Microsoft Just Can't Stop Making Strategic Blunders. When Will Management be Held Accountable?
Xbox is heading into its fourth year of layoffs. It is being reported as a restructuring. Read past the vocabulary: it is a bill for management’s mistakes, and the developers are paying for it.
On June 10, 2026, Bloomberg’s Jason Schreier reported that Microsoft’s Xbox division is preparing another round of major layoffs, expected to land in July, just after the company’s fiscal year closes on June 30. The reporting points to deep marketing cuts and a possible studio closure alongside the job losses. Internally, leadership has reportedly captured the moment in three words: this cannot continue.
They are right that something cannot continue. They are wrong about who should be made to pay to stop it.
If the cuts proceed as reported, this will be the fourth consecutive year of layoffs inside Microsoft Gaming. Four years. Four rounds. Each one announced in the same dialect of focus and discipline and protecting what is thriving. And each one landing on the same people: the developers, artists, testers, and producers who actually build the games, none of whom signed the $68.7 billion check that created this situation.
This is not the story of a gaming business that got unlucky. It is the story of a series of enormous strategic bets, made by executives who have almost without exception faced no personal consequence for making them, while the workforce absorbs the entire cost. In the plainest terms available, it is a management failure wearing a restructuring costume.
The Number That Explains Everything
Every conversation about Xbox layoffs eventually arrives at the same figure: $68.7 billion. That was the price Microsoft paid for Activision Blizzard, the largest acquisition in the history of the video game industry, closed in October 2023 after a regulatory war fought across three continents. It was the capstone of an acquisition spree that had already swallowed ZeniMax and Bethesda, and, years earlier, Mojang. The entire edifice rested on a single thesis: that scale would win.
Here is what scale actually bought, according to the company’s own internal accounting. When the new Microsoft Gaming CEO, Asha Sharma, laid the numbers out for staff this month, the picture was brutal. Organic annual revenue — the business stripped of the Activision bolt-on — has shrunk by nearly half a billion dollars over five years. The division’s profit margin has reportedly collapsed to somewhere around three percent. Hardware costs have quadrupled year over year. The studio system, in Sharma’s own word, is overextended, and the company’s biggest franchises have been, by her own admission, inadequately funded while resources were spread thin across too many teams.
Read that again, because it is nearly the whole indictment in one paragraph. Microsoft spent the better part of a decade and the better part of $80 billion buying its way to dominance, and the result is a business that earns less organically than it did before, at a margin a convenience store would be embarrassed by, with its marquee franchises starved so that a sprawling empire could be kept alive. That is not a market downturn happening to a company. That is a capital-allocation decision that did not work, made by people who were paid extraordinarily well to get it right.
A Strategy That Could Never Decide What It Was
The three percent margin did not appear by accident. It is the residue of a strategy that tried to be three different businesses at once and committed fully to none of them.
For most of this console generation, Microsoft pursued premium hardware, cloud streaming, and a day-one subscription service simultaneously, as if it had the focus to win all three races at the same time. It did not. The hardware lost outright — the PlayStation 5 has outsold the Xbox Series X by such a wide margin that Microsoft quietly stopped reporting console unit sales at all, which is the corporate equivalent of turning off the scoreboard in the fourth quarter. Game Pass, meanwhile, became a machine for converting full-price software sales into a lower-margin subscription, which expands reach but raises the breakeven cost of every studio and every game underneath it. When subscriber growth stalls, the math beneath the entire structure tightens at once.
Then management compounded the problem with a sequence of pricing decisions that read less like strategy than like improvisation. In October 2025, Microsoft raised Game Pass pricing aggressively, with the flagship Ultimate tier climbing by roughly fifty percent. Subscribers did what subscribers do when a service hikes its price by half: they left, in numbers the company would later acknowledge only as “millions” while declining to publish an actual figure. By April 2026, Microsoft had reversed itself, cutting Ultimate back down. A company confident in its own pricing does not raise it fifty percent and then walk it back inside six months. That is not a pricing strategy. That is a company discovering, in public and at its customers’ expense, that it never understood the value of its own product.
The clearest admission of failure, though, was strategic, not financial. Xbox has spent the reset era shipping its supposed crown-jewel exclusives — Sea of Thieves, Forza Horizon 5, Indiana Jones and the Great Circle, and the Gears franchise among them — onto the PlayStation hardware it spent a generation trying to beat. There is a rational revenue case for going multiplatform once you have lost the hardware war. But let us name the thing plainly: a company does not send its exclusives to a competitor’s console from a position of strength. The console war did not end in a truce. It ended in a surrender, and the multiplatform pivot is the white flag. The people now paying for that lost war with their jobs are not the strategists who lost it.
The Body Count
The bill for all of this has been paid in jobs, and it is worth being specific about who has paid it, because “restructuring” is a word engineered to make particular human beings disappear into a balance sheet.
It began in January 2024, weeks after the Activision deal closed: roughly 1,900 gaming jobs eliminated, hitting Activision Blizzard, Xbox, and ZeniMax teams as Microsoft trimmed the very overlap it had just paid a premium to acquire. That May, the closures started. Arkane Austin, the studio behind Redfall, was shut down. So was Alpha Dog. And so was Tango Gameworks — the team that, months earlier, had shipped Hi-Fi Rush to near-universal critical acclaim and genuine commercial respect.
Sit with the Tango example, because it is the moral center of this entire saga. Here was a studio that did exactly what it was asked to do. It made an original, beloved, award-winning game. And in May 2024 it was closed anyway. The postscript is the part that should embarrass Microsoft most. Within months, the competitor Krafton bought the team and the Hi-Fi Rush rights outright and put roughly fifty of those developers straight back to work on a sequel. Tango Gameworks is open and shipping today — alive not because of Microsoft, but in spite of it. Another company recognized, almost instantly, the obvious value in a team that Microsoft, sitting on a hundred billion dollars in annual profit, had decided to throw in the bin. When the reward for excellence turns out to be identical to the reward for failure, the people doing the work learn a lesson that no quantity of “we value our talent” messaging will ever unteach them.
September 2024 brought roughly 650 more cuts. Then came July 2025, the largest wave yet: around 9,000 jobs across Microsoft, with gaming hit hard. King lost about ten percent of its staff. ZeniMax was cut. Forza developer Turn 10 reportedly lost half its team. And the project graveyard filled up — the long-gestating Perfect Dark reboot, cancelled; Rare’s Everwild, cancelled; an unannounced ZeniMax online game, gone; and the studio The Initiative, which had spent years building toward Perfect Dark, closed outright.
Now, July 2026, the fourth round, with a studio closure reportedly back on the table. The people about to lose their jobs did not approve the Activision price tag. They did not set Game Pass pricing or reverse it. They did not decide to chase hardware, cloud, and subscription all at once and then discover, too late, that the company had overcommitted on every front. They showed up and made games. And for the fourth year running, they are the line item that gets cut.
Who Decided — and What Happened to Them
So who did make those decisions? And what, exactly, has happened to them?
The architect of the modern Xbox strategy was Phil Spencer, who ran gaming from 2014 and championed both the Game Pass subscription bet and the acquisition spree that brought in ZeniMax and Activision. In February 2026, Spencer retired after 38 years at Microsoft. He was widely and fairly credited with rescuing Xbox after the disastrous Xbox One launch, and with a genuine, evident love of the medium. He departed with his legacy intact, an advisory role through the summer, and the public framing of a man who chose his own exit, on his own terms, at the top. Xbox president Sarah Bond, long seen as his likely successor, left as well.
This is the asymmetry in its purest form. The executive most responsible for the strategic bets that the company now admits left it with shrinking organic revenue and starved franchises exited at a time and on terms of his own choosing, celebrated on the way out. The developers whose studios were closed to help pay for those bets exited by email, on the company’s schedule, with a severance package and a LinkedIn post. Both groups were part of the same set of decisions. Only one group is being made to pay for them.
It is worth being precise and fair here, because the cheap version of this argument overreaches and gets itself rebutted. The point is not that any individual executive is a cartoon villain, or that Spencer personally is uniquely to blame, or that the new CEO is incompetent — she is not, and we will get to that. The point is structural, and it is damning regardless of personalities. At Microsoft, as across most of this industry, accountability for catastrophic capital allocation flows downward, away from the people who allocated the capital and onto the people who had no say in it whatsoever. The bets are made at the top. The bill is paid at the bottom. That is the system, and the system is the scandal.
The Tell Is Who They Put in Charge
There is one more piece of evidence about what Microsoft now believes gaming has become, and it is the most revealing of all: the person it chose to run it. When Phil Spencer retired in February 2026, Microsoft did not reach for a games-industry veteran. It did not promote Sarah Bond, the Xbox president who had spent years inside the business and was widely regarded as Spencer’s natural successor — she left instead. The job went to Asha Sharma, who arrived directly from running Microsoft’s CoreAI product organization.
Sharma is, by any conventional measure, an accomplished executive. She scaled Facebook Messenger to a global user base at Meta, served as chief operating officer of Instacart through its public offering and its drive to profitability, and most recently led the product organization behind Microsoft’s AI infrastructure, foundation models, and developer tools. What she had never done, before February 2026, was work in the video game industry. She has described her own arrival, candidly, as coming into gaming as a platform builder.
Sit with that phrase, because it is nearly the whole thesis in four words. A company does not hand a creative enterprise to a platform builder by accident. You appoint an operations-and-AI executive to run a business when you have already decided, somewhere above her pay grade, that the business is fundamentally an operations-and-AI problem — a platform to be scaled, a cost structure to be optimized, a distribution surface to be aligned with the rest of the company’s priorities. Microsoft had its pick of people who had spent their careers making games. It chose the president of its AI division. The appointment is not a footnote to the strategy. It is the strategy, stated in personnel.
Read alongside everything else, the message resolves into something unambiguous. In the same window that Microsoft is cutting gaming for the fourth straight year and redirecting the saved capital toward a hundred-and-ninety-billion-dollar AI build, it installed the executive who had been running that very AI organization at the top of gaming. The layoffs and the appointment are not two separate events. They are the same decision wearing two faces — a quiet reclassification of gaming, inside Microsoft, from a creative business that is led into a platform-and-cost unit that is merely managed. And a unit that is managed rather than led is a unit whose people are treated as inputs to be optimized, which is precisely how they have been treated, year after year after year.
None of this is a verdict on Sharma personally, and it is worth saying so plainly, because the cheap shot is to mistake the appointment for the appointee. By most accounts she has been a capable steward in her first hundred days. But even a capable operator inherits the incoherence of the mandate she is handed, and it shows: her own messaging on which games stay exclusive and which keep shipping to PlayStation has been inconsistent enough to force retailers to pull pre-orders, and at one point to draw public criticism that her own newly hired strategy chief briefly amplified before walking it back. That is not evidence that she cannot do the job. It is evidence that the job, as Microsoft has defined it, is internally contradictory — one person asked to rebuild a console brand and dismantle the logic of consoles at the same time, to promise creative renewal while administering a fourth straight year of creative cuts. The confusion is not hers. It was handed down to her.
The Money Is There. It Is Just Going Somewhere Else.
The defenders of this will say Microsoft has no choice — that a business running at three percent margin in a contracting market simply has to cut. This deserves to be dismantled directly, because it is false, and the company’s own financial statements are what prove it false.
Microsoft is not a company that cannot afford to keep its people. It is one of the most profitable enterprises in the history of capitalism. In fiscal 2025, the parent company reported revenue of $281.7 billion, operating income of $128.5 billion, and net income of $101.8 billion, a sixteen percent increase year over year. In a single quarter — the three months ending December 2025 — Microsoft earned $38.5 billion in net income. Not revenue. Profit. In roughly ninety days, the company cleared more in pure profit than it would cost to buy half of Activision Blizzard over again.
The money exists. The only real question is ever where it goes, and the answer is not “to the people who build the games.” It is going to AI. Microsoft has guided toward roughly $190 billion in capital expenditure for 2026, the overwhelming majority of it directed at AI data centers, GPUs, and networking — a figure that, by some measures, exceeds the entire annual capital spending of every company in the S&P 500 outside the largest handful of technology firms. The company added a full gigawatt of data-center capacity in a single quarter and intends to double its global footprint within two years.
So when leadership says “this cannot continue,” the meaning is more precise than it first sounds. They do not mean the company cannot afford its gaming workforce. They mean the gaming workforce is being measured against the returns Microsoft believes it can earn by pouring that same money into AI compute — and it is coming up short in the comparison. These are not cuts of necessity. They are cuts of priority. The developers are not being let go because there is no money. They are being let go because the money has already been promised to data centers, and somebody has to be the offset.
And then there is the matter of what the people at the very top are paid while this happens. For fiscal 2025 — the same year that spanned the studio closures and the run-up to a fourth layoff round — Microsoft’s board awarded CEO Satya Nadella, who sits atop the entire enterprise including gaming, total compensation of $96.5 million. That was a personal record, up twenty-two percent year over year, the vast majority delivered in stock awards riding a soaring share price. For context, the median pay for an S&P 500 chief executive runs somewhere around seventeen million dollars; Nadella’s package was nearly six times that. The board’s stated rationale was the company’s leadership in AI. The chief financial officer took home roughly $29.5 million. Another senior executive, about $28.2 million.
None of this is illegal, and pay tied to shareholder value is a defensible model on its own terms. But place it beside the other facts and the picture becomes impossible to misread. In a single fiscal year, the compensation of one executive alone could have funded a great many of the jobs that were eliminated as “necessary.” The company that could not continue to carry its developers could continue, very comfortably, to pay its leadership at the highest levels in its history, fund a $190 billion infrastructure build, and clear $38 billion of profit in a single quarter.
The Objections, and Why They Do Not Hold
A serious argument has to meet the serious objections, so here they are, and here is why none of them survive contact with the numbers.
The first objection: the entire games industry is cutting, so this is simply the market. It is true that the industry has shed tens of thousands of jobs since 2023, and that Sony, EA, Ubisoft, and dozens of studios have all contracted. But this is a defense of Microsoft only if you believe a company posting record hundred-billion-dollar profits should make the same labor decisions as studios that are actually losing money. Microsoft is not a struggling publisher fighting for survival. It is the best-resourced company in the sector, and it made the single largest bet in the sector’s history. “Everyone else is cutting too” is an explanation for a company with no margin. It is an excuse for a company with $128 billion in operating income.
The second objection: this is healthy financial discipline, and the market rewards it. It is true that investors tend to reward cost cuts in mature divisions. But notice what this objection quietly concedes — that the cuts are being made to please the capital markets, not because the work is unnecessary or the people unproductive. The studios being closed shipped good games. The developers being cut were building the very franchises the company says it wants more of. “Discipline” that shutters the studio behind Hi-Fi Rush and cancels Perfect Dark is not discipline about quality or output. It is discipline about quarterly optics. And it is worth asking the question the word is designed to suppress: discipline for whom? The capital markets get their margin. The executives get their stock-linked packages. The developers get the bill.
The third objection — and this is the honest one — is that the current leadership is actually doing a good job. This is true, it matters, and I am not going to pretend otherwise to make the piece angrier. Asha Sharma, who took over in February 2026 with no gaming background and absorbed a wave of unfair and frankly ugly criticism for it, has in only a few months done several genuinely smart things. She walked back the punishing Game Pass price hike. She killed bad initiatives. She pledged not to flood the platform with what she bluntly called “soulless AI slop.” By many accounts she has restored real goodwill to a brand that had spent years squandering it.
But look closely at what that concession actually establishes, because it sharpens the indictment rather than softening it. The person now widely credited with fixing Xbox is not the person who broke it. She inherited the overextension, the starved franchises, and the three percent margin from the regime that built them — a regime that exited on its own terms and with its reputation polished. And the people she is now being forced to lay off to clean up that inherited mess did not break it either. Follow the logic all the way to its end. The executives who made the value-destroying bets are gone and lauded. The new executive cleaning up after them is praised. And the only group made to actually pay — in livelihoods, in careers, in shuttered studios — is the workforce, which had the least power over any of it. Everyone in this story lands softly except the people who were never issued a parachute in the first place.
The Real Failure
Strip away the vocabulary and here is what is left.
For four years, Microsoft has governed its game developers with ruthless quarterly precision — measuring them, ranking them, and cutting them against a constantly recalculated return on investment. In exactly the same period, it governed its own strategic bets with almost no discipline at all. It paid $68.7 billion for a company and ended up with less organic revenue than it started with. It chased hardware, cloud, and subscriptions at once and conceded, only after the fact, that it had overextended on all three. It raised the price of its flagship service by half and reversed itself within six months. It starved its best franchises to maintain an empire it could not justify. And the mechanism it has chosen, again and again, to resolve the gap between its ambitions and its results is to remove the people with the least responsibility for either.
That is the failure. Not that a gaming business hit hard times — businesses do. The failure is a model of accountability turned exactly upside down, in which the discipline reserved for the QA contractor is never once applied to the executive making the fifty-million-dollar bet. A company that instrumented its strategic decisions with one-tenth of the rigor it brings to its layoff math would not be on its fourth consecutive round of cuts. It would have caught the problem at the source, where the actual decisions were made, instead of paying for it over and over again at the bottom, where they were not.
When the July numbers land, they will be reported as a restructuring. They will arrive wrapped in the language of focus, and the future, and protecting what thrives. Read past it. What you are watching is the fourth annual installment of a very simple transaction: management made the mistakes, and the developers are being made to pay for them. That cannot continue either. The only difference is that no one with the power to stop it has any incentive to.
About the Author
Gal Ratner is Chief Architect at Prana Entertainment and the founder and CTO of Inverted Software and WhiteStar Labs, a Las Vegas–based enterprise software and AI consulting firm. Across nearly thirty years building and shipping production systems in C# and .NET, he has delivered enterprise work for Microsoft, Sony, Best Buy, and game studios including Rockstar Games and 2K Games — which gives him a close and unsentimental view of how the industry he is writing about actually runs. He has architected platforms spanning forty-thousand-storefront commerce to a million transactions an hour, and was a finalist for the Los Angeles Business Journal’s CTO of the Year.
He writes on Substack and LinkedIn as “The .NET AI Guy That Ships,” covering agentic AI, enterprise architecture, and the business of technology with a practitioner’s skepticism of hype and a bias toward what actually works. His open-source work includes PLogger.Core. When he is not shipping code or arguing with executives in print, he is usually on the mats training Brazilian jiu-jitsu or somewhere out on two wheels.