The great Xbox reset continues. The latest change in Microsoft’s gaming strategy appears to be something of a reversal in Xbox CEO Asha Sharma’s approach to generative AI in game creation. On Tuesday, Sharma unveiled Xbox Labs, a new division in the Xbox gaming group composed of “a small group of game makers, engineers and scientists whose job is to turn emerging ideas into things our players and developers can experience.”

While Sharma doesn’t outright use the terms “generative AI” or “vibe coding” in an announcement about Xbox Labs sent to employees on Tuesday, the initiative sounds heavily inspired by the AI-fueled chaos that has radically upended gaming in recent months.

Xbox Labs is a response to radical game innovations

“In recent weeks, we’ve seen games rapidly decompiled and rebuilt to run on hardware they were never originally designed to support,” Sharma said in a note to employees. “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.”

Sharma is referring to numerous projects that have mashed up game worlds and characters — putting Call of Duty zombies in Skyrim and Miles Morales in Arkham City, for example — and churned out seemingly impossible ports. The original Halo: Combat Evolved is now playable in a web browser with 128-player multiplayer and FromSoftware’s Bloodborne is now running on PC. These experimental and unauthorized projects, Sharma says, “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 explained in her message. “These are unmistakably good outcomes for players, even when (and sometimes because) they challenge our existing business models.”

The new Xbox Labs group is led by Scott Van Vliet, chief technology officer for Xbox, and it will “build in the open, learn from what people do, and measure success by whether more people are playing and creating.” It’s not clear what, exactly, Xbox Labs employees will build, based on the team’s website, which is just an ASCII-fied page with trailers for Halo: Infinite, Fable, Sea of Thieves, and Gears of War: E-Day running in the background. Conceivably, anything could be on the table for Xbox Labs: Master Chief blasting through Blinx: The Time Sweeper levels, for example.

Xbox is embracing the chaos

Photo: Microsoft

But the newest change in strategy sounds quite different from Sharma’s pronouncement from February, when she assumed the role of Xbox CEO and said the gaming team would “not chase short-term efficiency or flood our ecosystem with soulless AI slop. Games are and always will be art, crafted by humans, and created with the most innovative technology provided by us.”

On that point, Sharma noted in Tuesday’s Xbox Labs announcement, “Our priorities aren’t changing. We remain committed to the 4Cs [Core, Content, Creator and Connection], to making great games, to our hardware and to being responsible stewards of IP and the communities built around it. Labs gives us a way to explore new technology without abandoning the work already underway.”

Xbox’s announcement that it’s exploring the vibe-coded approach to rapid and experimental game development comes the day after Epic Games confirmed it was “embracing AI-accelerated development.” Epic CEO Tim Sweeney described that effort as a “huge pivot” for how the Fortnite and Unreal Engine maker works, which reportedly means no more handwritten game code and that all future artwork is “generated with full AI workflows.”