Former PlayStation executive Shawn Layden has issued pointed advice to Microsoft’s Xbox division, urging the company to abandon its struggle to compete in the console hardware market and instead embrace its identity as the world’s largest Western game publisher. Speaking on The Expansion Pass podcast, Layden argued that Xbox CEO Asha Sharma’s leadership team should “pick a lane” and commit fully to a software-focused strategy, drawing a direct parallel to Sega’s famous pivot away from hardware.
The comments arrive during a period of significant restructuring for Microsoft’s gaming division. Under Sharma, the company has weathered waves of mass layoffs, parted ways with several studios, and consolidated its remaining developers under the Activision, Blizzard, King, and Bethesda umbrella. Microsoft has stated that these moves are designed to make Xbox a profitable part of the Microsoft empire while expanding its reach, yet Layden believes the company’s current strategy lacks clarity.
A Choice Between Two Paths
Layden framed the decision as a fundamental fork in the road for Xbox’s future. According to him, the company must choose between remaining a platform competitor to Sony’s PlayStation or leaning entirely into its strengths as a software powerhouse.
“I said in another interview a couple of months ago, you’ve got to pick a lane. Either you’re going to be a platform competitive with PlayStation—which Xbox has not been competitive with PlayStation for years—but that’s not out of the window. You can still make another run at it. And there are certain decisions you have to make around that about the platform. We talked about exclusivity. We talked about how do you incentivize third parties to support your platform in a meaningful way. These are all things around the platform business, or you sit back and realize you are the biggest game publisher in the world—maybe Tencent’s bigger—but in the Western world you are the biggest game publisher out there with Activision, Blizzard, Bethesda, and all the other pieces.”
Shawn Layden, former PlayStation executive
Layden urged Microsoft to fully commit to the latter option, comparing the moment to a pivotal turning point in gaming history.
“Be that. This is your Dreamcast moment. When Sega decided, ‘We’re just going to be on PlayStation 2 and we’re going to get out of the hardware business and just be a great software company. It can be done. It has been done before. That’s my advice. Pick a lane.”
Shawn Layden, former PlayStation executive
The Dreamcast Precedent
The “Dreamcast moment” Layden references marks one of the most dramatic shifts in the industry’s history. Sega’s final home console, the Dreamcast, achieved critical acclaim but ultimately failed to sustain itself against the financial might of Sony’s PlayStation 2. Recognizing it could no longer compete in the hardware race, Sega abandoned console manufacturing entirely and transformed into a third-party software developer, publishing titles across rival platforms including its former competitor’s machines.
Microsoft has remained notoriously secretive about its Xbox hardware sales figures, but industry estimates suggest the company trails well behind Sony. The PlayStation 5 is believed to have sold 95.3 million units as of June 2026, a figure that underscores the difficulty Xbox has faced in the console wars.
The outlook for Xbox console sales appears equally challenging in the near term. Analysts predict that only 2.5 million Xbox Series X|S units will be sold in 2026, as Microsoft prepares for a “rapid wind-down toward zero” ahead of its next-generation console launch. Such projections have fueled speculation about the long-term viability of the company’s hardware ambitions.
Is a Software-Only Future Viable?
If Xbox were to shift toward becoming a software-only company, early evidence suggests the model could succeed. Several of Microsoft’s first-party titles have performed remarkably well on PC and PlayStation 5, demonstrating that its franchises can attract audiences beyond the Xbox ecosystem. With the company streamlining operations to focus on hit series such as Fallout and Forza Horizon, a clear audience exists for this approach.
However, the transition is not without financial complications. Releasing games on PlayStation and Steam means Microsoft must surrender a portion of its revenue to those platforms, whereas it retains 100% of first-party game sales when distributed through Xbox’s own console and PC storefronts. Microsoft also charges fees to third-party developers publishing on its hardware, adding layers of complexity to the calculus of sticking with gaming hardware versus focusing purely on software.
As Microsoft navigates this defining period, Layden’s advice may resonate with developers and analysts alike. Whether the company chooses to fight once more for console supremacy or embrace its potential as a software giant, the decisions made in the coming years will shape the future of Xbox for generations to come.
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