Xbox CEO Asha Sharma has indicated that the recent wave of 3,200 layoffs and studio divestitures within the company are a direct consequence of strategic decisions made under former chief Phil Spencer. Sharma believes that an approach focused on broad expansion led to the company spreading its resources too thin, neglecting its core business.
In an interview with Fortune, Sharma elaborated on this perspective, stating, "In order to grow, we made a bunch of bets... and as we did that, we inherently didn’t focus on the core business." She emphasized that resource allocation is the primary indicator of a strategy's success, and in Xbox's case, "we simply spread ourselves too thin."
This viewpoint underpins Sharma's current direction for Xbox, which appears to be centered on returning the brand to a more conventional console-focused model. The layoffs were announced on the same day as the interview and coincided with the spinning off of four Xbox studios. Sharma has repeatedly characterized the Xbox business as not being "healthy."
She suggested that a healthier Xbox would possess greater resilience against industry shocks, such as the current hardware crisis. "A healthy Xbox could weather the shock of the hardware crisis," Sharma explained. "With an unhealthy Xbox, it becomes really challenging, and it accelerates a lot of the changes we need to make."
The reference to the business's health likely pertains to profit margins. Improved profitability could allow Xbox to better absorb the impact of rising component costs, enabling it to potentially absorb price increases by accepting lower profits rather than outright losses. However, the escalating costs of console components, with estimates for the next PlayStation console's materials alone exceeding $900, present a significant challenge for all manufacturers.
Sharma also revealed that Xbox executives are exploring new business models, including "buy now, pay later" financing. While intended to lower the initial barrier to entry for consumers, this approach carries the risk of burdening less financially disciplined customers with significant debt if they do not carefully review the terms and conditions.
Sharma cautioned that the process of restructuring and improving the business will require time and indicated that further difficult changes may be necessary. "I think our core has to be healthy, and that will be necessary but not sufficient," she concluded.