Xbox's mixed strategy is confusing developers, layoffs are affecting morale

Microsoft's games division is being hit on all sides as it battles rising costs and tough operating margin targets.

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Xbox's unclear strategy is bewildering developers and employees, sources tell The Verge's Tom Warren, and the layoffs are affecting morale at the games giant. The group is being affected at the top, the bottom, and the sides of its billion-dollar games empire as it attempts to navigate the tumultuous market while trying to guide consumer trends and capitalize on all sectors of its business.

According to the ZeniMax Workers United union, Microsoft has laid off more than 2,500 people across Xbox as it attempts to trim the fat from its $70 billion buyout of Activision Blizzard King. Microsoft's board and corporate c-suite are pressuring the Xbox games division to deliver specific margin and growth targets as Xbox absorbs Activision and tries to spread out in all directions, across all vectors, models, and platforms.

Xbox is attempting to do a lot of things at once right now: leverage ABK to grow Game Pass subscriptions, namely with Call of Duty, whose Black Ops 6 entry is launching directly into the service; maintain or grow first- and third-party full game sales across PC and Xbox; and better tap into the mobile market through Activision properties like Candy Crush and mobile-based Call of Duty games.

It's unclear how well these endeavors are going.

Microsoft typically does not give updates on its games business outside of indirect metrics that have to be backwardly-calculated in order to report on, and there's been no update on Game Pass subscriptions for multiple quarters.

The new string of layoffs, which affected 650 people, were reportedly in part due to specific games like Warzone Mobile and Warcraft Rumble having not met expectations.

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Read more: Xbox is a separate business unit where profit 'non-negotiable'

Microsoft's gaming plan, which prioritizes profit margins above all else, is being executed in a way that's apparently confusing its employees.

First-party Xbox games are showing up on competitor systems as Microsoft aims to "use what other platforms have" to sell more games and make more money.

Call of Duty, a franchise that has sold 25 million copies of its games in a single year, is popping into Game Pass, a subscription service that is known to cannibalize full game sales. Elsewhere, however, Microsoft says that Game Pass is a 'high-margin business.'

The confusion isn't necessarily with what is actually happening right now, it's with Microsoft's overall long-term plan as it relates to consistency; can Xbox keep this trajectory going and grow all of these units while simultaneously maintaining the console base in the process?

I did a quick breakdown of Xbox's core business model here: