Big Tech Retreats from Low-Margin Gaming: MS Lays Off 3,200 Xbox Employees

Xbox Faces Soaring Component Costs and Mass Game Pass Exodus
Amazon Halts Development of Major Titles... Google Shuts Down "Stadia"

Global big tech companies, which boldly entered the gaming market leveraging their financial power, are struggling to succeed. Following Google and Amazon, even Microsoft (MS) has failed to withstand the worsening margin structure and mounting cost pressures in its gaming division, and has begun an unprecedented round of restructuring.

On July 6 (local time), MS officially announced layoffs affecting approximately 4,800 employees, about 2.1% of its global workforce. Of these, as many as 3,200 employees—accounting for 70%—are from the gaming division (Xbox), and half of them, or 1,600 people, were notified of immediate termination.

Alongside this, MS decided to spin off or sell four Xbox-affiliated game studios, including "Compulsion Games" and "Double Fine Productions." The organization will be downsized and restructured, with the creation of a new Chief Operating Officer (COO) position overseeing content, hardware, platforms, and services. The reporting system, which previously could require up to 14 steps, will be drastically reduced to three to five steps.

Asha Sharma, the new head of Xbox, explained the background of the restructuring in an internal letter, stating, "Compared to similar competing platforms like Sony PlayStation (PS) and Nintendo Switch, our business margins are three to ten times lower."

In particular, the sharp increase in semiconductor chip prices for consoles and the slowdown in subscriber growth for the subscription service "Game Pass" have been analyzed as factors weakening Xbox's competitiveness. Matthew Ball, Chief Strategy Officer (CSO) of Xbox, revealed during a panel discussion at last month's Summer Game Fest that "just a few months after the Game Pass price hike, millions of subscribers left." Previously, in October last year, Xbox abruptly raised the Game Pass Ultimate subscription fee by about 50%, from $20 to $30 per month.

MS is not the only big tech company that has faced disappointment in the gaming market. Amazon, the world’s largest e-commerce and cloud company, established "Amazon Game Studios" with the goal of developing its own major games and launched the MMORPG "New World" in 2021. While the game appeared to succeed by surpassing 910,000 concurrent users at its peak, it rapidly lost users due to a lack of content and poor operations.

Ultimately, Amazon implemented company-wide restructuring last October, laying off 14,000 employees and significantly downsizing its gaming business. The company announced a complete halt to the development of expensive AAA titles and MMO games, which require massive development and fixed costs. "New World" also stopped receiving additional content updates, and the company confirmed it will permanently end the service in January next year. However, Amazon is maintaining its publishing division.

Google also declared the dawn of cloud gaming without consoles in 2019 by launching the "Stadia" platform, but shut down the service in 2023 after just four years. Although there was interest in whether it would become a new revenue source for Google, technical issues such as latency and a lack of exclusive content made it difficult to attract users.

Industry insiders believe that big tech companies are choosing to focus on their core businesses, which offer more certain returns, rather than the uncertain prospects of the gaming sector. In particular, they noted that as these companies concentrate capital investments in the field of artificial intelligence (AI), they are quickly scaling back the low-margin and high-risk gaming divisions. With developer salaries on the rise and few mega-hits, it has become difficult to expect the same profitability as in the past.

An industry insider commented, "With astronomical funds required for the globally trending AI sector, big tech companies are streamlining their organizations and pursuing workforce efficiency as their gaming businesses enter a stagnation phase." "Given the difficulty in achieving cost-effectiveness, the global gaming market is likely to remain dominated by established leaders like Sony and Nintendo for the time being."

This content was produced with the assistance of AI translation services.