Inside Asha Sharma's Overhaul of Xbox | Fortune Daily

Microsoft handed the Xbox controller to someone who doesn't play video games. Asha Sharma is the new CEO of Microsoft Gaming. She's young, she's cool, she gained success at Meta and Instacart, but she does not have a background in gaming. Since taking the role in February of this year, she's consolidated studios and cut nearly 2,000 jobs. Xbox runs a 3%, and that's tiny, right? 3%. Xbox runs a 3% profit margin. That's pretty low. Meanwhile, the PlayStation 5 has outsold it roughly 3 to 1 and Microsoft is pouring everything it has into AI. Is Sharma saving Xbox or is she getting it ready to sell? Fortune Tech correspondent Sebastian Herrera has spent a lot of time with Sharma for his new piece and he's here to tell us everything he learned. I'm Ellie Austin in New York and this is Fortune Daily. Sebastian, thank you so much for joining us. It's great to have you back on the show and we are talking about your latest story which is really about the next chapter of Xbox and it poses the question really whether Microsoft's Xbox is facing a bit of an existential crisis. Tell us what's going on and why you wanted to report this. I mean first of all even if you're not a gamer it's likely that uh you know you you know about Xbox because it's had a lot of cultural influence in American entertainment uh you know I think we all know games like Halo or Call of Duty and that's all Xbox uh you know this is a this is a business that has been in people's lives since they were you know very young and it's very influential and for me it was really interesting to pursue the story because uh you know this is a 21 billion business inside of Microsoft and a lot of people don't realize that Microsoft owns Xbox, but it's actually their third largest business by revenue. But it's been going through a really hard time. It's been getting completely out-competed by rivals like PlayStation and Nintendo in the gaming industry. It's really struggled to sort of find its place. It's lost some of its focus. And Microsoft realized that, and that's why they put in this new CEO a few months ago to really turn things around. And it was a big move that also raised a lot of questions about what is the long-term future for Xbox at Microsoft or in general. So the story for me, the genesis is of just this really big gaming company that has a very uncertain future inside of Microsoft, which is all about AI right now. And that's part of the equation here too and why I looked into this is that Microsoft you know they just care right now very deeply about AI so a lot of people have wondered where Xbox fits within that. And I want to come on to the new CEO Asha Sharma in a minute but first of all Sebastian you alluded to the fact that Xbox hasn't been doing as well as the competition tell me on a concrete level what that looks like what's been going wrong? Years ago Xbox and PlayStation were neck and neck in console sales and Xbox did pretty well when they put out their Xbox 360 years ago now they sell about a third of what PlayStation sells and the way that's happened is uh you know PlayStation has been really good and so has Nintendo of offering exclusive titles on their consoles uh they've been really good at hooking gamers in that way and Xbox meanwhile sort of you know spread itself really thin it tried all these different sort of avenues it tried to become a platform and it sort of got away from what what made it essential to people which was the Xbox console and which was exclusive and so along the way it sort of lost its soul a bit uh while its competitors really you know hit on exclusives really hit on unique experiences that made people want to buy their consoles uh and so you know um a part of what's made Xbox struggle as well too is that they went and bought a bunch of studios um and spent a lot of money and that you know that always didn't work out but it also put a lot of pressure on them to have the next hit which they didn't always have so you say in the story that Microsoft spent about 76 billion dollars buying game publishers um and yet at the same time the Xbox console still got a bit neglected so explain that tension to me Yeah, in my reporting, what I found is there was a lot of competition going on, even within Xbox's walls. You had employees that were interested in selling games in the stores, employees that were interested in selling games over Game Pass, which is their subscription service. And so, you know, Xbox basically tried to do too much too soon. It was going after this new subscription business. It was trying to sell consoles, but it wasn't sort of focusing on that console. and something that i heard that was a really big turning point for Xbox is when they went and spent 69 billion on Activision Blizzard which is one of uh the world's biggest game publishers that added a lot to their library of content but it also uh you know sort of created some internal confusion about how to put their games out when to put their games out what to make exclusive versus not. And it put a lot of financial pressure on Xbox to show the return for this big splashy purchase that they made. And so that was a big turning point for Xbox that put a lot of pressure on the business. And they haven't really been able to figure that out since. And so in is parachuted this 38-year-old AI executive, Asha Sharma, who doesn't have a background in gaming. She's now running Xbox. Why her? It was a very curious choice when Satya Nadella chose to make Asha Sharma the Xbox CEO because she was following in the footsteps of a gaming legend, Phil Spencer. Spencer is famous for playing video games while he's in meetings or joining in on employees playing video games. And Sharma doesn't come from that background at all. She's famously not a gamer. She did not play video games before this job, but she was put into this job because she's an operator she's had experience and and going into businesses like meta like Instacart seeing what's wrong and fixing it and that's ultimately why Nadella put her in charge because not because she was going to go and you know create a bunch of gaming fans but because she was going to go and slash and cut and make the you know sort of the cutthroat moves that needed to be made inside the business to right size it and just get into a healthier place and that is really what she's doing i mean she's she's laying people off she's consolidating studios she's focusing on their biggest brands and seeing how much more money they can make uh she's doing a lot of different moves and she's being she's been pretty transparent through it all um uh but yeah she comes from an AI background uh you know she's she's much more of an operator than Spencer was and she's also interesting because she's one of the sort of newer younger executives at Microsoft that Nadella's been trusting lately as some of the old guard has moved on from Microsoft. And you spent quite a bit of time with her. You went for the piece to her office and spent time with her there. I think you also saw her at a conference. You've spoken to her since. Tell me a bit about what she's like, what it's like being in a room with her. Yeah, I spent a good amount of time with her, which has been great. You know, she has this um, sort of way about her being, you know, very straightforward, very blunt. Uh, she's very clear eyes. She is very confident. Um, but what's interesting is I also found through my reporting and just being around her that she does have an introverted side to her. She's not a loud person or boss. She sort of sits back in meetings and hears a lot and then ask questions. That's sort of, you know, how she leads. Uh, she's a really good communicator. She checks in with her team a lot uh and she just when you speak to her she's very calm cool and collected has a plan you can see why Nadella has trusted her and even though uh she's a new time ceo uh you know uh she's she carries herself uh you know in a way that's very decisive uh she does have some quirks about her which is interesting you know she loves jackets she loves sneakers she keeps these neato stress balls by her desk uh yeah she's constantly chewing gum so she's a little bit of a fidgeter in a way uh but you know she she's also she works really hard she she packs her schedules um she likes having you know a lot going on and and she's been you know going to conference gaming conference after gaming conference and really trying to get up to speed with the with the industry because you know uh she as we've talked about didn't have a lot of experience with gaming beforehand and you mentioned the cuts she's already cut over 1800 people there's due to be more cuts coming what did you feel the environment at Xbox was like how are employees feeling about this current chapter yeah it's tough because some employees that i talked to said that they you know appreciate that they know the roadmap ahead and what's going to happen others have said that it's really hard to work uh you know at xbox right now when you don't know when the next cut is coming or how big it is and so that's a tough environment they've also made you know some sort of mistakes along the way for example i found at least one case where an employee was uh let go but then ultimately still had a job at xbox so there was a little bit of a mix-up there uh so they you know all this all these changes that uh asha sharma has been making uh they've not all gone smooth uh you know there's been some internal tensions along the way she's trying to move really fast but there's been some clashes for example too with the windows team over the the operating system of the next xbox so it's not all smooth sailing she's moving really fast and it's a tough place to be at but i think she's also trying to create momentum and encouragement along the way a critical question that you ask in the piece sebastian is whether microsoft is committed to fixing xbox or whether it's actually preparing to sell it. And there's pieces of circumstantial evidence, for example, changed email addresses, the division has been renamed. What did you make of that question and the potential direction? To me, that was ultimately the central question of the story. Because, you know, Xbox, there's been rumors about Xbox being for sale, you know, even prior to all this. But what makes it even more interesting now is that this business is in trouble and it's in trouble in a greater Microsoft organization where a lot of people have wondered like, how does it fit within Microsoft's broader goals, especially because it's not doing well. Uh, so I think, you know, I know that there's been, you know, meetings inside of Xbox and Microsoft over sort of its future. Uh, Asha Sharma has come out and said that it's not for sale, but you know, There's a lot of different options for a business like Xbox that's in trouble. That doesn't have to be an outright sale. It could be sold in parts. It could be spun off. It could become a subsidiary of Microsoft. There's a lot of questions swirling of, is it realistic for Xbox to stay as it currently is one, two years, five years down the line? A lot of people think that's not the case. but ultimately uh sharma is trying to you know turn it around fast uh you know she hasn't been sort of clear sort of what the five-year goal is uh and there's a lot of questions about it but you know time will tell as as a xbox executives told me uh but it's definitely you know a central question to xbox just what's this what is it what is its long-term future at microsoft a lot of people have a very strong emotional tie to xbox like gamers who grew up on the xbox 360 if you were speaking to them directly and they were saying they're worried about the future of this console um that they love so much what are your key takeaways from all the reporting that you've done over the past few months yeah you're right you know gaming the gaming industry is bigger than hollywood so a lot of people care about it um i think that what we can expect is you know i don't think xbox is just gonna you know go away tomorrow or and uh you know i think it's going to continue being a big name in gaming how that looks like is very interesting because you know is there a world where uh xbox is just a platform uh you know just a licensing platform uh and and isn't really building its own hardware anymore or at all you know that that's that's potentially you know a possibility and you know the gaming industry has really gone more towards games like Roblox and Minecraft, which is sort of, you know, these creative sort of games that you don't have to play on a console. So just like everything else with AI, you know, the gaming industry is changing and the world is changing. So will Xbox look like it's looked, you know, for the past five years? Probably not. Will there be some sort of future for the Xbox brand and name? I think so. I mean, it's a really big business at the end of the day. And so I think gamers can probably rest assured that you know they're going to keep making games they're going to keep making some sort of hardware uh and maybe it'll structurally look different as a business but the name will live on in that way. Sebastian it's fascinating stuff everyone should go and read your piece on fortune.com and thank you so much for joining us today. Thank you. PG&E CEO Patty Poppy on rates on wildfires and on who fits the bill for the AI boom. CEO source with Diane Brady is up next. Hi, Patty. Nice to see you. Hey, Diane. Great to be with you. Well, I think about Patty Poppe, PG&E, and I think data centers, wildfire, California, AI. I mean, you are in the center of all the biggest debates that we're having right now. So I feel I should start with, should we be scared? Oh, we should not be scared, Diane. Thank you for asking. Do not be afraid. Let's start with AI. How should we be thinking about it? And what do you think we're not appreciating about how this is unfolding? I think AI is the best thing that could have ever happened to the grid. The grid needs investment and AI and that whole revenue stream brings investment to the grid. It will power more reliable, cleaner energy. In fact, in California, We've added 33 gigawatts. Now, that's a big number. I know gigawatts is an oddball number. Yeah, unpack that for us. My big nuclear power plant, very large nuclear power plant, produces 2 gigawatts of power. We have added 33 gigawatts in California in the last 5 years. We've got 22 gigawatts more coming online in the next 4 years. 55 gigawatts. One power plant, 2 gigawatts. 55 gigawatts added of new clean renewables and storage to power the grid. That's exciting. AI equals growth and prosperity. I feel like I was going to say energy, but now I want to say nuclear. Discuss. Pro, pro, pro. We have a Diablo Canyon nuclear power plant. One of the best nuclear power plants in the world is in my service area. My team operates at PG&E, owns and operates Diablo Canyon nuclear power plant. We need more nuclear for the U.S. grid. It's a safe, clean, reliable source of energy. CEO. You are a CEO. You've been a CEO. People have mixed feelings about CEOs right now. How do you think about it? You know, I think CEOs can be a force for good, and I believe a lot of them are. I know that my ambition is to unlock people's full potential, bring them joy in their work, discover their gifts, and bring those to the world. I think business is a force for good. CEOs who lead businesses predominantly, overwhelmingly, are people who weren't born CEOs. I wasn't born a CEO. I was born a girl in a little small town in Michigan. And by hard work and some luck, ended up in this chair. I should make a difference for the people who I serve. And I'm excited to do so. Two more terms. One is climate change, which you've embraced, and we don't talk about that much anymore. How do you think about it? Yeah, look, I think some people would say PG&E was the first climate change-driven bankruptcy as a result of wildfire and the catastrophe that the conditions created. And I think climate change has to be addressed. We have to continue to drive to reduce the risk and the hazards. And clean energy can be a piece of the puzzle, And there's a lot more work that needs to be done in that arena. Last word is advice. Advice to people who may want to be in your chair. They could be in your chair already, but especially advice to people who are thinking about what does my career look like? What do I want to be? Yeah, look, I have a strong point of view that you need to do what you love, love who you do it with, and love who you do it for. And when you have those three things, sky's the limit. one last question then is love because you are one of the few CEOs I talk to who actually uses the word love pretty liberally in conversation yeah I think it's essential ingredient for the human experience and we spend too much time at work to have it simply be a work pay transaction love what you do and if you can love who you do it with and who you do it for I just feel like that's the magic that we should all strive for. And you can have joy at work as much as out of work. And what a blessing that is. Great. Thanks for joining us. Thanks, Diane. So Mark Cuban says that AI isn't killing your jobs. Your company's health insurance bill is. Mark Cuban has the story. Billionaire Mark Cuban says we're going to lose more jobs to healthcare costs than to AI. But is he right? Mark Cuban is a billionaire, former judge on Shark Tank. He's also an owner of the Dallas Mavericks and has been for about two decades now. But recently, he created a startup called Cost Plus Drugs. And so since 2022, he's been sort of steeped in healthcare and has a lot of opinions on it. Even compared to other wealthy nations, the US spends a lot more on healthcare. It's approximately $5.3 trillion, which is about 18% of GDP. Costs are rising for a number of reasons. Some of these include newer technology and pricier treatments like GLP-1 drugs. But there's also the issue that some experts have pointed to of hospital consolidation and rising administrative costs. Employees are already paying for these rising health care costs with their jobs. Yale's Tobin Center for Economic Policy found that a 1% increase in health care costs translates to a 0.4% decrease in employment. And so that means that these companies are laying off employees or not hiring as many employees as a result. Mark Cuban even pointed out in a tweet from March that health care costs are usually the second highest line item for companies after payroll. Cuban has said that one of the solutions could be tackling this issue at the federal level. He's put his support behind the Breakup Big Medicine Act, which is sponsored by Senator Elizabeth Warren of Massachusetts and Senator Josh Hawley of Missouri, which would basically prevent some pharmacy benefit managers, insurers, and or major drug and medical device wholesalers from also owning certain medical providers. But the bill has not yet passed. There's real fear over how AI is going to affect the job market and whether it will make some workers' skill sets obsolete. The McKinsey Global Institute found that 11 million workers, or about 7% of the workforce, may have to find new jobs because of AI. But at the same time, they also claim that AI will create more jobs than it actually displaces. The Budget Lab, a nonpartisan policy research center at Yale, has found that there's no clear evidence of market disruption associated with AI right now. But forget the research. Companies are already blaming AI for layoffs. It was the top reason cited for layoffs this year, according to an executive coaching firm, and it was mentioned in 20% of all layoff announcements to date. For more on this story, visit fortune.com. That's it for Fortune Daily. I'm Ellie Austin, off to play some Xbox. We'll see you next week. Never played in my life.