to join new ownership with financing to complete projects such as Senua and State of Decay 3. Arkane, in France, is also in the process of a strategic review with its labor council.

Why Xbox makes this drastic decision

Sharma's justification goes beyond a simple budget adjustment. According to the CEO, Xbox's current business “is not healthy,” with profit margins that are between 3 and 10 times lower than those of comparable companies in video game platforms and publishing.

The problem, Sharma explains, has deeper roots. Xbox entered this console generation with a smaller user base and higher cost structure than the competition. The commitment to Game Pass, the multiplatform approach and a broader portfolio of content did not grow at the expected pace, while the core business weakened.

Added to this is that the industry is currently facing the most severe hardware crisis in its history, an external factor that further complicated the outlook for Microsoft. The company also acknowledged that, on average, they lost 64 cents for every dollar invested in studio acquisitions, a fact that explains why they decided to release some of those assets.

The structural changes coming to Xbox

Beyond the layoffs, Sharma outlined three axes of transformation that will define the future of the company. The first is a reset of the content portfolio, prioritizing projects with greater impact and giving more independence to small studios with open development tools.

The second axis points directly to the internal bureaucracy. Currently, in some parts of the company, work goes through up to 14 layers of management before being finalized. Sharma promised to reduce these layers to a maximum of five, and ideally to three, opting for a flatter structure based on makers, player-coaches and those directly responsible for each decision.

The third axis introduces a key leadership change. Xbox will create for the first time a Chief Operating Officer position with full responsibility for content, hardware, platform and services. Helen Chiang, with almost 20 years with the company, will take on this new role and report directly to Sharma. In addition, Mojang and King (the studios behind Minecraft and Candy Crush) will now report directly to the CEO, reflecting their weight as the franchises with the highest number of monthly active players within the Xbox ecosystem.

Despite the harsh tone of the statement, Sharma closed with a message that seeks to project confidence towards the future. The executive assured that the company will invest in Xbox “as much as ever” during this fiscal year, although with greater discipline and focus, with the goal of returning to growth during 2027.