Xbox braces for heavy layoffs as Microsoft signals new hybrid console

Microsoft is planning a significant round of layoffs in the Xbox games division, sources tell Bloomberg's Jason Schreier.

2

New layoffs are set to happen at Xbox. New reports indicate that Microsoft will conduct another large layoff in the Xbox games unit next week as part of a company-wide restructuring. These layoffs will be on top of the 6,000 job eliminations that Microsoft made last month.

Today's news marks the fourth round of layoffs at Xbox in the last 18 months. To stem costs and help equalize margins, Xbox management has laid off thousands of workers over the last year and a half across all of its operating groups (Activision Blizzard King, ZeniMax Media, and Xbox Game Studios).

It's unknown whether or not this reorganization could affect how Microsoft recognizes and classifies gaming as a business; currently, Xbox is part of Microsoft's More Personal Computing segment.

The layoffs come at a time when Microsoft is shifting to a more streamlined and profit-first approach, at least with Xbox. For example, Microsoft looks to be unifying Windows and Xbox together for the next Xbox console, which could end up being a PC that runs Xbox games. It's said this new console may not be made by Microsoft and could be made by third-party OEMs like ASUS.

Microsoft is already taking this hands-off approach with the Xbox Ally X, which is a specialized ROG Ally with a custom button and UI improvements. The idea behind making Xbox consoles into PCs, theoretically, would be to eliminate the need to manufacture unprofitable hardware. These details remain unconfirmed.

The news also arrives as Microsoft is starting utilize AI more, even in its games business. In 2023, Microsoft injected $10 billion into OpenAI to help accelerate AI adoption into its products and services.

Microsoft recently revealed a new generative AI gaming solution called Muse that can create and simulate gameplay in real-time, effectively alleviating the need for a games engine.

There are also plans to utilize generative AI solutions for video games development. Microsoft signed a multi-year deal with Inworld to use gen AI for game stories, quests, and dialog sequences. The idea is to remove some of the busy work from making games, but the focus of the Inworld partnership feels decidedly creative.

While Microsoft as a whole is doubling-down on AI, Xbox leadership always gives its first-party game studios a choice on whether or not to utilize AI while making their games.