Microsoft reveals Xbox Labs and it’s desperately pretending it’s not about AI

Xbox’s CEO has announced a new division to experiment with ’emerging ideas’, in response to AI mods and games running on web browsers. 

When Xbox’s current CEO Asha Sharma was appointed earlier this year, there was a lot of concern about her history with AI. 

Prior to Xbox, Sharma served as the president of Microsoft’s CoreAI product for two years. In her introductory post as Xbox’s CEO, she made a point to counter the assumptions, saying her vision for the company would not ‘chase short-term efficiency or flood our ecosystem with soulless AI slop’. 

Fast forward eight months, and Sharma has announced the formation of a division within Xbox created in response to AI game modding – while being very careful not to mention the words ‘generative’ or ‘AI’ once. 

In an Xbox Wire post, Sharma referred to the sudden boom of modders decompiling games using the Claude Opus 5.5 AI tool, and then blending assets together to make it look like characters and gameplay from one are interacting with the other. Recent examples have included Super Mario 64 mixed with Elden Ring and Minecraft in The Elder Scrolls 5: Skyrim. 

Additionally, Sharma refers to games which received unofficial, improved versions in web browsers, like Halo: Combat Evolved. 

‘In recent weeks, we’ve seen games rapidly decompiled and rebuilt to run on hardware they were never originally designed to support,’ Sharma wrote. ‘Windows PC builds have been translated to run on Apple Silicon or ported to run inside a browser through WebAssembly and WebGPU, the latter now approaching 90% global browser support. Perhaps more surprisingly, we’ve seen many of the biggest games in the world have been remixed into the source code of another.

‘These experiments challenge long-held assumptions about our industry: the tether between software and hardware, the boundary between creation and play, and how people discover and experience games. While it is hard to predict the future of gaming, it is easy to see the possibilities in making great games easier to access, giving old games new life and allowing more players to become creators and co-creators.’

Sharma describes these as ‘unmistakeably good outcomes for players’ because they ‘challenge our existing business models’, before outlining the intention of the new division, titled Xbox Labs, which has been set up by Xbox’s chief technology officer Scott Van Vliet, who previously worked on Azure OpenAI within Microsoft.

‘To explore these possibilities, I’ve asked Scott to stand-up Xbox Labs, a small group of game makers, engineers and scientists whose job is to turn emerging ideas into things our players and developers can experience,’ Sharma added. ‘We’ll build in the open, learn from what people do, and measure success by whether more people are playing and creating. 

‘I think Xbox has an important role to play here. Coding became the first major workload for agents because they can write, run, and test software. Games share many of those same properties, and people spend more than 72 billion hours a year playing Xbox games, roughly five times the estimated time spent writing code worldwide. 

‘We’ve spent 25 years learning how to make great games, and I want our game makers to help shape what these new technologies make possible. As we learn, we’ll share the tools we build with developers across the industry, just as we always have.’

Sharma concluded the post by stating Xbox’s ‘priorities aren’t changing’ and that it still remains ‘committed to the 4Cs’ of core, content, creation, and connection – just in case you were worried those corporate buzzwords had fallen to the wayside. 

‘We remain committed to the 4Cs, to making great games, to our hardware and to being responsible stewards of IP and the communities built around it,’ Sharma said. ‘Labs gives us a way to explore new technology without abandoning the work already underway.’

It’s unclear what this all means exactly, but it sounds like this will be more than a research and development team within Xbox – but a division that might actually release ports of old Xbox games, or create new experiences with them, through technologies like AI. 

It will likely be viewed as an extension of Xbox’s past work with backwards compatibility. However, like Xbox as a whole, it’s hard to get too enthused about it without anything tangible to latch onto. Especially if they’re planning to charge for things that are currently free online.

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