The Sharma memo

Xbox's new CEO gets to work

The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author Joost van Dreunen.

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After announcing the next console, Xbox Helix, just weeks into her new job, it is clear that the recently appointed CEO, Asha Sharma, isn’t wasting time. Despite an initial wave of skepticism, the new leader of Microsoft’s $25 billion gaming empire seems undaunted.

In a leaked memo obtained by The Verge’s Tom Warren, Sharma writes that Xbox’s Game Pass subscription “has become too expensive for players.”

Following a recent increase to $30 per month for its highest tier, demand appears to have soured. The $30 tier was built on the assumption that heavy users, willing to pay more for premium experiences, represented the bulk of the customer base. The memo suggests that this assumption did not hold.

So what could a cheaper, more valuable service look like?

One version I’ve suggested a few times is an ultra-low tier priced at around $5.99 per month. Giving players access to an entire library of games for the price of a single premium title is one way to reset the value equation. Price alone, however, doesn’t solve the underlying problem. Research on subscription models in the console industry has found that while subscriptions change purchasing behavior—subscribers buy fewer individual titles—they do not meaningfully expand the overall market. Adding more games to a library does not attract players who weren’t already gaming. Subscriptions excel at retention. They perform much worse as a driver of growth.

This is the bind Microsoft has been in. Game Pass was built on the Netflix-for-games thesis, and that thesis has a structural ceiling. This points toward the second version of a cheaper, more valuable service, one that doesn’t rely on subscription revenue at all.

The economics of direct monetization in gaming have always been hostile to scale. Microsoft’s own internal documents, leaked in 2023, revealed the math behind this problem. Generating $7.8 billion annually across 100 million Game Pass subscribers would require an average monthly revenue of just $6.50 per user, well below the $9.26 Xbox was actually earning at the time. The only way to close that gap without pricing out the mass market is to find revenue that doesn’t come directly from the player.

As video games have become a more mainstream form of entertainment, they have come to behave more like media businesses. As such, they’re now coming up on the same financial logic that has built every major advertising-supported media business in history. Television didn’t charge viewers. Radio didn’t charge listeners. The internet didn’t charge readers. Each of them subsidized access through indirect revenue and captured scale that direct monetization never could.

Gaming has resisted this logic longer than any other mass medium, partly out of cultural pride and partly because, for a long time, the premium audience was large enough to sustain the business. That time is ending. The players willing to pay $30 a month for a game library are not enough. The three billion who won’t pay anything at all are the actual market, and the only way to monetize them is indirectly.

The Advertising Play

I have argued several times (here and here) that Xbox will start relying much more heavily on advertising. Under Sharma, Xbox is more likely to behave like a scaled platform business, monetizing audience attention rather than just access to content. Microsoft has been signaling this direction for some time now. It has consolidated its ads business to combine console, mobile, and LinkedIn, for one. (More on this another time.)

The economics behind this shift are starker than most people appreciate. Gaming captures less than four percent of digital advertising spend while commanding roughly thirteen percent of consumer time, a tenfold gap between attention and monetization. Every other platform that has reached this level of sustained audience attention has eventually closed that gap. Streaming platforms resisted advertising until they didn’t. Ride-sharing apps added it. Smart TVs built entire business models around it. The pattern is consistent enough to be called a law: ads eventually reach all addressable surfaces. Or, as Eric Seufert likes to say: everything is an ad network.

(BTW, check out my recent conversation with Eric on AI on his podcast here!)

What’s changed is the audience. When Microsoft tried in-game advertising in 2006 through its acquisition of the platform Massive, it failed. The dominant gamer demographic at the time was a subculture actively hostile to commercial messaging. But that resistance has since largely dissolved. The average player today is closer to a forty-year-old on a commuter train playing a puzzle game than to a teenager in a basement. Or, put differently, three billion players worldwide don’t constitute a subculture. They constitute a media market.

The Instacart model

Instacart, which self-identifies as “a grocery technology company,” and where Sharma served as COO from 2021 to 2024, offers a useful template. According to its most recent quarterly earnings report, Instacart has three revenue streams.

The first is transaction-based income—delivery fees, service fees, and the Instacart+ subscription. It generated $2.7 billion in 2025, or about 72 percent of total revenue. The second is advertising. It generated $1 billion in 2025, crossing a symbolic threshold for the first time. Brands pay to appear in sponsored product placements, display ads, and off-platform partnerships with social channels. It is the highest-margin part of the business and is positioned by management as the core growth driver. A third stream, still maturing, charges participating retailers to power their own e-commerce sites within the ecosystem. It closely follows Amazon’s playbook toward becoming an online shopping mall. In 2025 alone, Instacart added over 70 net-new third-party storefronts, more than double the number from the year before.

The trajectory matters as much as the snapshot. In indexed terms, advertising revenue has grown faster than transaction revenue every year since 2022. The absolute gap is widening. Instacart is not primarily a logistics company that sells some ads. It is increasingly an audience platform that also delivers groceries.

Having helped build that model, Sharma will look to translate elements of it to Xbox. The memo signals as much: direct monetization alone won’t be enough. Lowering the cost of subscription tiers, pricing premium titles at regular market rates, and building an advertising ecosystem could allow Xbox to expand its addressable audience while improving unit economics.

The storefront opportunity

It is not hard to imagine a third revenue stream emerging in the Xbox ecosystem as well. For years, Xbox has been hoping to build a Steam competitor, and the battle with Valve has been definitively lost on that front. But the more interesting opportunity may be narrower: charging game makers, especially AA-sized studios, for dedicated storefronts within the Xbox universe holds real promise. The model is already proving out elsewhere. Epic’s Unreal Editor for Fortnite now includes native tools for sponsored campaign rows, giving creators a direct pathway to brand partnerships. The infrastructure for platform-level commerce is being built, piece by piece.

The Spencer-Sharma difference

If this direction holds, it marks the clearest structural difference between the Spencer and Sharma eras, and between two different theories of what a game platform is for.

Phil Spencer operated Xbox as a content-centric platform. The logic was acquisitive: buy studios, fill the Game Pass library, keep subscribers. It was a supply-side bet based on the assumption that enough content would eventually generate enough demand. That bet has proven expensive and inconclusive. The studios cost billions. The subscribers didn’t follow at the rate the model required.

Sharma is steering toward something different: a full-stack platform model where distribution, monetization, and audience aggregation take precedence over content ownership. This is not a games-industry idea. It is a technology-industry idea applied to games. And it is, arguably, what the industry’s own trajectory has been pointing toward for a decade. The free-to-play market normalized ad-supported access. Mobile conditioned billions of players to accept advertising as the price of free content. The regulatory dismantling of anti-steering provisions, following Epic’s successful lawsuits against Apple and Google, has opened direct-to-consumer channels that bypass platform gatekeepers entirely. Each of these shifts has been quietly building the conditions for exactly the model Sharma is likely to pursue.

The legacy console model is on its way out. What replaces it looks less like a console business and more like a familiar tech platform playbook, with one important difference. The platforms that got there first, Apple and Google on mobile, built their advertising empires on the back of an audience that never really chose them. Xbox’s audience did. Whether that loyalty survives the transition is the more interesting question.