New Delhi: Microsoft’s gaming division Xbox has launched Xbox Labs, a new initiative focused on exploring emerging technologies, including artificial intelligence (AI), to develop new gaming experiences. The announcement by Xbox CEO Asha Sharma comes amid a major restructuring that has resulted in plans to cut 3,200 jobs globally.
Xbox Labs will bring together a small team of game developers, engineers and scientists to explore new ways of creating, modifying and accessing video games. The initiative is also expected to examine tools that could help games run on hardware for which they were not originally designed.
Sharma announced the initiative in an internal memo that was subsequently shared on X on October 13. She said the group would turn emerging ideas into experiences that players and developers could use, while sharing the tools developed through its work with the wider gaming industry.
The move comes as Xbox looks to improve its business performance while exploring how new technologies could change game development and the way players experience games.
Xbox Labs to explore AI and new gaming technologies
Xbox Labs is intended to experiment with emerging technologies and translate promising ideas into practical applications for gamers and developers.
In her memo, Sharma described the group as a small team tasked with turning new ideas into experiences that players and developers can explore. Its work could include AI-assisted modifications, compatibility tools and methods of adapting games to different hardware platforms.
The initiative follows recent experiments in which developers and gaming enthusiasts have rebuilt existing games to run on systems they were not originally designed for.
Sharma highlighted examples of Windows PC games being adapted to run on Apple Silicon or being ported to web browsers using technologies such as WebAssembly and WebGPU. She also referred to experiments in which elements from different games have been combined.
These developments, according to Sharma, challenge traditional boundaries between gaming software and hardware, as well as between creating games and playing them.
Xbox Labs aims to explore these possibilities while allowing the company to understand how such tools could benefit its players and development partners.
Asha Sharma highlights the role of AI agents
Although Sharma did not explicitly use the term artificial intelligence in her announcement of Xbox Labs, she discussed the potential of agents to support game development in ways similar to their use in software programming.
She pointed out that coding became an early area of adoption for agents because they can write, run and test software. Games share several of these characteristics, she said, creating opportunities to explore how similar technologies could be used in gaming.
Sharma also highlighted the scale of the gaming audience, stating that people spend more than 72 billion hours annually playing Xbox games. She compared this with the estimated time spent writing code worldwide, describing gaming engagement as roughly five times higher.
The company wants its experience in developing games to help shape how emerging technologies are applied to the industry.
Potential uses include making games easier to access, extending the life of older titles and allowing more people to participate in game creation. AI-assisted tools could also help developers experiment with modifications and adapt games to different platforms.
However, Xbox has not detailed a complete product roadmap for Xbox Labs or announced specific release dates for tools being developed by the group.
Xbox Labs could challenge existing business models
Sharma acknowledged that some of the new approaches being explored could challenge established business models in the gaming industry.
If games become easier to adapt, modify or access across different devices, existing assumptions about platforms and distribution could change. At the same time, the company believes these developments could create new opportunities for players.
Sharma said Xbox Labs would build in the open, learn from how people use its work and measure success by whether more people play and create games.
The initiative will also focus on sharing tools with developers across the industry as the group learns from its experiments.
Sharma said Xbox’s existing priorities would remain unchanged. These include developing games, supporting its hardware business and responsibly managing its intellectual property and gaming communities.
Xbox Labs is therefore being positioned as a way to explore new technology through game design without abandoning work already under way.
Xbox restructuring follows 3,200 planned job cuts
The launch comes during a significant restructuring of Microsoft’s gaming business. Xbox has announced plans to reduce its workforce by approximately 3,200 employees globally, representing around 20% of its staff, according to the report.
The restructuring has also involved changes to the company’s gaming studio portfolio, including studio closures, mergers and transitions involving some development teams.
The changes form part of a broader effort to improve Xbox’s financial performance and simplify its operations.
Sharma has previously described the gaming business as unhealthy, citing weaker margins than comparable platform and publishing businesses. She has also indicated that the company needs to improve its performance after investments in areas such as Game Pass, multi-platform publishing and a broader portfolio of games did not grow at the expected pace.
Earlier this month, she reportedly told staff that the business had started returning to growth.
The creation of Xbox Labs adds a technology-focused initiative to this wider restructuring, although the company has not said that the new group is directly linked to the job reductions.
Epic Games also explores AI-led game development
Xbox is not the only major gaming company exploring AI-based production methods.
Epic Games, the company behind Fortnite, has reportedly encouraged developers working on a Disney-linked game to adopt an AI-first approach using tools such as Claude.
Epic Games CEO Tim Sweeney defended the approach, saying the objective was to enable teams to build more and better products rather than simply carry out the same work with fewer employees.
Epic Games laid off around 1,000 employees in March 2026, according to the report.
The developments at both companies illustrate how AI tools are becoming part of discussions about game development, productivity and creative workflows.
For Xbox, the immediate goal of Labs is to experiment with emerging technology, learn from its applications and share useful tools with developers. Whether these experiments lead to significant changes in how games are built and distributed will depend on their development and adoption.