Microsoft and Xbox Cut 4,800 Roles amid AI Integration Push

This week, Microsoft cut approximately 4,800 jobs – around 2.1% of its global workforce – in an effort to reorganise the company amid its AI acceleration strategy.

Microsoft’s Commercial segment and Xbox will be the most affected divisions according to a company statement from Executive Vice President and Chief People Officer Amy Coleman, who stresses the roles being eliminated are “not being replaced by AI”, but that “AI is changing how work gets done”.

She told staff that Microsoft needed to prioritise areas that can deliver for customers amid a “fast-changing industry”.

Xbox CEO Asha Sharma left employees a similar note, describing this shift as “the most significant restructure in Xbox history” and that the industry is facing its “most severe hardware crisis” in company history.

In addition to the layoffs – with Xbox having cut 1,600 roles already – Asha added that several gaming studios owned by the Microsoft segment would be spun off following the changes.

“We must reset Xbox,” she adds.

Reducing costs ahead of AI integration

This isn’t the first time the tech and gaming industries have experienced a trend of sector-wide cuts to their workforces.

In the past few years, many studios have enacted substantial layoffs to save costs and restructure ahead of AI integration. 

In 2024, Xbox previously cut around 2,000 roles and closed four gaming studios ahead of its acquisition of Activision-Blizzard.

Only a year later, Microsoft announced that it would cut up to 9,000 jobs amid plans to spend billions on AI development.

Another reason for these cuts can be attributed down to the increase in hardware costs, which have subsequently pushed companies like Microsoft to hike the prices of consoles that have been in circulation for years. 

Industry analysts have suggested the rise in AI data centres driving demand for rare earth materials and hardware has choked the supply chain for many tech companies.

Within Amy’s memo, she highlighted these unexpected industry shifts and explained that Microsoft’s business was changing “because the world around it is changing”. She says that the way technology is built and used is “transforming faster than at any point” during her tenure.

Amy adds: “Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”

A rise in generative AI investment

The layoffs announcement comes following the recent launch of Microsoft’s Frontier Company business unit, a segment designed to deliver enterprise AI deployments with the company’s existing AI tools and engineers.

This launch is backed by a US$2.5bn investment, further emphasising the correlation between workforce cost reductions and increased AI spend.

Amy comments on the layoffs, saying the restructuring will help “position the business for long-term success” and that evolving workforce systems will help “meet customer needs and innovate for the future”.

As major companies like Microsoft – in particular with Xbox – announce layoffs, industry experts suggest that opportunities in the gaming industry are being impacted by the rise in generative AI technologies. 

AI firms like Google DeepMind, World Labs and Luma AI have received millions in funding over the past years and some have garnered hype over their creation of playable world models – DeepMind’s Genie 3, for example, offers users a simulation experience capable of real-time interactivity.

Microsoft added that in addition to the layoffs, it is currently working on ways to retain staff by enhancing their skills alongside AI integration or placing workers in new positions.