Xbox’s Next Chapter: Strategy vs Identity

Okay, now drum roll please. Is there any other topic? We are so excited today to present the latest on the Xbox changes. Let me do a summary. I went and just tried to see what all the latest news was in addition to just letting you know what happened. So, Microsoft gaming leadership overhaul. So, Phil Spencer retires. Are we going to throw him a party or something? I do feel like 38 years at Microsoft kind of should get him some sort of podcast send off from us, but we'll talk about that later. Sarah Bond resigns. AI executive Asha Chararma named CEO. So, the biggest shakeup in Xbox history. Phil Spencer is retiring after 38 years of Microsoft 12 leading gaming. Xbox President Sarah Bond resigned. That has a ton of controversy that I actually want to touch on when I give my take a little bit later. So replacing them, Asha Sharma, previously head of Microsoft's

core AI division, no prior gaming experience. This may have come up a few times. Her resume includes stints at Instacart, Meta, and Microsoft AI. Who knew that the farm team for being a head of gaming is Instacart and Meta? Matt Booty has been promoted to chief content officer. Sachi Nadella framed the move as part of Microsoft's broader AI pivot. But Chararma moved quickly to reassure gaming, pledging not to flood our ecosystem with soulless AI slop and calling games artcrafted by humans. Bond in her departure statement confirmed that the development of the next Xbox is very well underway. So just a few context numbers since we are nerds about this. Xbox hardware revenue fell 10% in Q4. hardware revenue down 32%. Microsoft also announced a unspecified impairment charge on its gaming business in January of 26. Xbox consoles have been outsold by PlayStation 5 over 43

million units.
Jesus Christ.
I guess that's losing the console war. I think I added this quote in the choice of an AI executive with zero gaming background to run $23 billion division following a $75 billion Activision acquisition is generating significant debate about Microsoft's strategic direction for gaming. So I'm going to pass the conchk to crest since we're all just waiting for you to rip. I just at least wanted to catch everyone up on the latest.
Well, let's throw it out there. My prediction is that Spill Spencer gets fired this year.
Wow.
And heaven helped them cuz he's like the only gamer left.
Uh first of all, I think um the post on LinkedIn is done by be by far the best ever for me. It's like 13,000 views. So that's I mean obviously there the thing is this thing is is so [ __ ] complicated. There's so many different strings to pull. I'm going to do my best to summarize it as I see. First thing I

want to do before I throw shade, I want to begin by saying this is that these executives perform at levels that I could only dream about. Right? Sarah Bond, Don Matrick, Frank Chabau, even the pretty boy Andrew Wilson, right? The type of dedication like fortitude, the sacrifice, family, friends, everything. Like they perform at a level that I could not even imagine. And Asha Chararma is like the apex predator of executives. like she is the youngest executive vice president in the history of Microsoft. Let me sink this in. She is 36 years old and the CEO of one of the largest video game companies on the planet. How many lifetimes would it take me to achieve that same goal? So with that in mind, [laughter] she has absolutely no business running a video game business. Period. End of sentence. like she's running the largest gaming company in the world basically besides Tencent. There's no way that she

should be in this role, right? And I'm not quite sure how this actually happened, right? Because clearly Sarah Bond was air parent from the very very get-go, right? The plan was there to take over for him. He was going to resign, right? And it's really kind of unclear as to how Asha was chosen. Was she chosen before and then Sarah Bond resigns or does Sarah Bond resign and then Asha is put in place? But what is really clear is that Satcha had a clear role in putting this woman in charge. Okay. And I know that Satcha could give a [ __ ] about gaming, right? Just generally speaking, but definitely he wants someone in charge that is aligned with Microsoft, right? So the obvious reason she has no business being here is she has absolutely no gaming credibility whatsoever. She has no experience, no track record, no reputation, no relationships with anybody in the gaming space. And she has no instincts for the gaming culture itself, right? She is basically 36 years old with only like two years at Microsoft under an AI title

that's not really AI at all. Like she was a product manager basically for Copilot, right? This is not like she's not like some AI like phenom like some of these other people in the AI business. And none of this experience that she's had really has anything to do with gaming at all, right? But she definitely understands what Satcha's goals are for the corporation of Microsoft. So she's an operator, right? Her experiences are building platforms at scale, Meta, Instacart, Copilot, and she blends like this operations as well as product management, right? And so that makes does make a lot of sense on paper as to why she was put in this position, but she's going from roughly like 3,000 employees at Instacart to like 20,000 people at an industry she has no concept of whatsoever. Self-admitting, right? She's like, I'm in learning phase right now, you know, on the press. And so again, for me, this

feels like when Don Matrick put Yousef Medi in charge from MSN Hotmail, right? that wasn't even a great part of Microsoft back in the day, right? So he became chief operating officer at Microsoft when they introduced the Xbox One, right? And this again MSN and Hotmail were not successful places within Microsoft at the time, you know? So them together clearly had no idea what the they were doing and it was literally the most disastrous reveal in gaming history with the Xbox One. So again, they built a marketing message and a platform that is built for Microsoft's entertainment ambitions, you know, mandatory connect, use game restrictions, always online requirements and forgot about gamers entirely, right? And they squandered a dominant position in the console market and never recovered at that stage. And so this feels like that kind of thing again, right? Putting someone in charge that clearly doesn't really understand this business at all, right? and likely will

change it and continue the strategy that has them you know for the last like five years and Yos had a great quote on this to some degree right he he basically says under Spencer Xbox tried to win in gaming under chararma gaming may be tasked with strengthening Microsoft I think that is the insight that you need to understand but I'm going to push back on this framing because I think Spencer was the one that was already pushed to support what Microsoft wanted with subscriptions and cloud, right? Sharma singles kind of more of the same, right? They're basically doubling down likely on a strategy that doesn't make sense and it doesn't work for this the gaming business or the console business, right? So, this will fail, right? And if she tries to infuse some kind of AI strategy to be a build more align with Microsoft, that's even more stupid, right? In my opinion, and I don't I don't think that will work either. So, again, what I would have done is gone back to basics. I don't want to just throw shade and not offer an alternative. I think Booty should keep running the studios,

although he's a controversial figure evidently. I would have actually installed a real gaming exec that knows someone with DNA, relationships, credibility, right? Focus on the exclusives, bring back the brand the way it should have been all along to compete head-to-head with Microsoft and Sony. Now, I realize that everyone's probably saying this, that ship has sailed. That may be, and I know that Microsoft really doesn't have this ambition. It doesn't really fit with their AI narrative at all. and they want to keep these non-core divisions at a 30% profit which basically really eliminates the required spending and the required investment to go compete on market share from Nintendo and Sony. So the question really is what do you think Asha will do right and I think the former Xbox founder at Seamus Blackley who I've never actually even heard of. So he says, "I expect that the new CEO Arsha Shramama, her job is going to be palative care doctor who slides Xbox gently into the night." Right.
Wow.
First of all, this is a bit reductive

and I think you think gently is the right word there.
Yeah. [laughter] I actually I don't even think this is accurate. You know, I don't think she's managing this down to close the division. I think she will ultimately try to bring it into the AI narrative at Microsoft and build some ambitious strategy, but ultimately it's going to fail because this is not compatible with gaming in general, the business, right? And ultimately, they're going to sell they're going to spin this thing out or sell to the Saudis, one of the two, right? I think the one point that I really wanted to make that I didn't make in the piece on LinkedIn is that you can't really uncouple Xbox fate and Chararma's ambition, right? You know, for Booty and Spencer, this was a labor of love. This was the endgame, right? For Chararma, this is a means to an end, right? She wants to be a CEO of a publicly traded company. She needs to have a perceived win here, right? And I think she will quickly discover the quagmire that she's put herself in and pivot out by either spitting this thing out or selling it and moving on because

her goal was to be the youngest woman CEO of a Fortune 500 company ever and she is on that path to do so, right? Because this is what Apex predators do, right? And so that's what you have to think about from Chararma's perspective is exactly what does she want out of this particular experience. She's not the type of person that wants to stay at Microsoft and be second fiddle. She wants to run her show, right? So this is her ambition. So she has like a three to four year runway, right? And she will do as much as she can in order to like package this thing up and make a win here, but she's going to be a CEO, right? In three or four years. Fundamentally, I think this is really, really bad news for Microsoft fundamentally and Xbox, right? I think we're going to have massive uncertainty short term. We're going to see studios scrambling to justify their existence. The culture is going to take another hit. And if history is any guide, we're going to see it significant layoffs and teams closures in the next 12 to 18 months while Sharma kind of tries to figure out her footing and Xbox continues to lose, right? Like so this is not a good situation at all. So there

are lots of strings to be pulled from all of this stuff and I think only time will tell, but that's kind of what I'm thinking is going to happen. And it's actually very very sad in my opinion. And that's why I'm wearing my Xbox sweatshirt.
Yeah. in memorial. In memorial
sometimes I just generally wish we were wrong.
Yeah.
Right. Like I love the situation that the most pessimistic version of this news story
would not come true. Right. That Crest was absolutely wrong and in 5 years we're all thinking that. It's just it's not the case, right? Like in my mind what has just happened is Ashes walked into the room like Donald Glover in Community in that meme. Smile on his face, pizza in his hand. with everyone running around the room on fire. [laughter]
This is fine,
right? Especially from a lot of those like public posts of like embracing it, learning. I want to learn and you're like, well, you have just walked into a room of fire cuz like what what she's

walking into nearly all studios are in a pivotal moment. We talked about Call of Duty. The franchise needs its comeback moment. You think of what Battlefield 6 had to do in order to regain trust from players in order to get back to the moment that it just had. You think of its studio structure and having to completely rethink that model in order to get back to a regular cadence of quality releases, right? Like you have to make some pretty quick substantial bets on how to get Call of Duty back on track. Blizzard, Bethesda, Obsidian, 343, Halo, all of these studios are looking completely out of step with what players want and need their big comeback moments. Right? When we look at this situation, in many cases, you don't necessarily have to be gaming exec CEO, right? Like gaming knowledge CEO. But in this situation for Microsoft, who they need is that person, right? On top of this, losing the console race. top of

this to the point that you're going multiplatform and supporting Sony in order to make the math work on top of this whole studios are all recoiling from layoffs and just trying to stabilize their culture, stabilize their studios. So yeah, Xbox needs a back to basics focus on gamers to build confidence internally to have a chance at rehabilitating its studios. And personally, I just don't see Asha being that, even though agreed, she's an absolute monster operator because unfortunately, like just part of dealing with creatives is credibility. And I have a ton of battle scars on this, but like walking into that room as the AI person from Instacart is such [laughter] a cultural mismatch. It's how do you gain that credibility fast enough with these teams is a huge issue. And not to mention the PR issue, but I'm not even going to talk about that. All respect her on paper. She's a monster operator as you said like porch billion dollar annual run rate managed Facebook messenger Instacart COO all the way to

that IPO she did that by driving significant monetization changes like revenue per user metrics not so much cost cutting not so much sort of audience growth so that's why it comes back towards like can she win back gamers and can she ship hits and with such a stated reason that he loves that She builds and scales platforms and aligns business models to long-term value and operates global scale. She drove ads at Instacart, [laughter] right? Like that's a platform monetization AI infrastructure resume, not a save the creative brand that's losing the console war resume. So right now all signals say that she's been hired to make Xbox make sense for Microsoft, not to make Xbox make sense for gamers. So, I'll take a slightly different take from you, Eric, on like if I were Asha, right? Like, we're not going to change this appointment, and I totally agree with you about like what the default path will be here, but if

she's listening, if I were Asha, what strategy would actually make sense. number one completely aligned, maybe not a CEO, but you need to headhunt an operator with serious credibility. That will absolutely break through the doors of a number of these studios, as well as give you somebody you can trust to navigate some of these incredibly difficult conversations you've got across the studio board. Second, build a strategy around quality and gamer first, which I think will motivate the studios, which will regground everything. But the problem will be is that you need to restructure all of your different studios and franchises in order to align them with the market. So this is going to be the most painful step, right? Like your your 12 to 18 month comment around like studios like this is going to require big bets on P&L doubled downs that won't pay off in your games with major delays or studio closures and game closures. And then number three from my perspective is like finding the minimum

viable synergy let's call it give satcha just enough AI and cloud synergy to keep the lights on maybe like smarter tools for dev AI recommendations in the storefront I don't know that's going to be the challenge but like find that minimum viable strategy that is not like directly conflicting with what players want and just don't turn Xbox into a co-pilot storefront with a controller it Ultimately, these three things have to drive towards a strategy that reclaims revenue, not player share during Gen 10 console. Will she do any of this? Probably not. The incentives all point to synergy, efficiency, and AI, which is exactly what got Xbox in the mess in the first place. So maybe part of her education [laughter] is listening to this podcast. We'll see. We'll see. I was kind ofing wrong about Spencer, right? Evidently, I still may be wrong on this is that my assumption was Spencer was always looking out for Xbox and the gamer and I think that's his reputation, but the reality is he came up with these strategies, right? This

wasn't Sarah Bond and Sarah Bond is is becoming a scapegoat on this.
Yeah.
He's the one that was pushing subscription. He was the one that pushing Xbox anywhere. He was the one that basically was placating corporations on this strategy and he's the one that failed Xbox in order to push Microsoft's agenda, right? And so I agree with exactly what you're saying. I just don't think that that's what her mandate is, right? I think she's Satcha's person, you know, and and this is not going to go well. But what do you think, Phil?
I think the Supreme Court's going to go 40. I think the most important thing that basically unravels this whole situation
is to ask from Satia's perspective along what lines is Asha the right person to lead Xbox right now? Why would you choose this individual? And I think there's a very simple answer to this, which is well, let's look at Microsoft share price over the last 3 months, which gets even worse on a six and 12 month horizon. It's getting hammered relative to Google, Nvidia. Apple's actually up over a longer time period.

Amazon's still suffering. Then we can line of break down the year-over-year revenue growth for Microsoft's different subdivisions, and that's in front of us if you're watching the YouTube version right now. And you'll notice the Xbox content and services is consistently one of the worst performing. and you'll see that Azure is one of the best performing except for Q1 FY25 which is Activision Blizzard. So that's fake. Then we can kind of look at Microsoft's Q1 FY26 income statement and you'll find that enterprise so Microsoft 365 LinkedIn all of those things 33 billion cloud 30 billion then there's personal computing which includes Windows and Xbox at 13 billion and Micros Xbox is about 8 billion 6 billion it hovers around there so you're looking at a part of Microsoft which is about 8% of their total revenue. Not that important relative to the other things which is the next generation of computing which is happening right before our eyes. They

have burned so muching money on Xbox. They burned so much money on this Activision Blizzard acquisition that I guarantee you Satia would love right now to unlock more possibilities on the AI front and they don't have it. And I agree with everyone who's saying that they got to get rid of it. They got to get rid of core assets here. What other reason would you appoint her? What other reason could there possibly be? And to your point, Eric, you know, I don't have a lot of sympathy for Phil Spencer. Everyone seems to love this guy. He's a true gamer. He's a man of the people. Here's a picture of him and not Sarah Bond on his final day with Matt Rudy and Asha. Clearly beloved by the people. But you look at all the strategies that he developed and I'm sure there was pressure from Redmond. That's one of the things that's important about being an executive is managing expectations both up and below you. But like they missed on Game Pass that all the evidence was running. We've been shouting this on this podcast that this is incompatible with the fundamental paradigm of gaming. It's been tried over and over and over again. Long live on live and no one seems to learn. They don't seem to want

to take any of these lessons which is just so frustrating. And so I think the more interesting question is who's going to buy King Games [laughter] cuz that is the first thing you got to rip off. Is it going to be private equity? I mean it's got to be fire. Eric, who is knocking on the door? Why would you not be knocking? Dude, if I was if I was a PE guy, if I was savvy, if I was Dexon, I don't know. I think you should start knocking start putting offers in, right? I mean, that's got to be what's happening right now. If we are right about this, why wouldn't you be why wouldn't you be knocking at that door?
First of all, because it's the only profitable asset they have in the whole [ __ ] business, you know? So, it's like I mean, do you really want to get rid of the golden goose, you know, that they like 30 40% margins every year?
More hole for AI and plus private equity, you're going to go in, you're going to gut Stockholm. What is it? 3,000 employees, 1,000 at King. That is absolutely unnecessary to run.
Again, if they start spinning out [ __ ] like King, then it is [ __ ] over, right? Like everything is gone ultimately, right? Because they don't want to lose their most profitable asset, you know? So,
and consistent revenue, right? Like all

the other gains or peaks and valleys, pops and drops because of everything else.
You can get that all in a sale price. You can get that all net present value. You need coal right now to get the AI war machine going.
Yeah. So at at the end of the day, that's what what's going to happen is that she is going to figure out a way of packaging this up, spinning it out, getting rid of everything, and then move on to be CEO of a SAS company or social media company or something, right? And that's it. It's already written, you know. So anyway, what do you think, Jen?
Yes, you're right, Phil. This is a 40. I think I'm going to co-sign everything that you guys said. So because I'm going last, I wanted to take a different angle. And so I wanted to focus on three areas. One is leadership. Number two is brand. And then the last one is competition. And so that's my spiciest one. So again, I want to set this up with I am an Xbox fan. And so this is like it just kind of personally hurts to see what this happen. So first is leadership. So this feels like a

leadership miss on so many different levels from a number of people inside of Microsoft. And it makes me sad to see gamers and also women treated like this. So one, Satcha not even mentioning Sarah Bon and his letter is so disrespectful to her and her team and the surrounding team no matter what the reason was. You thank people for their contributions and you wish them well. You take the high road and you just do that. Bond's own statement that was actually on LinkedIn didn't even appear until hours later and was never posted on Microsoft's official blog. Her social media team was so caught off guard that a presscheduled LinkedIn post about Xbox accessibility went live just before the departure news broke and it sat there awkwardly for hours. I've heard rumblings, I'm sure you guys have as well, that she was challenging to work with, not that impactful, you know, good at partnerships, but that doesn't change my

stance that you still publicly give respect to the people in the team. So, under leadership number two, Phil and Satcha didn't pivot on the succession plan. Assuming the answer wasn't Sarah Bond, they should have done something different. A lot of my friends are talking about the succession planning that was at Disney back when Bob Chapek was selected under Bob Iger but you know getting him ready you know Sarah Bond was in that position when they knew it wasn't working out they should have pivoted and Satcha should have said Phil we need somebody else and we need to like give them time typically you know when you know it's not working you got to make another move so number three is Satcha and team are not understanding the kind of leader that you need for this particular moment, for this particular kind of business, for this particular audience. Spoiler, it's not someone like Chararma. While I you guys are lovely in how you're saying she's an

apex predator and she's all those things are wonderful and she looks like a badass. And you know, it's the same thing when Johanna Fairies became CEO of Blizzard. You know, we we said the same thing. She doesn't have a lot of game experience, although she was on the Call of Duty franchise in Call of Duty esports. You know, they surrounded her with talent. And Blizzard, I would actually argue, isn't the [ __ ] storm that it was like, it seems like that's going a little bit better. So, kudos to Adam. I wanted to give this is the line of the episode. All the signals say she's been hired to make Xbox make sense for Microsoft and not make Xbox make sense for gamers. And I think you kind of nailed it there on the the leadership kind of thing is they picked in a sense the wrong embodiment of a leader. The leader for this business has to be an insider. It has to be a gamer. They have to have legit street cred. They need to be a beacon of hope for gamers in the game industry on a sinking Titanic ship

that is Xbox written on the side of it. Peter Moore, Frank Jabau, Owen Mahoney. Hell, even bring Bobby Kotek back. That would have been a glimmer of hope for those of us in the industry that would have been like, "Okay, got okay, at least somebody understands gamers in this industry because it is like an absolute, you know, weird industry that we have here." Okay, number two is brand. So, this pains me again as an Xbox fan who came back in in 2001. Did you guys play four player co like co-op Halo on a screen? Like, it just really really, you know, brought me back. Xbox was cutting edge. It was like rebellious. And this is just not what the brand is today. It's has a brand identity crisis. And this leadership change just actually makes it a little bit worse. When your new CEO comes in from AI, your co-founder calls it palative care. Your console sales are down 32% and the brand story you're telling is one of retreat, not of

renewal. So that was kind of my feeling coming out of her three pillars where she's trying to say, "Hey everybody, it's going to be great again." She described the three pillars as great games, return of Xbox, and future of play. Specifically calling out returning to Xbox's founding spirit of surprise, rebellion, and fun. She's leaning hard into this, but I think all of us are like, "Not sure I believe you on that." All right, my final point. Competition. And so here's my spicy weird take for you. No one hates this announcement more than PlayStation. So PlayStation needs Xbox thriving because Xbox going multiplatform, Adam, to your point earlier, has turned Microsoft Studio into a premium content pipeline for PlayStation, Forza, Gears Reloaded, okay, maybe not that one as much, although I'm a huge Gears fan. Indiana Jones, Doom, Age of Empire 2. We need a competitive Microsoft gaming division. Xbox has to avoid Monopoly land out

there for PlayStation, and I don't mean Monopoly Go without meaningful competition. Sony has less incentive to innovate on pricing, services, quality. You know, if you look back to what happened with PS3 when they were super arrogant and they charged a lot of money for PS3, it really incentivized them to come out with PS4 and get back to it because Xbox 360 like kind of kicked their ass a little bit at that time. So, we need that competition going. Okay. Anything to wrap up?
In some ways, I think you're right about PlayStation. They need a competitor, but I do think they are celebrating because they know that this is probably the end, you know, so they will win or they have won and they will win, continue to win, [laughter] right?
Yeah. And that's why, you know, I I think there's like mixed feelings, especially with this multiplatform strategy. And I think in the news today, you know, fans were saying go back to exclusives and she said something like, "Hear you." And so now everyone's like, "Oh, are they going to pull back on multiplatform?" You know, I don't I

don't think that's I think they found a new drug. Did they turn into a publisher? I guess that's my other take
is
yes, they keep saying console is going to be around, but it feels like from what they're showing us that they're more of a publisher than a console manufacturer.
I think we will continue to talk about this, but I think it's more of the same on a strategy perspective. So,
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