We asked developers to weigh in on the latest generative AI platforms from Google and Unity and heard nothing but disbelief and despair. So, who is this for?
Activision Blizzard King was acquired by Xbox maker Microsoft on October 13, 2023. That's three years ago to the day. At the time, former Xbox boss Phil Spencer said the division would continue growing after splashing $68.7 billion on the Call of Duty and World of Warcraft parent company by, in part, building a culture where "developers can do their best work."
Not quite famous last words for the former exec, who retained his role of Xbox chief for over two years after the merger closed before eventually being replaced in February 2026 by current Microsoft Gaming EVP and CEO, Asha Sharma.
Even so, it's a soundbite that speaks to the monumental failings of Xbox parent Microsoft over the past three years. To underline just how far Microsoft and Xbox have strayed from that promise, let's remind ourselves of just what has been lost over the past 36 months.
2024: The purge begins
It didn't take long for Microsoft to start putting workers to the sword. Around three months after purchasing Activision Blizzard, the company laid off 1,900 employees out of 22,000 working across Xbox.
A memo sent to employees by Spencer (obtained by IGN) said the cuts were made to align Xbox around a "strategy and an execution plan with a sustainable cost structure that will support the whole of our growing business."
The layoffs resulted in notable figures leaving both Xbox and Activision Blizzard, including then Blizzard Entertainment president Mike Ybarra and chief design officer and co-founder Allen Adham.
At the time, Spencer said Xbox would continue to invest in "areas that will grow our business and support our strategy of bringing more games to more players around the world." That strategy did not include every studio under the Xbox banner. In May 2024, another memo penned by Spencer (viewed by The BBC) confirmed Microsoft would be closing four studios: Arkane Austin, Alpha Dog Studios, Roundhouse Games, and Tango Gameworks. At the same time, "a small number of roles" were also eliminated across Bethesda's publishing and corporate teams.
The bad news didn't stop there. Microsoft cut another 650 jobs across Xbox in September 2024, largely impacting employees with corporate and supporting roles within the video game division. "No games, devices or experiences are being cancelled and no studios are being closed," wrote Spencer at the time (via The BBC).
2025: Out of the frying pan, into the inferno
Bad meet worse. That was the story of 2025, when Spencer continued to dismember Xbox Game Studios in service of "strategic growth."
"To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness," said Spencer at the time, in a memo obtained by Bloomberg.
The company neglected to confirm how many people were being jettisoned, but an Bloomberg's extensive report indicated the layoffs affected a huge swathe of studios including King, ZeniMax, Raven Software, Sledgehammer Games, Halo Studios, and Turn 10. Notably, a handful of high-profile projects were canceled including Everwild and Perfect Dark—the latter of which coincided with the closure of development studio The Initiative.
According to an email penned by then Xbox Game Studios head Matt Booty, those cancellations and studio shutdown reflected a "broader effort to adjust priorities and focus resources to set up our teams for greater success within a changing industry landscape."
The impact of Xbox's decision to rapidly downsize was widely-reported to have devastated external teams. As noted by The Verge, Romero Games was pushed to the brink of closure after a publishing partner (reportedly Xbox) withdrew financing. Xbox also cancelled Contraband, a multiplayer project that had been in development at Swedish studio Avalanche for four years. Shortly after, Avalanche confirmed it was closing its Liverpool studio and cutting roles at other locations in Malmo and Stockholm.
Amid ongoing turmoil at Xbox, a prominent leaker speculated that Spencer was looking for the exit after over a decade with the company. Xbox communications head Kari Perez denied that claim in a statement to The Verge and said Spencer would not be retiring "anytime soon."
Phil Spencer made the decision to retire shortly after.
Prior to taking the reins at Xbox, Shama previously served as COO at Instacart and vice president at Meta. During the first few months of her tenure, Sharma went on a rather overt charm offensive, doing away with the often-derided 'This Is An Xbox' marketing campaign almost immediately. 'Xbox' also became 'XBOX,' complete with a shiny new neon logo and boot-up animation. New hardware—codenamed 'Project Helix' was teased at GDC 2026—and daily active players was positioned at the division's new "north star."
Then, in July 2026, Microsoft made its annual blood sacrifice.
In a memo shared on Xbox Wire, Sharma and Booty confirmed plans to reduce Xbox's workforce by 3,200 people by the end of the fiscal year ended June 30, 2027. That downsizing included the divestment of Compulsion Games, Double Fine, and Undead Labs—albeit, not without layoffs. At the time of writing, it has also left Ninja Theory and Arkane Studios facing closure.
Xbox branded its latest culling a "reset" and admitted its business was no longer healthy.
"We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected," reads the memo.
"As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox."
You can only wonder who Microsoft subsidiary Xbox might hold responsible for inflating hardware prices and harming its console business? A quandary, to be sure, but one the U.S. tech giant doesn't have time to unravel. It's far too busy pouring billions into datacenters across Wisconsin and Texas.
On September 22, 2026, another internal memo (this time penned by Booty) confirmed 268 roles had been eliminated across Halo Studios, other first-party studios—purportedly including The Coalition, World's Edge, and Rare—and the Xbox Game Studios management and central functions layer.
Simultaneously, the Halo franchise was handed to Activision Blizzard, Playground and Turn 10 were merged into one unified entity, and Obsidian was placed under the remit of Bethesda. Booty said Microsoft was around "three-quarters of the way through [its] previously announced restructuring" with the end of September in sight.
At this stage, it would be impossibly naive to think the Xbox layoffs will stop there. In July, Sharma said she wants Xbox to become "one of the few companies that entertains more than a billion people each day" and has claimed she will return the division to growth in 2027.
In June, Sharma also confirmed that Xbox currently attracts "over 1 billion players each year," so you have to question what sort of mind-altering substance might be in the water at Microsoft's Redmond HQ. Yet, for better or (as feels more likely) worse, the teams who remain must now strive to turn that vision into reality after three years of enervating turmoil and brain drain—all while a drooling sword of damocles swings overhead.
A place where developers can do their best work, to be sure.
Chris is an award-winning reporter with over a decade of experience covering the video game industry. He was formerly news editor at Game Developer and is currently the founder and editor of this resplendent website.
We asked developers to weigh in on the latest generative AI platforms from Google and Unity and heard nothing but disbelief and despair. So, who is this for?
