Xbox insider reveals truth behind layoffs and axed games as Microsoft set impossible goals

The reality behind Xbox’s cut-throat business decisions has been laid bare, as a report highlights the unrealistic profit goals laid down by Microsoft.

Between mass layoffs and a graveyard of cancelled games, it’s clear Xbox has been on the backfoot this generation, even as their new multiformat policy begins to pay dividends.

Microsoft’s purchase of Activision Blizzard for an astronomical $75.4 billion (£56 billion) was a key turning point. Since then, Activision’s profits have largely papered over Xbox’s financial losses, as sales for the Xbox Series X/S continue to nosedive.

Xbox has been adamant that its hoped for answer to all these problems, Xbox Game Pass, is profitable – but recent price hikes suggest not enough. And now a new report sheds light on why Xbox might be so desperate to maximise profits and why their plans seem to be constantly changing.

According to Bloomberg, ever since autumn 2023 (around the time the Activision Blizzard deal was finalised), Microsoft executives set its Xbox division a goal of 30% ‘accountability margins’, a term the company apparently uses as a euphemism for profit margins.

That goal is what has led the gaming division to cancel games, raise prices, and cut thousands of jobs, according to anonymous sources in the report.

For context, the average profit margin in the games industry, over recent years, has ranged between 17% and 20%, according to estimates from S&P Global Market Intelligence. Over the past six years, Xbox’s profits have reportedly been between 10% and 20%. In the first nine months of the 2022 fiscal year, for example, the gaming division had a 12% profit margin.

As you can surmise, a 30% profit margin is a pretty unrealistic target, especially at a time when Xbox Series X/S sales are dismal and the profitability of Xbox Game Pass has always been in question.

This target is said to have been implemented by Microsoft Chief Financial Officer Amy Hood and, according to sources at Bloomberg, games that are either cheap to make or those likely to generate more profit may take priority as a result.

It’s said Xbox’s hardware division ‘may face a significant rethinking’ too, which lines up with recent comments of the company making a ‘very premium, very high-end’ console – a different approach which again, is likely to maximise profits over any genuine consumer interest.

According to the report, while not every project is expected to hit this 30% profit target, many Xbox developers and groups have been ‘presented’ with the goal.

In response, an Xbox spokesperson did not deny the target, but said that they ‘look at the business as a whole’ to balance creativity, innovation and sustainability.

‘As with any creative business, sometimes that means making hard decisions and stopping work on things that are no longer working for a variety of reasons, and shifting resources toward the projects that are more aligned with our direction and priorities,’ they said.

In other words, this 30% profit margin goal is clearly accurate, and it does make sense when you consider decisions Xbox has made over the past two years – between the multi-platform pivot, layoffs, the cancelled games, studio shutdowns, and price increases.

Even with these financial cutbacks though, some of Xbox’s investments are puzzling if they’re trying to maximise profits. The ROG Xbox Ally X might cost £800, but considering how small the PC gaming handheld space is, it’s hardly the place for record-breaking sales.

Next year represents the 25th anniversary of Xbox, which might be the company’s best year in some time if they do launch Gears Of War: E-Day, Forza Horizon 6, Fable, and the long rumoured Halo remake. But even if all those hit in a big way, it’s still hard to imagine Xbox will hit Microsoft’s lofty goals – given they’re way above the industry average.

They’re so unreasonable it seems fair to wonder whether the Xbox division is being set up to fail, or at least that an excuse is being created to significantly downsize it.

Either way, the likely outcome is these sky high targets will simply lead to more catastrophe, in the form of more layoffs and studio shutdowns – at the expense of developers who, even if they move mountains and defy expectations, could still end up without a job by the end of it.

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