Xbox is cutting thousands of jobs. To understand why, we must go back to a scrappy team that built a console with “chewing gum and tape”.
Microsoft’s gaming division is going through the biggest restructuring in Xbox’s history. Around 3,200 jobs in Xbox are set to go over the next fiscal year. About 1,600 positions are being cut immediately. Four studios are also leaving Xbox, either becoming independent again or moving under new ownership.
According to Xbox CEO Asha Sharma, the company believes it has no choice. Ironically, Xbox itself was born out of another high-risk gamble nearly three decades ago.
Xbox wasn’t supposed to exist
In the late 1990s, Microsoft ruled personal computers. Windows was everywhere, Office dominated workplaces, and the company had little reason to jump into gaming consoles. Except one.
Inside Microsoft, there was growing concern that living-room consoles like Sony’s PlayStation could eventually become the primary way people consumed games, which could then reduce the importance of Windows PCs.
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A small group from Microsoft’s DirectX team, Seamus Blackley, Kevin Bachus, Otto Berkes and Ted Hase, thought Microsoft needed to fight back.
The problem, though, was that almost nobody else inside Microsoft agreed.
In the official documentary Power On: The Story of Xbox, members of the original team describe themselves as rebels trying to convince one of the world’s biggest software companies to build a gaming console.
“We just thought of ourselves kind of like rebels. A weird combination of craziness and genius,” they said in the documentary. They crashed meetings, pitched executives repeatedly and kept refining prototypes. “We were trying to crash meetings and get traction on this thing.”
Steve Ballmer, then Microsoft’s president, reportedly wasn’t impressed. “Steve looked at the Xbox idea and saw insanity.”
Executives worried about the cost of every component. “What’s the hard drive going to cost? What’s the Ethernet port going to cost?”
The team still pushed ahead. One early prototype, they admit, barely worked.
“We made this little device. And was held together by chewing gum and tape.” At one point, they said, “It doesn’t turn on.”
Why the original Xbox was different
When Xbox launched in North America on November 15, 2001, it looked enormous compared to rivals. Its launch controller, later nicknamed ‘The Duke’, was so oversized that gamers joked it required giant “gorilla hands”, as per the documentary.
Beneath the bulky design, though, were several features that would later become industry standards. Unlike Sony’s PlayStation 2 or Nintendo’s GameCube, the original Xbox included –
-A built-in hard drive instead of separate memory cards.
-An Ethernet port for broadband internet, years before online console gaming became mainstream.
-PC-style hardware powered by Intel and Nvidia.
-Microsoft’s DirectX technology, which made it easier for developers to build games. Those decisions laid the foundation for services like Xbox Live.
Halo may have saved Xbox
A member recalled in the documentary, “Doesn’t matter what your technology is, if you don’t have the games…”
Then came the game Halo: Combat Evolved. Originally being developed by Bungie, Halo became Xbox’s defining launch title and is widely credited with turning Microsoft’s risky experiment into a legitimate competitor against Sony.
Over the years, franchises like Halo, Forza and Gears of War became Xbox’s biggest identities.
Xbox’s disasters
In 2005, Microsoft launched the Xbox 360, which quickly became hugely popular. Then thousands of consoles began failing.
Owners were greeted by three flashing red lights, later known worldwide as the Red Ring of Death. The hardware issue eventually cost Microsoft more than $1 billion in warranty repairs after the company extended repairs free of charge, as per a 2007 Guardian report.
Former Xbox executive Shannon Loftis later spoke about it. “It was absolutely a make-or-break moment. It was a do what’s right for the customer moment and at a great expense to the company,” she said in the docuseries. “And I think if we hadn’t reacted that way, we wouldn’t be in the business now.”
Xbox stumbled again with Xbox One in 2013. Microsoft launched the Xbox One with controversial plans around digital ownership, always-online connectivity and used games.
Gamers reacted negatively and Sony capitalised on the backlash. PlayStation 4 went on to dominate that console generation.
Those lessons eventually shaped the development of the Xbox Series X and Series S.
ALSO READ: Laid-off Xbox engineer says he poured ‘heart and soul’ into company for over 20 years
Today Xbox includes
-Game Pass subscription service.
-PC gaming.
-Cloud gaming.
-Xbox Live services.
-Massive acquisitions including Bethesda and Activision Blizzard.
-Minecraft developer Mojang.
-Mobile gaming through King.
Why is Xbox cutting jobs now?
Growth hasn’t kept pace with spending, according to new Xbox CEO Asha Sharma. On X, she said the restructuring was “the most significant restructure in XBOX history.”
She said the business expanded aggressively over several years but never generated the returns Microsoft expected. Among the key reasons she listed were –
-Xbox operates at margins “3–10x lower than comparable platform and publishing businesses.”
-The company entered the current console generation with fewer console users than competitors.
-Microsoft invested heavily in Game Pass, acquisitions and expanding studios.
The gaming industry is now facing what Sharma called “the most severe hardware crisis in its history.” “We must reset XBOX,” she said. Sharma, also the executive vice president of XBOX, took over as CEO in February from predecessor Phil Spencer.
Criticism
US Senator Bernie Sanders criticised the latest layoffs and said that large companies continued rewarding shareholders and executives while cutting jobs.
“Last year, Microsoft made $101 billion in profits, got a $12.5 billion tax break from Trump & paid its CEO $96 million. This year, it’s raising the price of an Xbox by $150 & eliminating 3,200 jobs. Please don’t tell me corporate tax breaks create jobs. It never trickles down,” he wrote on X.
An employee revealed he was among those affected. On X, he wrote, “Working at ZeniMax/Bethesda for the past 16.5 years has been the biggest honor of my life. Working with SO many talented people on SO many games seems unreal! Like a lot of my friends and colleagues, I was a part of the Xbox reductions announced today.”
What exactly is changing at Xbox?
According to Sharma, Xbox is shrinking its studio empire. Microsoft says it no longer wants to own as many development studios.
Compulsion Games will return to independent ownership. Double Fine will become independent again. Ninja Theory is moving to new ownership. Undead Labs is also being transferred. Arkane’s future is under review in France.
Sharma said Microsoft realised “we are not the best home for every type of studio.”
Another major target is management. According to Sharma, some decisions currently pass through as many as 14 management layers.
Xbox plans to reduce that. The company wants fewer management levels, more engineers and creators making decisions directly, lower spending on vendors, simpler internal technology.
One change is that Minecraft studio Mojang and mobile giant King will now report directly to Sharma. Unlike traditional console businesses, both attract enormous global audiences every month and represent areas where Microsoft still sees growth.
She says Microsoft still plans to invest heavily in gaming but with stricter financial discipline. “I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal,” she wrote on X.
She believes Xbox can return to growth in 2027.
