Inside Asha Sharma's Overhaul of Xbox | Fortune Daily

0:00Microsoft 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 gains 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?

0:44Fortune 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.

1:01Sebastian 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 you know about Xbox because it's had a lot of cultural influence in American entertainment. I think we all know games like Halo or Call of Duty, and that's all Xbox. This is a business that has been in people's lives since they were very young and it's very influential.

1:48And for me, it was really interesting to pursue this story because 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 outcompeted 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.

2:48And that's part of the equation here too. And why I looked into this is that Microsoft, 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.

3:27And the way that's happened is, you know, PlayStation has been really good. And so has Nintendo offering exclusive titles on their consoles. They've been really good at hooking gamers in that way. And Xbox, meanwhile, sort of 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 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 while its competitors really, you know, hit on exclusives, really hit on unique experiences that made people want to buy their consoles.

4:06And so, you know, a part of what's made Xbox struggle as well, too, is that they went and bought a bunch of studios 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 buying game publishers. 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.

4:51and 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 the world's biggest game publishers that added a lot to their library of content. But it also, 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.

5:40And 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 falling 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.

6:21She'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 in going into businesses like Meta, like Instacart, seeing what's wrong and fixing it. And that's ultimately why Nadella put her in charge, not because she was going to go and create a bunch of gaming fans, but because she was going to go and slash and cut and make 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 laying people off.

6:56She's consolidating studios. she's focusing on their biggest brands and seeing how much more money they can make. She's doing a lot of different moves and she's been pretty transparent through it all. But yeah, she comes from an AI background. You know, 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.

7:32I 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 sort of way about her of being, you know, very straightforward, very blunt. She's very clear eyed. She is very confident. But what's interesting is I also found through my reporting and just being around her, 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 asks questions. That's sort of how she leads.

8:07She's a really good communicator. She checks in with her team a lot. And 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 she's a new time CEO, she carries herself in a way that's very decisive. She does have some quirks about her, which is interesting. She loves jackets. She loves sneakers. She keeps these neato stress balls by her desk. She's constantly chewing gum, so she's a little bit of a fidgeter in a way. But she works really hard. She packs her schedules. She likes having a lot going on. And she's been going to gaming conference after gaming conference and really trying to get up to speed with the industry because, you know, she, as we've talked about, didn't have a lot of experience with gaming beforehand.

9:05And you mentioned the cuts. She's already cut over 1 ,800 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 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 some sort of mistakes along the way. For example, I found at least one case where an employee was let go, but then ultimately still had a job at Xbox.

9:46So there was a little bit of a mix up there. So all of these changes that Asha Sharma has been making, they've not all gone smooth. 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 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. And a critical question that you ask in the piece, Sebastian, is whether Microsoft is committing to fixing Xbox or whether it's actually preparing to sell it.

10:29And 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.

11:07So I think, you know, I know that there's been, you know, meetings inside of Xbox and Microsoft over sort of its future. 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. So there's a lot of questions swirling of, you know, is it realistic for Xbox to stay as it currently is, you know, one, two years, five years down the line? A lot of people think that that's not the case.

11:45But ultimately, Sharma is trying to, you know, turn it around fast. You know, she hasn't been sort of clear sort of what the five-year goal is. And there's a lot of questions about it. But, you know, time will tell, as Xbox executives told me. but it's definitely a central question to Xbox. 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 that they love so much, what are your key takeaways from all the reporting that you've done over the past few months?

12:28Yeah, you're right. You know, gaming, the gaming industry is bigger than Hollywood. So a lot of people care about it. I think that what we can expect is, you know, I don't think Xbox is just going to go away tomorrow. And, 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 Xbox is just a platform, you know, just a licensing platform 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 uh 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 uh so just like everything else with ai you know the gaming industry is changing and the world is changing so will xbox look like 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.

13:30I 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. 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.

14:08Nice to see you. Hey, Diane. Great to be with you. Well, I think about Patty Poppy, 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.

14:51It 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 five years. We've got 22 gigawatts more coming online in the next four 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.

15:35Discuss. 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 this Dabo 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.

16:17I 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.

17:02And 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.

17:43One 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.

18:24Your company's health insurance bill is. Marco Quiroz Gutierrez has the story. Billionaire Mark Cuban says we're going to lose more jobs to health care 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 health care and has a lot of opinions on it. Even compared to other wealthy nations, the U.S. spends a lot more on health care. It's approximately$5.3 trillion, which is about 18 % of GDP.

19:07Costs 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 healthcare 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 healthcare costs are usually the second highest line item for companies after payroll.

19:56Cuban 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.

20:41But 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.

21:21Never played in my life. That's a closer.