State of Decay 3 was revealed in 2020 partly due to Undead Labs studio boss Philip Holt's anxiety that the studio might be "swallowed up or divested" by Microsoft before they could properly showcase their work. Holt admitted in an interview with The Game Business that while a small team was working on the game at the time of its announcement, full development did not begin until 2023.
The zombie survival game was first shown during an Xbox showcase six years ago, two years after the release of its predecessor, State of Decay 2. The series tasks players with managing resources, survivor morale, and combatting the undead in a post-apocalyptic world.
Holt's concerns stemmed from Xbox's aggressive acquisition strategy. Microsoft acquired Undead Labs, along with Playground Games, Ninja Theory, and Compulsion Games, in 2018. Since then, the landscape has shifted, with Undead Labs recently becoming an independent studio. In parallel, Ninja Theory faced layoffs and studio closure, and Compulsion Games is now exploring independent collaborations.
The initial announcement trailer for State of Decay 3 was intended as a mission statement, but Holt acknowledged it didn't accurately reflect the team's size or progress at the time. "It’s not entirely true, but we had a really small team," he said, referring to the period around the announcement.
Holt expressed worries that Microsoft's continued acquisitions, which included the significant 2022 intention to purchase Activision Blizzard, might lead to smaller studios being absorbed or sold off. "I was a little worried about getting swallowed up or even divested before we had a chance to present to the world what we were working on," he explained. "It was a bit of a marker on the table for me. We’re saying State of Decay 3, we’re announcing it, it’s public, the audience now knows it’s in development."
Development of State of Decay 3 has been significantly informed by the post-launch updates and player feedback from State of Decay 2, which served as a testing ground for ideas. Despite recent significant layoffs at Undead Labs following its separation from Microsoft, State of Decay 3 remains in active development and is slated to launch day one on Game Pass. These cuts occurred shortly after the studio transitioned to an independent entity.