Scott Van Vliet, Xbox’s chief technology officer, will lead the new Xbox Labs team. (LinkedIn Photo)
Xbox is creating a new team to experiment with technologies that are changing how games are made, ported and played — including some that run counter to how the game industry and its business have traditionally worked.
Microsoft Xbox CEO Asha Sharma announced Xbox Labs on Tuesday in a memo to employees, describing it as “a small group of game makers, engineers and scientists whose job is to turn emerging ideas into things our players and developers can experience.”
The group will be led by Scott Van Vliet, Xbox’s chief technology officer since May. Sharma said the team will build in the open and measure success “by whether more people are playing and creating.”
Sharma pointed to recent examples of games being decompiled and rebuilt to run on hardware they were never designed for, as well as Windows PC games translated to run on Apple Silicon or inside a web browser. She called these “unmistakably good outcomes for players, even when (and sometimes because) they challenge our existing business models.”
The memo never uses the term AI (or SI), but it frames the effort in part around AI agents.
“Coding became the first major workload for agents because they can write, run, and test software,” Sharma wrote. “Games share many of those same properties.” She said people spend more than 72 billion hours a year playing Xbox games, roughly five times the estimated time spent writing code worldwide.
Sharma came to Xbox in February from Microsoft’s CoreAI division. In her first memo as CEO, she said games would be “crafted by humans, and created with the most innovative technology provided by us,” and pledged not to “flood our ecosystem with soulless AI slop.”
In May, she pulled Gaming Copilot from mobile and canceled its console launch, saying Xbox would “retire features that don’t align with where we’re headed.”
Microsoft last month cut 268 roles in Xbox Game Studios and moved work on the next Halo game to Activision. It was the latest round in a reset Sharma announced in July, which called for about 3,200 job cuts by the end of this fiscal year, roughly 20% of the Xbox workforce. The company said at the time that the restructuring was about 75% complete.
Xbox’s priorities aren’t changing, Sharma wrote in her new memo, describing Labs as “a way to explore new technology without abandoning the work already underway.”
Microsoft cut hundreds of additional jobs Tuesday, including 268 across its Xbox game studios. (GeekWire File Photo / Todd Bishop)
Microsoft is making hundreds of additional layoffs on Tuesday morning, continuing the Xbox restructuring announced in July but also extending beyond it with job cuts in areas including cloud, AI, marketing and research.
The company said the total reductions number fewer than 600 globally. About 300 of them are in Washington state, according to the company. It continues the steady trickle of job cuts by Microsoft and other tech companies in the Seattle region in recent months.
[Update: A filing made public Thursday put the official total in the state at 277 jobs.]
Worldwide, the company is cutting 268 roles in Xbox Game Studios, including Halo Studios, other first-party studios and the division’s management and operating teams.
It’s the continuation of a larger effort by Xbox CEO Asha Sharma to cut costs and consolidate game studios under fewer publishers in an effort to return to growth and profitability.
Microsoft said in July that Xbox would shed about 3,200 roles by the end of its fiscal year, roughly 20% of the division, in what Sharma called the biggest restructuring in Xbox history. The latest Xbox cuts are part of those previously announced numbers.
The company said Tuesday that the Xbox restructuring is now about 75% complete.
“The goal is to strengthen our franchises and games by operating fewer business units, aligning groups that already work closely together, and focusing our publishing expertise,” Matt Booty, Xbox chief content officer, wrote in a memo to employees Tuesday morning.
New Xbox restructuring details
Work on the next Halo game is moving to Activision, which Microsoft acquired in 2023 for $68.7 billion. The game will be led by a new team separate from the Call of Duty franchise.
A reduced team will stay at Halo Studios (formerly 343 Industries) in Redmond to support existing Halo games, the community and esports.
Rob Kostich, president of Activision, said in a statement that the company has “already begun assembling a purpose-built team, unique in capability and talent.” He said the goal is to “make the greatest Halo game ever, worthy of its universe and legacy, while staying true to what made players love it in the first place.”
Activision is also taking over World’s Edge, the Redmond studio behind Age of Empires, and assuming control of Rare, the English studio behind Sea of Thieves.
Ninja Theory is facing a possible shutdown. Microsoft said in July it had a deal to hand off the studio, which makes the Hellblade series. That agreement fell through, as did a second one. Microsoft is telling employees that the studio could close, but it still hopes to hand it off.
Obsidian Entertainment will become part of Bethesda. The California studio made Fallout: New Vegas for Bethesda in 2010 as an outside developer, and it’s working on another game set in the Fallout universe now. Obsidian’s Grounded survival franchise will move over as well.
Microsoft Casual Games is moving under King, the maker of Candy Crush. The Redmond team makes Microsoft Solitaire and other titles bundled with Windows.
Turn 10 Studios and Playground Games will merge into a single studio, making both the Forza racing games and the Fable series. Turn 10 is in Redmond and Playground is in England. The two have worked together on Forza for a decade.
Undead Labs has been spun off. Microsoft said the Seattle studio behind State of Decay transitioned on terms similar to Compulsion Games and Double Fine, which went independent in August, and that State of Decay 3 will launch on Game Pass on day one with a new publisher.
Arkane in France still has no announced outcome. It’s the last of five studios Microsoft moved to divest in July. Consultations there are expected to run through the end of the year.
Companywide job cuts
More details on Microsoft’s Washington state cuts, including the types of roles affected, will likely emerge later through a WARN notice filed with state employment officials.
The company described the reductions beyond Xbox as part of the normal course of business, as teams reevaluated their needs, with no single cause behind the layoffs. Microsoft and other big tech companies have been keeping a tight rein on operating expenses as they plow tens of billions of dollars into new AI and cloud infrastructure.
Microsoft eliminated 4,800 jobs globally in July, about 2% of its workforce, including 605 in Washington state. In 2025 it cut more than 15,000 across two rounds, about 6,000 in May and around 9,000 in July, including 830 in Washington.
The company also offered voluntary retirement for the first time this year. About 30% of roughly 8,750 eligible U.S. employees took the buyout, which reduced the size of the July layoffs.
At the same time, Microsoft continues to hire in other areas. The company said 850 university hires started in August and that it had 1,300 interns over the summer, many of whom it works to convert into full-time roles.
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