Xbox layoffs: cloud gaming and backwards compatibility teams hit

Microsoft’s latest layoffs have cost Xbox one of its longest-serving engineering leaders: Kevin LaChapelle. His departure ends a 37-year run at the company for the executive most closely associated with Xbox backwards compatibility and Xbox Cloud Gaming. It also lands in the middle of what new Xbox CEO Asha Sharma called “the most significant restructure in Xbox history.” Microsoft is cutting about 4,800 jobs worldwide, and roughly 3,200 of those cuts are expected to hit gaming through fiscal 2027, so this looks like part of a much bigger shift, not just a single executive exit.

And LaChapelle leaving isn’t just an inside-baseball management story. Around half of Xbox One owners used backwards compatibility, and Xbox Cloud Gaming hours reportedly climbed 45% year over year in 2025. His work touched both. That’s why people are already talking about the institutional knowledge walking out the door with him, what this could mean for platform support, and where game preservation fits if Xbox keeps trimming the people who built some of its most appreciated features.

This Xbox reset comes after pressure from the nearly $69 billion Activision Blizzard deal, along with reports that Xbox margins were three to ten times lower than those of its peers. Microsoft is also reportedly looking to divest five studios, with Compulsion Games and Double Fine set to go independent, Ninja Theory and Undead Labs up for sale, and Arkane still under review.

If you pay attention to the teams behind Xbox’s most valued features, this is one to watch. You can also read Kevin LaChapelle’s statement on LinkedIn, posted as Microsoft moves Xbox away from expansion and toward profitability.