Friday’s news of a major shake-up at Microsoft’s Xbox division caught the gaming world by surprise. Phil Spencer, who has run Xbox for almost 12 years, announced his retirement, effective immediately—just months after Microsoft insisted he was “not retiring anytime soon.”
Asha Sharma, the president of Microsoft’s CoreAI product, was tapped to run the division. Once a powerhouse earner, Xbox has seen its profitability and influence shrink in recent years. (Xbox president Sarah Bond, long seen as Spencer’s heir apparent, was passed over and also left the company.)
Sharma may face an uphill battle.
Microsoft has not reported updated Xbox console sales or Game Pass subscription numbers in years. The available figures haven’t been encouraging. Xbox hardware revenue fell 32% year over year in the recent holiday quarter. Overall gaming revenue dropped 9%, and Xbox content and services, which includes Game Pass, declined 5%.
Sharma has already taken some knocks online for lacking a deep history in video games. Some of that online blowback reflects the sexism that often runs rampant in gaming. (Sharma will be the first woman to run a major console manufacturer.) But criticism of her gaming pedigree also reflects a kind of gatekeeping.
Strauss Zelnick, CEO of Take-Two Interactive Software, has said he was not a gamer when he took charge—and still isn’t. Yet Take-Two has delivered a string of hits under his leadership, most notably the Grand Theft Auto franchise, and its share price has increased fifteenfold since he took the job. “I don’t think anyone wants or needs my specific creative expertise, such as it is,” Zelnick once said. “It’s my job to attract, retain, and provide the resources to the best creative talent in the business.”
Dwindling sales and a divided focus
Time will tell if Sharma follows that same path. But if she does, instead of focusing on big individual launches, she’ll have to persuade gamers to buy both the hardware and a subscription service that increasingly makes that hardware feel optional.
The Xbox Series X and Series S have faced inventory issues in recent months and remain expensive when available. With memory shortages affecting a wide range of consumer technology products, a price cut anytime soon appears unlikely.
At the same time, Microsoft has been pivoting away from consoles, expanding Game Pass across multiple platforms, including as an app on Samsung TVs. (An Xbox mobile store was planned but never launched.)
Despite that shift, Microsoft has also been working on a next-generation Xbox, once expected to debut next year, though that timeline could slip due to component shortages.
Starting over?
Sharma’s promotion could mark a reset, shifting focus back to consoles and exclusive titles rather than the “Xbox anywhere” strategy of recent years. Even then, some hurdles remain.
Microsoft’s hands are tied with its biggest franchise, Call of Duty, which it acquired through the Activision-Blizzard takeover three years ago. Under its agreement with regulators, Microsoft must continue offering those games and features to Sony through 2033. Still, the company has deep development resources, even after steep layoffs.
The Halo franchise has struggled but could rebound with a strong release. Bethesda Softworks, acquired in 2021, is developing a new Elder Scrolls title and also controls proven franchises such as Fallout and Doom. Microsoft also has Gears of War, Fable, and Forza, and enjoys strong relationships with independent developers.
Refocusing on consoles could require changes to Game Pass. The service’s appeal lies in offering new titles on day one without requiring individual purchases. But with AAA games now costing $200 million or more to develop, Game Pass will need either a surge in subscribers or structural changes to remain viable. (A price increase could be challenging, as the top tier already costs $30 per month.)
Whatever direction Sharma chooses, she faces a steep climb. Spencer may have been beloved by gamers, but Microsoft’s biggest bets of the past six years have largely fallen short. And as headwinds gather across the gaming industry, Microsoft is no longer the dominant force it was in the Xbox 360 era.
Regaining that ground will require steady leadership.