Xbox CEO Asha Sharma is pursuing a major restructuring of Microsoft’s gaming business after acknowledging declining revenue, weak profitability and Game Pass performance that has fallen short of internal expectations. A new Wall Street Journal profile says Xbox generates roughly $23 billion in annual revenue but is currently operating at a profit margin of about 3%, leaving Sharma tasked with improving the economics of one of Microsoft’s largest consumer businesses. Her approach centers on fewer investments, stronger franchises and a willingness to openly discuss areas where Xbox has underperformed.
Sharma took over Microsoft’s gaming operation in February 2026 following Phil Spencer’s departure, despite having no previous professional background in video games. Microsoft had previously described her experience at Meta, Instacart and Microsoft as focused on scaling consumer platforms and developer ecosystems. Since taking charge, she has repeatedly used the phrase “clarity is kindness” while arguing that Xbox needs to confront difficult business realities instead of presenting every internal development as a success.
Those realities include an Xbox workforce of roughly 14,000 people and a business whose revenue is declining despite Microsoft’s enormous spending on gaming acquisitions and development. The Journal reports that Game Pass has fallen considerably short of earlier projections, while Xbox’s 3% margin leaves it well behind comparable platform and publishing businesses. Sharma has told employees she wants the division’s margins to reach double digits during the current fiscal year, creating pressure to reduce costs while putting more money behind projects with clearer commercial potential.
That process has already produced substantial cuts. Xbox announced in July that approximately 3,200 roles would be eliminated across the fiscal year, beginning with around 1,600 immediate layoffs, while several studios were moved outside Microsoft’s gaming organization. The restructuring has affected teams across the company, including Bethesda, where former employees have described how working on major franchises such as Skyrim and Fallout offered no protection from the cuts.
At the same time, Sharma is reportedly reducing the number of games Xbox develops while concentrating more heavily on established properties capable of generating stronger returns. Franchises including Halo, The Elder Scrolls, Fallout and Minecraft are among those receiving particular attention. The strategy does not necessarily mean Xbox will stop experimenting with smaller games, but it does indicate that Microsoft’s largest gaming investments will increasingly need to justify themselves through audience size, profitability or broader strategic importance.
Minecraft is one area where Sharma sees additional growth potential, particularly through user-generated content and expanding the franchise beyond the traditional game itself. She has also spoken about reaching audiences through films, television and other media rather than measuring Xbox solely by console sales. That fits Microsoft’s wider effort to make Xbox a platform spanning consoles, PC, cloud gaming and other devices rather than treating hardware as the only entry point.
Game Pass remains central to that strategy, but its economics are also being reassessed. Microsoft has recently continued expanding the service’s content catalog, including the September 2026 Game Pass lineup, while simultaneously adjusting how some cloud features are offered. Upcoming Xbox Cloud Gaming hour limits in certain markets illustrate how Microsoft is experimenting with different ways to balance access, infrastructure costs and subscription value.
Sharma’s leadership style marks a noticeable change from the public tone associated with Xbox during much of Spencer’s tenure. Rather than emphasizing growth across every category, she has repeatedly described Xbox as a challenger and has told employees that the business needs sharper priorities, faster decision-making and more uncomfortable self-assessment. Microsoft’s earlier internal reset outlined similar principles, including “core before more,” “makers over managers” and the same “clarity is kindness” phrase Sharma now uses frequently.
The turnaround remains unfinished, and the most difficult part will be proving that cost reductions can coexist with a stronger pipeline of games and services. Xbox still controls some of the industry’s largest franchises and nearly 40 studios across Xbox, Bethesda, Activision Blizzard and King, but Sharma is making clear that scale alone is no longer enough. Her plan is now focused on converting that enormous portfolio into a healthier business with stronger margins, clearer priorities and fewer investments that fail to deliver the returns Microsoft expects.
