Gaming is the most popular form of entertainment on the planet. It is also on the cusp of radical reinvention, fueled by changing player preferences, shifting business models, and the rise of generative AI. Xbox CEO Asha Sharma oversees more than 500 million players across some of the most iconic franchises ever built, from Minecraft to Call of Duty.  What does it mean to "game" when the very concept is evolving faster than publishers can envision it?
 
Asha Sharma, Chief Executive Officer, XBOX 
Allie Garfinkle, Senior Writer, Fortune 

To the Next Level

Conferences

So I want to ask a question of all of you really fast. Who here plays video games? Raise your hand. Oh wow. That's a lot, more than you were expecting, less than you were expecting? You know, a couple of weeks ago I would have said more than I was expecting, but uh the study just came out and said 70% of Americans play 1 hour of video games every single week. Which, you know, per this room, it actually might be more than 70%, as it turns out. Um, you know, Asha, you took on this job a few months ago. Uh, you were not historically a gamer. What was the first game you ever played? On an Xbox. Oh gosh, um, well, the first game I ever played that in, in memory, I kind of, I'm not a gamer, but kind of casually grew up with Star Fox and, uh, you know, hockey and Sonic, and then I think the first game I played on an Xbox was Halo. It was on Halo. It was Halo, OK. There was, there are some Halo fans out here, um. You know, over the last few years, Xbox's future has never been more in question. Um, you just had your first showcase, the CEO. How do you feel? Oh, it was incredible. So Showcase is our annual game show where we show off the trailers and the lineups to come. Uh, we have more than 25 creators that that showed up to do it. And honestly, it's, it's one thing to, to watch it. It's one thing to hear about it, but it's another thing to feel it. These are our fans that have committed 25 years to Xbox. And to see their excitement and to feel the energy for the next 25 years was pretty special. What did you want that showcase to telegraph about Xbox's future? You know, when I took the role about 100 days ago, I talked about my 1st 100 days was about listening and learning and really understanding what makes Xbox Xbox. And so I made Three commitments along the way. I wanted to to preserve great games. I wanted to be about the return of Xbox and I wanted to talk about the future of play. And so it was only fitting that uh my first showcase we got to to really do that and we had a lot of great games. Uh, we had the return of Xbox with the reintroduction of two new. Exclusives as well as a new special edition, uh, 25th anniversary console, um, and it was just such a, such a wonderful environment to, to bring everybody together. Now one thing about your tenure tenure is that you have killed a lot of things fast. So this is an Xbox campaign co-pilot. It seems like the mobile store might be in flux. What's the pattern? Look, I think that clarity is kindness, and so as I'm learning, I'm trying to be decisive about the things that we need to invest in, the things we need to prioritize, and the things that don't represent our brand, and we're doing that as fast as we can. There's still themes in that as we go, but It's starting to really create a direction for the team to understand the principles on which we stand for how we make decisions to really have all of them go follow that same path. Now this wasn't something you killed, but it was a cut. You did drop prices on Game Pass, longtime Xbox pillar. What went into that decision? Look, I think GamePass is at the heart of gaming. It's the way that players can access our, a lot of catalogs, day one content, great experiences with us, and we had raised the prices 50% last year, and we were on the path of seeing a decay in subscribers. And so it had just simply become too unaffordable. And so we adjusted the. Price, uh, for players and the, the offering as we went through with that, um, and we're starting to see a return to growth we're starting to see more subscribers we're starting to see more importantly, uh, better retention, um, and we've got more work to do so we'll be doing more this summer in order to create more flexible offerings to meet all the types of players that we have and we'll continue to iterate on that now who here considers considers themselves an Xbox fan? Raise your hand. OK, so there's some very enthusiastic hands out there. You like me maybe have been on Xbox, Reddit recently then, um, where people are saying things like, when do we put up the statue of Asha, um. There's definitely a sense you've turned the narrative around on Xbox, um, but what has truly changed in these first few months and what still needs to evolve? Look, I think that. Uh, I've, I've had the opportunity to take a look at everything with fresh eyes, and, uh, the team is putting a lot of wins on the board, starting with our players that we have one of our, our operating principles is that we earn every single player and so we've shipped more in the last few months on our platform than we have in the last year. we've been able to see a return to growth on GamePass. We had some great games. Forza was absolutely crushing it, um, and I think that momentum is really contagious, and we're starting to, to really go back to some of the core principles that made Xbox great. At the same time, we know that the industry at large is going through a lot of headwinds. Um, it pulled a lot of demand for during COVID and it hasn't really been able to re-accelerate. Uh, there's compression happening at almost every level of, of the stack, and there's a new generation that plays very differently than the core generation. And so, um, we've got, we've had a great 100 days. We've begun to revive Xbox in the next 100 days about resetting Xbox. To that end, the narrative has shifted, but the numbers are tough. Gaming revenue down, but hardware revenue down is 33%. You've previously said you can't raise prices through the crisis, but you also have memory storage shortages to contend with, um, and they are driving up prices across the industry. How do you think about balancing that, and does that limit growth potential for consoles? Yeah, look, it's going to in all of these spaces there are no silver bullets, um, so I will, we will have patience and we will, uh, execute in days but expect that it will take a while to show up on the scoreboard. Um, look, on hardware it we are in a crisis right now the entire industry is there's a. Shortage of memory and storage and the costs are uh exponential um they are usually at this point in the generation about 50% of the cost and uh we're we're seeing they're up 2.75x. They're up 50% since I started they're going to be up effectively 7.5x and so. Yes, pricing is a lever of course but we must think about other options as well we must think about other ways to think about the cost construction of the console we must think about how we, uh, create different plans so more people can participate in the. So we must think about, uh, partnerships that will allow us to have better distribution and reach, um, and we must think about the experiences that we're creating outside of that as well to reach new audiences. What are some things you're considering that you would never imagined would be the case five years ago? Or that Xbox would have never imagined to be the case five years ago. Hard to tell because I wasn't, I wasn't there, but I think that we will, you know, continue to look at new business models. I think is what is needed for console rather than just the most premium high performance console in. The world, I think we've reached a point where it will be hard to imagine that mass audiences can afford thousands of dollars to spend on a console generation. And so I think we will start to see radically different business models that we never expected start to come into orbit later this year. One of the things that I think is really interesting about the business moment you're in, um. Is through the prism of something like Project Helix. It's expected to be a top tier premium offering, there is definitely interest in it, but previously Xbox executives have recently said that it's going to be hard to meet demand. How do you sort of balance that? Yeah, well, we're having a hard time, uh, now. There's more demand than there is supply for our Gen 9 console, um, and I suspect the same will be there with, with our, our Gen 10, uh, console. I'm excited about it. Um, it's. It's a console that's also going to allow you to play your PC games. It's going to have backwards compatibility. It's going to have leading end performance, um, but there's material work to do to make sure that it is available to the people that want to want to play. And so we're working on that. To this end, you have warned about a coming crash in consumer electronics. What does that look like in gaming and beyond? Look, I think it's pretty interesting because if you, you think back, uh, gaming was really the proving ground for compute and AI. So it's, it's pretty interesting that now 25 years later, um, with the AI infrastructure happening that we are, uh, in this position. But I, I actually see it as great that every industry now gets to benefit from advances in computation and so for us. I think that we have to think very differently about storage and memory going forward. We will have to apply new techniques so that we can compress that. We will have to empower customers to have very flexible storage offerings. We will have to empower new types of games so they can fit on device and so there's going to be a lot of innovation. This will take years, not days, not weeks, but we'll go through it together with the community. Now we're gonna turn to the audience for questions soon. Um, one thing I've been very interested in is the question of exclusivity. Previous Xbox leaders took exclusivity off the table. It seems like after Showcase, it's back on, Clockwork Revolution and Gears of War e-Day, both exclusives. What led to the pivot? Look, I think that we are, uh, the #2 publisher in the world, and when you do that, you want your games to be everywhere. You're stronger when the world plays with you. At the same time, we are increasingly becoming more of a platform, and it's hard to find examples of platforms out there that don't have exclusive services, uh, and content, and so, um. This is a journey for us. Our, our business isn't particularly healthy as you noted, uh, or as you noted, and so, uh, we're starting by introducing 1 to 2 signature exclusives and as the business is healthy, we will look to try and do more. Questions for Asha in the audience. Oh, we have a lot of hands. OK, hello in the front here. Your name and who you're with. Oh, we have so many questions for you. Um, hi, Kathy Hackle, um, CEO of Future Dynamics. I've got a question for you around world models and kind of the role that gaming plays. You've got, for example, Roblox introducing Roblox Reality, going into video world models. How is Xbox gonna start to kind of start to use the infrastructure of gaming to power the future of AI? Yeah, great question. So just in terms of a priority set for me, I'm very much focused on core before more at the same time. Kind of going back to what I said, AI has always been part of gaming, right? The GPU wasn't invented for researchers to train neural nets. It was invented for, you know, better spaceships and dragons and better, better frame rates. And so in many ways, I think that gaming will continue to lead the way on a lot of this technology. I look, coming from the AI world before this, I, I, a bit, bit of a different point of view. I don't believe world models will replace AAA games. Um, I believe that AI can certainly invent a new genre of games, but they're just going to be different. I can, you know, if you think about GitHub copilot or codex or cloud code, you can maybe single shot a vampire survivor game because the parameters are pretty defined and understood. But when it comes to economies and matchmaking and social dynamics, this is a systems problem, not a content problem. And in my 1st 100 days I've really come to appreciate the depth and the complexity of art. And so um I think AI will be really important in production pipelines and prototyping and things like that. I think it will be really important for new forms of content that come up, but I, I don't necessarily see world models being the replacement for 50 to 80 hours of gameplay in a really complex universe that gets created in AAA. A quick follow AI slop in gaming, how do you keep it off your platform? I think we just have to be really principled. I think there's this misnomers like gamers, uh, the gaming industry hates AI. That's, I, I actually believe that's absolutely not true. I think that they have demanded, uh, the industry to push computation forward. They've always been at the frontier, real-time networking, online infrastructure. It's all started with gaming, and I think that, uh, because of that, they're just very protective of. Adding technology for technology's sake, we have to solve a problem. And so anything that we will do will be to solve a problem, to solve a developer problem, to solve a player problem, um, not to just paint it all over the experience. Other questions for Asha? Oh man, we have so many hands. Alright, we have a question right over here. Hello, your name and who you're with. I'm Asher and I'm with my dad. When you were a kid, what were you building or obsessed with? Did you see yourself being a CEO of a large company? Great question, Asher. When I was a kid, um, Honestly, I, I never obsessed on what I wanted to be when I grew up. I only obsessed on what I wanted to do, whether it was selling coupon books, uh, or, you know, putting on concerts so I could raise money so I could have my lunch money, whether it was, um, you know, being the best at taking out the trash at the park that I worked at. I just tried to obsess on being great at what I was doing so I could earn the next job, um. And I think it's really special to be the CEO of Xbox. It's beyond my wildest dreams. Other questions? We have time for one more. Maybe we have time for Steven Wolf from Alpha Governance Group. Uh, I'm so curious, you spoke about makers over managers and obviously the creator economy is so important. How do you view creators as a part of your strategy going forward? Great question. I, I think they're incredibly important part of our strategy. I think that, um, you know, the way I think about it is we've got. Uh, incredible studios that are in-house and they need to be our first customer so we can rapidly iterate. We've got an incredible platform of third-party developers and the next generation of creators. I, I envision a world where Xbox is where the world plays and creates. Increasingly we're seeing that players want to participate and so we need to open up. Our platform and have the tools for, you know, customization and extensions and all of those things and maybe even in game creation as well, amateur game creation so I think there's a ton of opportunity if you look at um kind of gaming akin to entertainment. The top two box office hits right now are from YouTubers and so I think that um this is a special space. I think the more types of creations will bring more types of players. We actually have time for one more hand back there. Hi, I'm Tarun Chandrashekhar, CPO Syndical. So, you have 50 million plus active devices running Xbox today with increasingly better silicon, right? A lot of the framework we've had so far is about how does AI get into gaming. But my question is, how does Xbox get into AI? You have edge computing, you have Microsoft building the largest AI infrastructure. And if I was to expand the idea of gaming, this is the biggest time we're thinking where You know, when we were 30 years ago, we were all building PCs and starting to write our own code and writing our own learning programming. It's that world today when it comes to local influencers, right? I can tell you a number of us here have probably gone and built a new RTX 5090 box, not to game, but to actually run a local GEMA. 14 billion parameter. Is there, are there any plans to expand the scope of what you would call entertainment or growing gaming to actually allow for that next generation of AI development that becomes more and more edge compute. Yeah, so great question. This is definitely not our all birds moment where we're going to turn excise. AI, um, so, uh, you know, look, that said, I think there's, look, you could certainly locally inference today with the GPUs, on, on an Xbox, and developers can, can do that if they so choose. Um, I think my focus right now has to be on winning the core of gaming, and if that so means that the game developers and gamers want to to locally inference, we'll make that available. That hasn't been the top ask, especially with a number of other devices that are on the market, a number of the other, uh, innovation that Microsoft is making available, um, but we are, you know, we're, we're part of Microsoft, and so it should that need arise, we'll, we'll take a look at it. As we wrap up this conversation, um, I should tell you, as I was preparing for this interview, I talked a lot to my friend Ryan, who's a very serious gamer, owns 6 Xboxes, um, and he pointed out to me, 25th anniversary coming up in November, and gaming is so identity driven. Mhm. So what does it mean to be. As opposed to a PlayStation player or a Nintendo gamer, what does it mean to be an Xbox gamer today? Look, I'm still getting to know our community. It's vast and it's really special, but the thing that I've really come to appreciate about Xbox in my 1st 100 days is it's always been a bit different. Like the, the players and the, the teams have always dared to do something no one else did. They put an Ethernet on the Xbox before anyone believed in. Online gaming, uh, we launched Xbox Live before people understood social, um, and they are really rooting for each other and have come to the table to help each other through, um, good times and hard times, and I think that's incredible and unbeatable. Asha, thank you so much. Thanks for having me.