A new memo from Xbox CEO Asha Sharma surfaced today.
News has surfaced today that gives some hints as to Xbox’s current thinking as we move ever faster. Xbox Showcase on June 7th. There are some positive notes, but also some disturbing ones.
The Xbox is closed in several directions. The waning attention span is affecting the video game industry as a whole, with the competition for social media brains eating away at traditional gaming hours. Consumer sentiment is also currently very low and AI hyperscalers have destroyed the memory market. The Big Steam Deck price increase and the end non-competitive Surface pricing is at the heart of the challenges facing all consumer technology right now.
The Xbox also has some existential issues. Xbox fans clamor for exclusive gamesbut games are where the edge is strongest for the Xbox. Selling games on other platforms, notably PlayStation and Steam, where Xbox has bled much of its core audience over the past few generations.
New Xbox CEO Asha Sharma has indicated that changes are needed … it will be a big balancing act to follow.
Xbox CEO Asha Sharma Says ‘Tough Decisions Ahead’
in a note seen by The Verge and endorsed by Windows Central (as if you needed it), Asha Sharma adds some context to Xbox’s current trajectory.
“We’re building a stronger XBOX. That means making tough choices about what we build, where we invest, and what company we move forward with, which is part of what you’re starting to see in the transition from Xbox to XBOX. It reflects our thoughtful decision on how to appear to the players who care most about this brand.”
Sharma also took umbrage at Xbox’s previous decisions Xbox Game Passit hurts subscriptions and is bad for retention, he says. He noted that last month Xbox Game Pass The recent price reduction has started to reverse these negative trends.
But what about these “tough decisions”? In the short term, it could represent some painful pills for Xbox fans. Here are some of my first reactions to comments and questions I get on social media and beyond.
- Xbox Helix is safe for now. Some have asked me if these “tough decisions” were about cutting equipment, especially since Asha said she had to make tough decisions about what she “built”. I have confirmed through my sources that there are no plans to back out of shipping the Xbox hardware. Increasing the Xbox’s hardware footprint is something Asha intends to do, although getting memory for gaming products is, I’m told, incredibly difficult at the moment. I was told that Microsoft has teams literally currently running a 24/7 resource storage for their needs.
- Could Hard Decisions Be Coming to Xbox Game Pass Content? Xbox is new CSO Matthew Ball said in his analysis that subscriptions are increasing as retail sales decline. Could removing “day one” games from Xbox Game Pass Ultimate improve Xbox’s retail margins? It’s a tough sell in my opinion. Consumer sentiment is low… Not sure you want to give people more reasons to quit Xbox Game Pass. This is a guaranteed income and a stable flow that insulates from “hits and misses”. But at the same time … they can see how much extra money they can make by keeping Forza Horizon 6 out of subscription.
- Could “hard decisions” fall on Xbox Game Studios and third-party publishing projects? I asked Matt Booty in my interview with the new leadership team Here’s what Xbox’s new direction could mean for some of Xbox’s smaller studios. At the time, Booty used to say that everything big starts small…indeed, Booty watched Minecraft grow from a solo indie project to a global phenomenon, and helping Minecraft make that transition is what hired Booty in the first place. But it’s certainly (and unfortunately) true that some of Xbox’s smaller studio acquisitions haven’t produced the fiscal success stories that Microsoft’s finance departments likely wanted to see.
- I don’t expect a ton of action in exclusive games. Xbox’s review site is flooded with requests for exclusive games, but like I said, selling software on other platforms is where Xbox’s best and brightest margins are right now. Maintaining your own store platform isn’t cheap, and like anything that requires storage, it’s gotten expensive. The best margins are still on your own platform, of course, but … Given the fact that the margins on hardware sales are in the toilet, creating desirability for hardware that you can’t even effectively sell doesn’t seem viable in the short to medium term. It’s likely that something needs to change at the end of the supply chain before we can return to a meaningful layer of exclusive games. I do expect some “token” commitments though, such as either timed exclusivity windows or future unannounced games from several franchises that will be exclusives, such as icons like Halo.
The showcase will be a high point, but I suspect some planning around “tough decisions” is already in motion.
Even if storage prices are expected to stabilize in 2028, Microsoft won’t let Xbox continue as a loss leader. Microsoft positioned Xbox poorly after acquiring Activision-Blizzard. Call of Duty he would solve all his problems immediately. Obviously, this didn’t work out … and Microsoft probably should have seen the memory apocalypse coming, given that they’re one of the hyperscalers.
Xbox has set itself up for a very difficult few years. His problems are not in a vacuum. It’s not like there’s no desire for Xbox hardware; it’s the simple fact that Xbox can’t get the volume it needs to keep prices affordable. I suspect we will see more Xbox Series X|S (and others) prices increase before the end of the year as storage contracts expire and must be renewed.
But there is no time machine. Xbox can only go as far as any of us. Microsoft should be completely generous with Xbox here, though, considering that many of Xbox’s mistakes are ultimately Microsoft’s mistakes. The “30-for-30” margin accountability requirements of the post-acquisition era left the Xbox platform needlessly vulnerable. Xbox has to do what the fans want while also managing a very strange economy. Wherever the load falls, it will be a painful moment.
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