It seems Microsoft’s patience with its gaming arm’s hubris, bizarre strategic decisions, and failure to deliver has finally run out. On Friday, Phil Spencer announced his abrupt retirement from the position of CEO of Microsoft Gaming, overseeing Xbox and Microsoft’s rapidly expanding publishing and development empire. Nobody abruptly announces their retirement on the previous working day unless they have been asked to — or unless they submitted their offer of retirement just before the request came.
Spencer, then, must carry the can for the strange state that Xbox finds itself in in 2026. I say strange; you could call it disastrous, but that wouldn’t really encompass the lopsided totality of a nakedly failing console business yoked to a rapidly acquired, too-big-to-fail software powerhouse. That organization encompasses Activision Blizzard, Bethesda, and Xbox Game Studios, and owns Minecraft, Warcraft, Call of Duty, The Elder Scrolls, Halo, Diablo, Forza, Candy Crush, and countless other invaluable gaming properties.
Spencer was at least afforded a fairly dignified, if swift, exit. His second-in-command Sarah Bond quit without apparent warning or, initially, any comment at all. It was easy to read this as pique at being passed over for the top job that Spencer appeared to be grooming her for. That post — CEO of Microsoft Gaming — has gone to Asha Sharma, a career executive in the tech and services industries who was most recently, albeit briefly, in charge of Microsoft’s hazy CoreAI project.
Bond’s departure made the messaging uglier than Microsoft might have liked, but also clearer: The tech giant was cleaning house and looking for a fresh perspective. Xbox fans have been riled by Sharma’s apparent lack of experience or even contact with gaming. But that may be the point. As Microsoft’s boilerplate comment on the leadership changes put it: “She brings deep experience building and growing platforms, aligning business models to long-term value, and operating at global scale.” In other words, Sharma can look dispassionately upon her new domain’s messy tangle of brands, cultures, and businesses and make the numbers go up.
As hard as it may be to ignore, Sharma’s history with AI is probably best set aside for now. Her two-year tenure at CoreAI was too short to be really meaningful. (In fact, it was so short that her move to Xbox may say more about Microsoft’s uncertainty about the direction of its in-house AI products like Copilot versus its investment in OpenAI’s ubiquitous ChatGPT.) Pressure from the top of Microsoft to incorporate AI in everything Xbox does will continue to be irresistible, regardless of who’s in charge. Sharma’s time running a vast, mass-market, user-facing network at grocery delivery company Instacart seems more relevant (if only so much so).
Regardless of his replacement, it’s probably right that the buck should stop with Spencer. His credentials were impeccable. He joined Microsoft as an intern in 1988 and worked on Xbox for 25 years, from the very start. He genuinely loves games and is well liked by peers, fans, and the media. When he gave interviews, he spoke with deep understanding and surprising frankness about the challenges and future direction of the game business. He was instrumental in saving Xbox from disaster when he took over from Don Mattrick in 2014 and set about rescuing Xbox One by abandoning Kinect and rebuilding credibility with gamers. He pushed his rivals at Sony and Nintendo toward player-first changes in industry culture, helping to standardize backward compatibility and cross-platform play.
But it turned out that Spencer’s vision for the future of Xbox had its own quirks. Anxious to anticipate the future, he was thinking beyond consoles almost from the start. Bringing PC gaming under the Xbox umbrella was probably a logical move. But no matter how many times he denied it, he absolutely did want to turn Xbox into the Netflix of gaming, and invested heavily in the Game Pass subscription service and cloud gaming in pursuit of this goal. In this he was either misguided or too ahead of his time. The demand wasn’t there; Game Pass has plateaued at a fraction of the audience size of its streaming video counterparts. And the strategic cost was incalculable in terms of wasted or cannibalized game sales, general devaluation of games, and all those expensive studio acquisitions — which were motivated more by a desire for Game Pass exclusives than Xbox ones.
Nevertheless, the two decisions that made Xbox’s position truly unrecoverable came from above Spencer’s head. Only Microsoft CEO Satya Nadella can fully own responsibility for the $69.7 billion acquisition of Activision Blizzard. The sheer scale of that deal brought intense scrutiny from regulators, shareholders, and Microsoft’s own bean-counters, and there was nowhere to hide from the fact that it made the company’s responsibilities in gaming much larger than the size of the Xbox audience could support. If Spencer had sidelined the console platform somewhat, it was Nadella’s Activision deal that made it almost irrelevant.
In the wake of this costly expansion, Microsoft CFO Amy Hood demanded unprecedented and probably unworkable 30% profit margins from the gaming business. It was this call that drove cancellations and studio closures, and that gave Xbox’s most precious properties like Forza and Halo the final push onto rival platforms like PlayStation 5 where they could start making money (since Game Pass had made this next to impossible on Xbox).
So that’s where we stand with the blame game. Spencer owns much of it, but so does Microsoft’s most senior management, who are still in place, and unlikely to change tack. That being the case, what options does Sharma really have for change?
Not many. Sharma promised “the return of Xbox” and a renewed commitment to Xbox consoles, “which has shaped who we are.” But her room for maneuver here is limited. By all accounts the shape of the next Xbox generation — a Windows-based, PC-like platform, running on expensive “premium” hardware — has already been decided and, with new hardware expected as early as next year, it’s surely too late to change it. This strategy would appear to lock Xbox out of mass-market competition with PlayStation and Nintendo for the next seven years at least. Perhaps the RAM crisis and attendant delay to PS6 buys her a little time.
There are a couple of levers Sharma can pull to try to revive the Xbox brand. Firstly, she could reverse course on platform exclusives. (“Hear you,” she responded to one fan on X on the topic of exclusives, which indicates the vaguest openness to the idea, but no more.) Microsoft’s profitability drive would seem to make this decision impossible to make. And with every company but Nintendo looking beyond their own platforms for success, it might be swimming against the tide.
Secondly, she could deprioritize Game Pass, rolling back the commitment to day-one releases. This would be embarrassing, and takes value away from players rather than adds it, but it might be financially necessary if the service isn’t growing.
Aligned against these considerations is the gravitational pull of Microsoft’s huge panoply of studios. The elevation of studios boss Matt Booty to what seems to be Sharma’s second-in-command, without a change in his actual portfolio, underlines that Microsoft is, above all, now a massive third-party publisher with a vast development workforce which values Minecraft and Call of Duty at least as much as, if not more than, Xbox. This is a fact of life and recognizing it in the org structure isn’t necessarily a bad thing.
But is Booty the right person to run it? He managed the relationship with Minecraft developer Mojang very successfully after Microsoft acquired it in 2014. But his tenure as steward of the wider portfolio of studios since 2018 has been characterized by endemic and all-too-familar mismanagement ending in uneven schedules, game cancellations, and studio closures. It’s understandable that Microsoft wanted some continuity somewhere in its changing of the guard, and reassurance for its empire of developers. But this part of the business arguably needs a new broom as much as any other. Without one, Sharma’s opportunities for reform are, again, very limited. Sadly, wielding the ax and cutting more staff, studios, and projects might be the most effective tool she has.
Something had to be done; Xbox has to change. But even giving Sharma all the benefit of the doubt, it’s hard to see her route to success. The cascading consequences of over a decade of decision-making — by no means all of it Spencer’s — has locked Microsoft’s gaming business into its current, unwieldy shape. Making sense of it will take toughness, vision, and staying power. Whether Sharma has those qualities is one open question. Whether Microsoft’s senior management will allow her to exercise them is another.
