Amazon confirmed Wednesday that it laid off an unspecified number of employees in its artificial general intelligence (AGI) organization, the division working on the company’s advanced AI models.
The move, first reported by Reuters, comes as the company invests heavily in programs to help businesses implement AI effectively, including a $1 billion initiative to embed AWS engineers with customers building agentic AI systems.
It’s part of a larger shift in the industry as tech giants and AI frontier labs look to make sure the enormous sums they’re spending on AI pay off in tools businesses actually use.
In a statement, an Amazon spokesperson said building large AI models remains “one of the most important things we’re working on,” but said the company is also “sharpening our focus on the initiatives that matter most for customers, so we can move faster on what counts.”
“That focus means some difficult decisions, including eliminating some roles within parts of our AGI organization, even as we continue to invest in the areas most important to our customers’ future,” the spokesperson said.
It’s the latest in a series of changes in Amazon’s AGI group, which despite its name has always been focused more on frontier models than on what the industry considers AGI, the still-theoretical systems that would match or surpass human intelligence.
Rohit Prasad, the senior executive who oversaw Amazon’s AGI work, left the company late last year, and AGI Lab head David Luan departed in February. In December, Amazon folded the AGI group into a larger organization led by senior vice president Peter DeSantis that also includes chip development and quantum computing.
The cuts are the latest in a series of smaller reductions since January, when Amazon eliminated 16,000 jobs across the company. Amazon said U.S. employees whose jobs are cut will receive 90 days of pay and benefits, outplacement support and transitional health coverage, along with eligibility for severance.
The company said it is reducing its headcount by 20%, or about 630 staff, to "support a leaner, more focused operating model" as it focuses on its AI Work Platform.
ROCKVILLE, Maryland—Hundreds of Bethesda Game Studios and Zenimax Online Studios employees and their supporters braved nearly 100° F temperatures to protest sweeping layoffs across Xbox during a lunchtime rally in front of parent company Zenimax's headquarters today. The rally was one of five today organized by Zenimax Workers United and its parent union, the Communication Workers of America, at offices across Texas, California, and Montreal.
Attendees held up signs with messages like "Layoffs... layoffs never change" and "Our players deserve better" as union organizers and employees rallied the crowd with speeches and songs. The overwhelming message was one of solidarity and a willingness to push back against job cuts they say have decimated their development and quality assurance teams.
"It's about us building our movement and making sure that we get seen and we're visible," Bethesda technical producer and union volunteer organizer Nathan Hahn told Ars. "Because we want to make sure that we're not okay with these layoffs and that Xbox knows."
Scenes from this week’s founder open house on the deck at GeekWire HQ in Seattle, where we also recorded this week’s podcast. Thanks to Delta Air Lines, Prime Team Partners, WTIA and ALLtech for sponsoring the event. (Photos by Kurt Schlosser and John Cook)
On this week’s show, we’re on the GeekWire deck for our annual founder open house, where we dig into Microsoft’s latest round of layoffs — including a major Xbox shakeup — and the surprising rise of hardware companies on the GeekWire 200.
Then we sit down with four guests to talk about how AI is reshaping how they build:
Jana Schuster of StackIQ, whose AI-native platform helps companies find redundancy in their software spending — like Rocket Money, but for business — with a small team.
Boaz Ashkenazy of Shift AI, who’s setting up always-on agents and rethinking how we interact with AI tools.
Finally, this week’s GeekWire Trivia Challenge: how a longtime T-Mobile executive got his start in the wireless business, and the star-studded history of T-Mobile celebrity endorsers.
It might not be a full Zuck, but Microsoft Xbox CEO Asha Sharma is getting lots of attention, and not in a good way, for the latter this week.
Sharma was named Thursday to co-lead a new Federal Reserve “Productivity and Jobs” task force, charged with assessing the economic impact of AI and other new technologies on the labor market. Her co-leaders: Marc Andreessen, the venture capitalist and vocal AI booster, and Stanford economist Charles I. Jones, who is currently on leave at Anthropic, maker of the Claude AI chatbot.
The gaming press, as you can imagine, is having a field day. The headline from Kotaku sums it up: “Xbox CEO Will Advise Federal Reserve On Jobs After Mass Layoffs.”
PC Gamer, for its part, noted that the task force is supposed to represent a “commitment to price stability and maximum employment.” However, that’s the Fed’s broad mandate, as described by Chairman Kevin Warsh. It’s actually not the specific mission of the Productivity and Jobs task force, which is narrower: assessing what AI and other new technologies are doing to the economy.
In a separate sign of the backlash, Microsoft communications chief Frank Shaw took to X on Friday to knock down claims that the Xbox cuts were made to replace employees with foreign workers, calling it “bad information” and noting that the H-1B visa figures being cited are company-wide renewals, not Xbox-specific. He also pointed out that Sharma is “an American born, raised, and educated CEO, from Wisconsin.”
Also lost in the coverage of the Fed appointment is the fact that Sharma is less than five months into the job, having taken over as Xbox CEO in February with a mandate to turn around and preserve a gaming division that spent more than $20 billion over five years while its core revenue shrank. The restructuring announced this week is a key part of that effort.
What’s more, it’s hard to imagine that this is the timing Microsoft or Sharma wanted. Announcements like this are often outside the control of the participants. The Federal Reserve sets its own schedule.
Still, it’s tough timing for an executive who announced plans this week to cut 3,200 gaming jobs — about 1,600 immediately, with the rest over the coming year — amounting to roughly 20% of Xbox’s workforce. Sharma herself called it the most significant restructuring in the division’s history.
Meta CEO Mark Zuckerberg’s superyacht Launchpad, for the record, is currently cruising the waters off Juneau, Alaska, a full 900 miles from Seattle.
In announcing plans for 3,200 layoffs across the Xbox division yesterday, CEO Asha Sharma focused on discussing cuts to the Xbox platform team and redundant layers of middle management. Now, though, word is filtering out about significant staffing cuts at remaining Microsoft-owned game developers including id Software and Bethesda.
Apogee and 3D Realms founder Scott Miller—who helped publish some of id's earliest games—wrote on social media yesterday of "insider reports" that a majority of id had been laid off, "including most (if not all) coders." And last night, veteran programmer Michael Maynard—whose credits at id Software date back to 2011's Rage—wrote on LinkedIn that he was among the "roughly 50%" of the id team that was let go Monday.
Game Developer cites "multiple anonymous sources" in confirming those reports, saying the redundancies amount to about 90 employees at the Doom studio. The first DLC pack for last year's Doom: The Dark Ageslaunched earlier today.
Amazon’s headquarters buildings and the Spheres in Seattle’s Denny Triangle neighborhood in September 2024. (GeekWire Photo / Kurt Schlosser)
Amazon has cut a total of 57 jobs in Washington state across various teams, including roles at the director and senior manager levels, according to a filing made public Monday morning.
People impacted by the cuts include 16 software engineers as well as product managers and creative marketing employees working in Seattle and Bellevue offices. Nine remote employees, including investigation specialists and risk managers, were also let go.
Employees were notified of the layoffs throughout May and in early June, according to an Amazon filing with the Employment Security Department, released Monday under the Worker Adjustment and Retraining Notification (WARN) Act. The roles are scheduled to end in August.
“[W]e filed a WARN notice because a few businesses across the company made organizational changes that each impacted a small number of employees — in most cases fewer than five employees per business,” said Brad Glasser, an Amazon spokesperson, via email.
WARN notifications are triggered by state law when more than 50 Washington-based employees in total are laid off over a period of 30 days.
“We don’t make decisions like this lightly, and we’re committed to supporting the employees who were impacted,” Glasser added.
It’s a sign of the broader belt-tightening across the tech industry. Microsoft separately cut more than 600 jobs in Washington state on Monday morning, part of global layoffs eliminating 4,800 roles across the Redmond company, primarily in sales, consulting and gaming.
The latest Amazon cuts follow layoffs of 2,198 Washington-based employees in February and 2,303 in October 2025. Globally, the company has eliminated roughly 30,000 positions in the past year, cumulatively amounting to the the largest workforce reduction in its history.
The multiple rounds of layoffs have hit wide-ranging positions and divisions, with software engineers the hardest hit. Corporate support, commercial functions, legal, tax, and ad sales positions have all seen cuts, as have Amazon’s core technology organization, gaming division and robotics unit.
The previous larger cuts were part of an effort to “reduce layers, increase ownership, and remove bureaucracy,” according to a memo sent to employees and posted online earlier this year by Beth Galetti, senior vice president of people experience and technology.
Amazon’s corporate roles numbered around 50,000 in the Seattle area.
Tech giants nationwide have made round after round of job cuts in the past year as they pour billions into AI data center expansions and gain labor efficiencies through the use of artificial intelligence.
Amazon reported $181.5 billion in sales for the first quarter of this year, up 17% from a year earlier. Profits came in at $30.3 billion, boosted by gains tied to the value of its investment in Anthropic.
Last month, Xbox executives laid out some "hard truths" about Microsoft's struggling gaming division that they said would require a difficult "Xbox reset." This morning, Microsoft revealed the brutal shape of that "reset," announcing plans for 3,200 layoffs and the divestment of five smaller studios that the company has spent years acquiring and shepherding.
Half of those 3,200 layoffs are effective today, new Xbox CEO Asha Sharma wrote, while the other half will come by the end of Microsoft's 2027 fiscal year (which runs through June 30, 2027). CNBC cites "a person familiar with the matter" in reporting that these cuts amount to roughly 20 percent of the Xbox division.
When combined with 1,600 newly announced layoffs across the rest of Microsoft, the company as a whole is letting go of just over 2 percent of its workforce. But The Seattle Times reports that Microsoft's total headcount has remained relatively stable thanks to other hiring.
Xbox CEO Asha Sharma laid out a wide-ranging plan to overhaul Microsoft’s gaming division Monday, calling it the most significant restructuring in Xbox history and disclosing that the business has been losing 64 cents on every dollar invested in its game studios.
As detailed in a memo to employees, the changes include roughly 3,200 job cuts through the fiscal year — about 20% of the Xbox workforce — the spinoff of four game studios, a new COO, and a plan to flatten management from as many as 14 layers to no more than five.
“We will return to growth in 2027,” Sharma wrote. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”
Sharma, a startup veteran and former Microsoft AI leader, was named Xbox CEO in February.
“I know this is painful,” she wrote. “These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.”
But she also reiterated what she said in a memo last month: Xbox’s business is not healthy, operating at margins 3-10x lower than industry peers after years of heavy spending that failed to produce the expected growth.
About 1,600 of the Xbox job cuts take effect Monday as part of a broader round of 4,800 layoffs across Microsoft. The remaining Xbox reductions will come in the months ahead. Sharma acknowledged that a year-long restructuring “creates additional challenges” but said “it is not possible to make all the necessary changes in a single day.”
Sharma said the cuts reach across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though no publicly announced games are being cancelled.
Several game studios will be spun out as standalone ventures, removing the costs from Microsoft’s books while giving the studios a chance to survive on their own.
Compulsion Games (South of Midnight) and Double Fine Productions (Psychonauts) will return to their management teams as independent studios, keeping their intellectual property and current projects.
Ninja Theory (Hellblade) and Undead Labs (State of Decay) will shift to new owners with funding to complete their current games.
In France, Arkane (Dishonored, Deathloop) is beginning a legally required consultation with its employee works council to determine its future.
Sharma will also take on direct oversight of game studios Mojang (Minecraft) and King (Candy Crush), Xbox’s two largest studios by monthly active players.
In addition, she is establishing a new chief operating officer role with end-to-end financial responsibility across content, hardware, platform, and services. Helen Chiang, a nearly two-decade Xbox veteran who led Mojang and the Minecraft franchise, has been promoted to the role. Dave McCarthy, a 17-year Xbox veteran who helped build the platform, is retiring.
Across the division, Sharma wrote in the memo, Xbox will cut vendor spending by 50% and reduce management layers from as many as 14 to no more than five.
The overhaul follows a 25-year period in which Microsoft largely subsidized Xbox as a strategic bet on the living room. Microsoft CEO Satya Nadella has said that era is over, noting that YouTube creators make more money from Xbox games than Microsoft does.
Microsoft is cutting 4,800 jobs, just over 2% of its global workforce, citing a need to revamp its sales and consulting division to keep pace with a rapidly changing tech industry, while overhauling its Xbox business in a push for long-term growth and profitability from gaming.
The cuts include about 600 jobs in Washington state, home to Microsoft’s Redmond headquarters. That’s down from 3,200 job reductions locally a year ago. Combined with ongoing hiring, Microsoft’s workforce in the state is expected to remain stable at around 52,000 people.
About 1,600 of the 4,800 job cuts being announced Monday are in the Xbox division. Additional Xbox layoffs in the months ahead are expected to bring total job reductions in the gaming division to roughly 3,200, or about 20% of the global Xbox workforce, this fiscal year.
Microsoft is also spinning off four Xbox game studios to operate independently.
In an internal memo, Xbox CEO Asha Sharma called it the biggest restructuring in Xbox history, saying the division has been “operating at margins that are 3-10x lower than comparable platform and publishing businesses” and that studios have been losing 64 cents for every dollar invested.
Overall, top executives sought to distinguish Microsoft from other tech giants, saying the cuts were minimized by the redeployment of more than 4,000 employees into new roles over the past year and a voluntary retirement program that let thousands more exit by their own choice.
By comparison, the company last year cut more than 15,000 jobs globally in two rounds of layoffs in spring and summer 2025 — the largest reductions in more than a decade.
The latest cuts come amid record capital spending on the company’s AI infrastructure, pressure from Wall Street to keep operating expenses in check, and a 30% stock slide that has wiped out roughly $1.2 trillion in Microsoft’s market value over the past nine months.
“Microsoft can only be a strong employer if it has a successful business,” said Brad Smith, its president and vice chair, in an interview with GeekWire. “We have to adapt to change.”
Before the latest cuts, the company’s total workforce was about 220,000 people. Across the company, Microsoft expects worldwide headcount to decline year-over-year, CFO Amy Hood said on an April earnings call.
Amy Coleman, Microsoft’s chief people officer, said in a memo to employees Monday morning that the roles the company is eliminating today are not being directly replaced by AI.
At the same time, she acknowledged, “AI is changing how work gets done.” She added, “Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves.”
However, the line from Coleman’s memo that may get the most attention internally is this: “We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes.”
In an interview, Coleman stopped short of signaling further layoffs across the company. Instead, she described a larger shift in how Microsoft manages its workforce. That includes reskilling engineers for customer-facing and AI-focused positions, and exploring how to make voluntary exit programs a regular part of the company’s operations — not just a one-time offer, but potentially something employees could opt into annually or on an ongoing basis.
Coleman confirmed that about 30% of roughly 8,750 eligible U.S. employees accepted Microsoft’s first-ever voluntary retirement program in recent weeks, in line with the company’s expectations, which reduced the size of the reduction in force announced Monday.
The cutbacks and changes in the company’s sales and consulting teams build on last week’s launch of the Microsoft Frontier Company, a $2.5 billion initiative to embed 6,000 engineers inside customers to deploy AI. The shift is reducing some traditional sales and consulting roles and resulting in more technical positions working directly with customers.
“We’re seeing that we need more engineering excellence in the customer space,” she said.
Smith said software development is undergoing its biggest shift in the more than 50 years since Microsoft’s founding. The widespread use of AI is making code cheaper and faster to produce, but he said that’s also creating demand for new kinds of roles and work.
“Some things like coding require less time of software developers,” he said. “At the same time, there’s new parts that are growing, whether it’s the product management or software design, or perhaps most importantly, working directly with customers.”
Update: A filing by Microsoft on Monday under the Washington state Worker Adjustment and Retraining Notification Act listed 605 positions being eliminated in Washington state.
The roles span software engineering, product management, sales strategy, data science, business program management, marketing, and game design, among others — ranging from mid-level individual contributors to senior managers, consistent with cuts that reach across both the company’s technical ranks and its sales and consulting operations.
Xbox at a gamescom briefing in 2014. Microsoft is pressing its games division to turn a profit. (Microsoft Photo)
In 2007, Microsoft’s Xbox 360 consoles started dying — overheating until three lights on the front blinked red, a defect gamers came to call the “red ring of death.” Microsoft’s response was to extend the warranty on every machine and take a charge of more than $1 billion to fix the problem, making it one of the costliest product failures in the company’s history.
Microsoft could afford it financially, but the bigger factor was strategy. Xbox was a bet on the living room, and for a company minting money on Windows and Office at the time, losing a billion or so was a justifiable cost of staying in the game.
Nearly two decades later, that patience has run out.
“Going forward, this cannot continue,” the new Xbox CEO Asha Sharma wrote in a memo to employees last month, offering a blunt assessment of a business that has spent more than $20 billion over five years, only to see its core revenue fall by nearly half a billion dollars, running at a thin 3% profit margin, by Microsoft’s own internal measures.
With thousands of layoffs expected to be announced across Microsoft as soon as next week, the Xbox division is likely to be among the hardest hit.
The cuts reach across the company — including sales and consulting — part of a restructuring that has become routine around the close of Microsoft’s fiscal year. But for Xbox, they’re an early step in a broader effort to reset the business, rein in costs, and position the division for healthier profits.
Microsoft CEO Satya Nadella has been blunt about it: the company has spent years subsidizing Xbox rather than profiting from it, and that era is over. The videos and livestreams of people playing Xbox games that fill YouTube generate more money than Microsoft makes from the games themselves, he noted in an appearance on the Hard Fork podcast.
“No one can accuse Microsoft of not having invested for the last 25 years,” Nadella said. “And now we have to turn this into a sustainable business.”
Long-term strategic bet
Turning it around means breaking a pattern that runs through Xbox’s history.
Xbox launched in 2001 and lost money for most of its first decade. Microsoft absorbed the losses and stayed in — going up against Sony’s PlayStation and Nintendo — because it saw a strategic prize in owning a piece of the living room, and later mobile. Online gaming also gave the company early experience running services at scale, which fed its cloud ambitions.
Over time, the goal shifted from selling hardware to selling subscriptions.
Xbox Live, launched in 2002, turned online play into recurring revenue. Game Pass, which arrived in 2017, let players pay a monthly fee — the top tier is about $23 — for a library of games, including Microsoft’s own new releases the day they come out. The idea was to get people paying for Xbox everywhere: consoles, PCs, phones and the cloud.
And when growth stalled, Microsoft doubled down. It paid $7.5 billion in 2021 for Bethesda, the studio behind Fallout and The Elder Scrolls, then $69 billion in 2023 for Activision Blizzard (whose games include Call of Duty, World of Warcraft, Diablo and the mobile hit Candy Crush) the largest acquisition in Microsoft’s history.
A series of economic headwinds
In recent years, almost everything about the economics of gaming has turned against Xbox at the same time.
Hardware loses money, and AI is making it worse. Microsoft sells consoles at or below cost, banking on games and subscriptions to make up the difference. But AI data centers are consuming so much memory and storage that chip prices have spiked. That has forced Microsoft to raise Xbox console prices, most recently a $100-to-$150 hike this summer that it blamed directly on component costs.
Xbox lost the console war. By most estimates, Sony’s PlayStation 5 has outsold the Xbox Series X and S more than two to one. A smaller base means fewer game sales and subscriptions to offset the upfront hardware losses. That has left Xbox a distant second for the entire generation.
Revenue is shrinking. Even setting aside the games it gained from Activision, Xbox’s annual revenue has fallen nearly $500 million over five years — while the money going into the business keeps climbing. It has been investing more to earn less.
Microsoft’s most recent quarterly filing shows gaming revenue of $16.8 billion for the nine months through March, down about $1.1 billion, or 6%, from a year earlier.
Game Pass cuts into sales. Handing subscribers a new game the day it launches undercuts the roughly $70 they would have paid to buy it. The service delivers steady subscription income, but thinner economics on the games themselves.
Activision didn’t fix the margins. Even with one of gaming’s most profitable businesses folded in, Xbox earns only about 3 cents of profit on every dollar — well under the 17 to 22 cents typical in the industry. If the biggest acquisition in company history can’t move the margin, little will.
Every spare billion is flowing to AI. Microsoft is pouring more than $100 billion a year into the data centers and chips behind its AI push, trying to capitalize on the boom. Against a risk and payoff that big, a gaming business that barely breaks even feels like yesterday’s strategic bet.
What’s next for Xbox
The cuts have already started. In recent weeks, Microsoft has signaled plans to close or sell some studios, including Ninja Theory, maker of the acclaimed “Hellblade” series.
Shedding staff, studios and marketing will lift Xbox’s profit margins in the near term. What it won’t do is fix the underlying problem: a business can trim its way to a better number only so much before it has to generate more revenue.
Sharma’s plan, so far, is to concentrate on Xbox’s biggest franchises, funding blockbusters like Halo and Fallout while pulling back elsewhere. It’s leaning on Game Pass and releasing most of its games on PCs and rival consoles from Sony and Nintendo, reaching players well beyond Xbox’s shrinking base, even as it holds back a few new exclusives like Gears of War to give owners a reason to stay.
Microsoft is also rethinking the console itself. In her memo, Sharma described a “hardware component crisis” that has left the company unable to make as many consoles as players want, and called for “a new business model and partnerships” for its hardware.
How far the reset ultimately goes is an open question. The Informationreported that Microsoft has weighed making Xbox a standalone subsidiary, a joint venture, or a spin-off, though nothing is imminent.
Microsoft’s response to the Xbox 360 “red ring of death,” July 6, 2007. (Seattle Post-Intelligencer / NewsBank)
Whatever happens next, it’s clear that times have changed. In 2007, as the red ring of death crisis emerged, Peter Moore, who ran the Xbox business at the time, and his boss Robbie Bach went to then-CEO Steve Ballmer to ask for the money to repair and replace the failing consoles.
Told it was $1.15 billion, Ballmer said, simply: “Do it.”
Moore credits that decision with saving Xbox. There would have been no Xbox One, he said, without Ballmer’s willingness to spend more than a billion dollars to protect the brand.
Nearly two decades later, Microsoft is done writing that kind of check.
Satya Nadella says the industry shouldn’t “cede value to a few models that eat everything they see.” (GeekWire File Photo / Kevin Lisota)
Microsoft is launching a new AI “company.” It won’t be a separate legal entity, and most of its 6,000 people already work at Microsoft. But the $2.5 billion behind it is real, and the stakes are big, given how many of its AI partners and rivals are racing to do basically the same thing.
The tech giant on Thursday announced “The Microsoft Frontier Company,” which will embed engineers inside customers to build and run AI systems. It will be led by Rodrigo Kede Lima, a longtime Microsoft sales and enterprise leader, most recently president of Microsoft Asia.
This practice is known in the industry as forward-deployed engineering, in which a company sends its own technical employees to work inside a customer’s operations to design, build, deploy and operate AI systems on-site rather than selling a tool and walking away.
The model was pioneered two decades ago by Palantir, but in recent months the approach has become the hot new thing in enterprise AI. Amazon committed $1 billion to its own forward-deployed engineering initiative just two days ago. (Some inside Microsoft suspect that its rival may have caught wind of what it was planning and moved to announce first.)
Anthropic and OpenAI launched rival ventures in May to put engineers inside enterprise customers. Unlike Microsoft’s initiative, the OpenAI Deployment Company, as the ChatGPT maker’s venture is known, is an actual standalone entity — majority-owned by OpenAI but backed by more than $4 billion from a partnership led by the private-equity firm TPG.
Similarly, Anthropic teamed with Goldman Sachs, Blackstone and Hellman & Friedman on a $1.5 billion venture — not yet named — to embed engineers inside mid-sized companies, starting with the investment firms’ own portfolio businesses.
Microsoft is attempting to one-up them all.
“This goes beyond what has been labeled as Forward Deployed Engineering (FDE) and will be the largest, most capable, outcome-driven engineering organization in the industry,” wrote Judson Althoff, CEO of Microsoft’s commercial business, in a post announcing the new initiative Thursday morning.
Responding to questions from GeekWire, a Microsoft spokesperson called the new initiative “a purpose-built company with its own leadership and financial accountability” but stopped short of calling it a separate legal entity or standalone company.
The spokesperson said the organization “brings together more than 6,000 industry, engineering and AI professionals, drawn primarily from Microsoft’s existing engineering and forward-deployed teams,” noting that it will “grow through a combination of internal talent and external hiring across engineering, AI, and industry roles.”
Separately, some consulting roles are among those expected to be impacted by the round of layoffs anticipated next week.
Microsoft wouldn’t say whether the $2.5 billion is new spending or repurposed from existing budgets, or over what period it’s being spent. The company also hasn’t yet spelled out what the new organization means for the future of its existing consulting and services units.
Across the industry, this is happening now because the payoff from AI has proven harder to capture than many companies expected. Businesses across the economy have adopted tools like ChatGPT, Claude, Gemini and Copilot, only to find that impressive demos don’t automatically translate into results. The technology is powerful, but deploying it can be difficult inside a real company, with its own data, rules and entrenched ways of working.
So the AI providers have started sending their own engineers to work inside those companies, figuring out where the AI can actually help, then building it into their operations.
“Having the model alone doesn’t change your workflows or how you operate,” said Marc Nachmann, Goldman Sachs’ global head of asset and wealth management, in an interview with CNBC about the Anthropic partnership. “You need people who can combine the technology with what’s actually happening in the business and implement those changes.”
The big AI providers have multiple reasons to do this. Each of them wants to get more businesses using its AI platform at higher volumes. All of them are looking to drive long-term demand for the AI capacity they’re collectively spending hundreds of billions of dollars to build.
Another big reason: AI models are becoming commodities, getting cheaper and more similar by the month. The big money for the likes of Microsoft is in selling the services needed to make AI pay off inside a company, which is a far bigger market than just selling the models themselves.
Microsoft is pitching privacy and trust as a selling point. Its promise is that a customer’s data and hard-won knowledge stay the customer’s alone. Microsoft says it won’t feed them into training its AI models in ways that would hand the same advantages to the customer’s rivals.
It’s also promising choice: customers can run whichever AI model fits the job, from OpenAI, Anthropic, Microsoft, or open-source providers, not locked into using one.
Microsoft CEO Satya Nadella has argued that a company should be able to exchange one AI model for another without losing all the institutional knowledge it has built up.
That’s his test, as he put it, for whether a business still controls its own future.
“The last thing any of us want is a world where every company across every sector is ceding value to a few models that eat everything they see,” Nadella wrote in a June 14 essay. “If all the value is accrued by only a few models, the political economy will simply not tolerate it. There is no societal permission for an AI future that hollows out entire industries.”
Whether that vision of swappable AI models becomes a reality remains to be seen. There’s actually a risk for customers that the opposite will happen in the forward deployed engineering approach. Even if they can theoretically swap in a competitor’s AI model, working with Microsoft’s engineers means their systems naturally end up running on Microsoft’s cloud platform and related technologies, making it very difficult to jump ship.
It’s also not clear how new all of this really is for the company. Microsoft already runs a large in-house delivery arm — Industry Solutions Delivery, the group that absorbed what used to be called Microsoft Consulting Services — with thousands of consultants and engineers building and deploying technology inside customer organizations.
Microsoft also has programs like FastTrack to help customers roll out its software, and over the past year it has been rolling out “forward-deployed engineering” teams with partners, including a dedicated practice with Accenture and a $1 billion, five-year alliance with EY.
So ultimately the Microsoft Frontier Company is less a new company than a new push behind work the actual company was already doing, albeit bigger and better-branded than before.
Microsoft is reportedly preparing thousands of job cuts as AI spending rises, with sales, consulting, and Xbox among the areas expected to be affected.
Microsoft is preparing to cut thousands of jobs next week, continuing to rein in operating costs as the company pours unprecedented sums into AI infrastructure.
Business Insider broke the news Tuesday afternoon, saying that the cuts will impact less than 2.5% of the company’s global workforce of about 220,000 people. It includes not just Xbox, where cuts have been signaled for weeks, but also layoffs in sales and consulting.
GeekWire confirmed the details of the report with a person familiar with the company’s plan. Microsoft isn’t commenting on the report.
The timing follows a familiar pattern. Microsoft often restructures its operations around the close of its fiscal year on June 30, and the cuts would come just as the new year begins.
The reductions were bigger last year. Microsoft laid off more than 15,000 people in two rounds of cuts a few weeks apart: about 6,000 in May 2025, then around 9,000 (roughly 4% of the company at the time) in early July 2025.
One difference this year: Microsoft’s first-ever voluntary retirement program. About a third of the approximately 8,750 eligible U.S. employees took the buyout, reportedly allowing the company to cut a smaller share of its workforce through layoffs than a year ago.
The company is on pace to spend more than $100 billion building AI and cloud infrastructure in the fiscal year that just ended — up from $88.7 billion the year before — with about two-thirds going to the chips that power AI.
Microsoft shares closed Tuesday at $373.02, down 19% over the past month and near a 52-week low, as Wall Street questions whether its heavy AI spending will pay off.
The layoffs come amid a broader wave of restructuring across the tech industry, which has shed more jobs than any other sector this year. U.S. tech companies have announced 123,653 cuts so far in 2026, up 66% from the same stretch of 2025, according to a report from outplacement firm Challenger, Gray & Christmas.
Across all sectors, not just tech, AI was the most commonly cited reason for job cuts in May — the third straight month it has led the list. The 38,579 cuts attributed to AI were the most in any month since Challenger began tracking the cause in 2023. For the year, AI has been linked to 87,714 cuts, already surpassing the 54,836 attributed to it in all of 2025.
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