Where did Xbox’s dream go? –

Wednesday was a difficult day for all involved. Microsoft initiated what can only be described as a small bloodbath of layoffs, hitting the Xbox division especially hard. Of course it is most challenging for the thousands of people losing their jobs, but we also lament the closure of developers and canceled games.

Santa Monica-based The Initiative seems to have been hit the hardest, with both the developer and their title Perfect Dark shutting down. The studio had long been destined to become a prestigious developer and at its inception had a long list of heavyweight names, all industry veterans. But after seven years of development, it seemed that their game was far from finished, and every time we saw it, you got rather lukewarm comments – and now rumors are circulating that it wasn’t even real gameplay, but completely scripted.

It’s no surprise then that the game was on the shelf, and one can’t help but wonder how much the project cost without actually contributing anything. Personally, however, I grieve all the more for Rare Everwild, another game that seems to have been in development for a very long time. This is more surprising, however, because it actually seemed to be on schedule, and Microsoft’s gaming boss Phil Spencer talked about how he had played Rare just last fall, and Everwild even graced Rare’s Christmas card just over six months ago.

I think the test audience just didn’t like the game very much and probably a lot had to be redone, but with no guarantees that it would turn out well, it was put on the shelf. Very sad for me personally, although I don’t think it was going to be a big seller given the decision (nobody cancels a game that is promising and expected to make a lot of money) – and the fact that the creator of Banjo-Kazooie, Gregg Mayles, is leaving in connection with this also hurts.

Others that have been hit hard include Turn 10, which appears to have been cut in half in size, something that will clearly affect Forza Motorsport in the future, and ZeniMax Online, which is said to have canceled an upcoming project, while the Swedish company King has lost 200 people. In addition, there are numerous other reports of people being laid off at developers such as Halo Studios and Raven Software, as well as half of the Xbox user research team (which risks jeopardizing quality work).

According to reports, about 20,000 people work, or rather worked, at Xbox, and about 20% appear to have been laid off. This will have consequences, significantly more than we have seen so far. Games may take longer to complete, updates to Xbox may be delayed further, fewer games will be released, game sizes may shrink, and so on. It also doesn’t look like Microsoft is done with layoffs, and word is that many manual roles will be replaced by AI.

That’s certainly possible in some cases, and I imagine it could even be an improvement in some areas. However, I can also imagine it will be a deterioration in other areas. I find it hard to believe that we are at the point where AI in creative work can surprise us and provide the personal touch that so often distinguishes a masterpiece from something boring. On the other hand, I can imagine that AI would be a phenomenal beta tester and excellent at rendering textures and similar repetitive tasks.

The aforementioned Phil Spencer commented on the decision as follows:

“To position gaming for continued success and allow us to focus on areas of strategic growth, we will end or reduce work in certain parts of the company and follow Microsoft’s lead by removing layers of management to increase flexibility and efficiency.”

In the same post, he also stated that the goal is to “protect what is successful and focus efforts on areas of greatest potential while meeting the expectations the company has for our business.” To me, this sounds like Microsoft is thoroughly rethinking its strategy. Most people have long suspected that they would rather sell games than consoles, and while they will probably continue to have both portable and home devices, these seem to be increasingly PC-related and may very well be manufactured by others. It is reasonable to expect more stringent requirements for new ideas in the future, requiring a clear plan and strategy before a check is written for development.

Something that doesn’t seem to be affected, however, is Game Pass. While recent developments may sound apocalyptic, Microsoft says it has more than 40 projects in development, so there will be no shortage of new games, of varying quality, since a wide variety is absolutely necessary for a service like Game Pass. Nor is it likely that cloud investment will decline; Quite the contrary.

However, I still think developers have reason to worry. The days of Spencer buying studios, promising blank checks and eternal support for passion projects are definitely over. Ideally, they want to release games and take as little risk as possible. Better than to publish other people’s titles. However, a service like Game Pass requires a lot of its own games (just as Netflix would have been useless without its own movies and series), so I don’t believe they will stop developing games altogether. On the other hand, it will be safer and development will have to stay within certain limits.

As a result, I think third-party projects like Contraband and Hideo Kojima’s OD are on their way out, while their own IPs like Ara: History Untold and Ninja Theory ‘s Project Mara are also at risk. It is also unclear whether Forza Motorsport will survive in the same way as before. It will have to be completely revamped, and it is entirely possible that Forza Horizon will take over completely. I also believe that established but harder-to-sell brands like Quake and Wolfenstein may become less of a priority in the future.

It was only a few years ago that Microsoft, led by Spencer, bought Bethesda and stated that the deal was about exclusive games. At the time, he also said he was not a fan of speculation about Xbox games coming to other formats. This has now been completely re-evaluated, and it’s not out of kindness or anything, but it’s strictly a business decision. Xbox sales were not strong enough to justify exclusivity, and after the acquisition of Activision Blizzard, it became illegal to maintain exclusivity.

However, this is just the latest controversy involving Phil Spencer, a person who has long held a prominent position in the gaming world. He took over Xbox One prior to its release after Don Mattrick’s disastrous tenure, and began the journey that has brought us to where we are today. But that journey has been long and arduous. While it takes time to turn a ship around, Microsoft, despite its enormous capacity, has struggled to release the games it needed, and the games that have come out have often not been good enough. Moreover, neither Halo 5: Guardians nor Halo Infinite have made anyone happy and have contributed to deflating the Master Chief’s adventures. The feeling is that Xbox Game Studios has lacked good and clear leadership, and there is no shortage of witnesses who say that development at almost all major studios has often been a bit too chaotic.

Over time, this has led to two radically different perspectives on Spencer’s performance. One comes from gamers who have become increasingly critical of what they see as a person who promises things but too rarely delivers. The other comes from Microsoft, which seems very pleased with his performance. Although the first group includes those who believe Spencer should step down, Microsoft has instead promoted him several times and renewed its confidence in him. This was also the case recently, when it was confirmed that he would remain in his position.

Gamers naturally dream of a new first-class Halo, more new heavyweight action games and role-playing games of the kind that Xbox became famous for, while Microsoft has a bigger overall strategy and a gaming division that is generating more and more money. The former is naturally dissatisfied, while the latter is reasonably satisfied. Spencer is one of the most powerful people at Microsoft today, but he is not the head of the company (that’s Satya Nadella), and his retention is not a sign of kindness.

In short, this week was a tragedy for everyone who lost their jobs, and a clear setback in Microsoft’s strategy for the future. Hopefully Xbox will get it right with interesting hardware where positive news can dominate the flow for the brand, which now feels almost torpedoed, but there is also a risk that this is just the beginning of more closures and a significantly timid Microsoft that prefers to work with just a few strong brands and mixes AI into production in such a way that games feel impersonal and sterile. We will have to wait a few years for the answer, but Wednesday, July 2, 2025 is unfortunately a date the gaming world will never forget.