- Microsoft’s Xbox announced Xbox Labs, a small team led by CTO Scott Van Vliet that will experiment with porting, browser-based play, and AI-assisted modding.
- Microsoft is choosing to study the AI modding wave rather than police it, and it lands amid deep job cuts under CEO Asha Sharma.
- The group has no products announced yet and mostly consolidates existing projects.
Microsoft’s Xbox has created a team called Xbox Labs to experiment with technologies that are looking at changing how games get built, ported, and played, including the use of AI-assisted mods that will remix and revive old titles.
Xbox CEO Asha Sharma announced the newly formed group on Tuesday in a memo to the company’s employees.
Xbox Labs executives and mission
The unit will be led by Scott Van Vliet, Xbox’s chief technology officer since May 2026, according to GeekWire. Sharma said the group would bring together “game makers, engineers and scientists” to turn early ideas into experiences that players and developers can test.
Even though the new team is using the “Labs” terminology, Xbox Labs is not seen as a new hiring initiative but a way to bring existing research and development projects all under one roof. A company spokesperson told GamesIndustry.biz that no new staff had been recruited, and that work was alreadt underway as regards game ports for Apple silicon, browser-based distribution built around WebGPU and tools for modders.
Sharma stated that the team would operate in public view, and success would be measured by whether there were more people “playing and creating.”
A memo built around AI that never mentioned AI
Sharma’s memo addressed AI agents without explicitly naming the technology. She argued that gaming could be a natural fit for the technology, which first gained traction in coding because agents can write, run and test software.
She made an example of the amount of gaming done on Xbox, where players spend over 72 billion hours a year playing, which is about five times the time spent writing code globally.
The same spokesperson stressed to GamesIndustry.biz that Xbox Labs is not explicitly tasked with using AI and will adopt it only where it proves useful.
Modding wave prompts new Xbox team
Two techniques have fueled a recent wave of experimentation in retro gaming that has prompted the creation of Xbox Labs.
Decompilation involves turning a finished game back into readable code, while recompilation adapts old code to run on hardware its original developers never intended. Modders are also using AI tools to do much of the work involved in merging code from different games to build entirely new experiences.
Some of these projects have gone viral, including mods that bring skateboarding to Call of Duty and run Halo in a web browser, alongside a 128-player version of Halo that recently circulated online. Sharma said the projects deliver “unmistakably good outcomes for players, even when (and sometimes because) they challenge our existing business models.”
Where does this fit into Sharma’s Xbox reset?
Sharma joined Xbox in February 2026 from Microsoft’s CoreAI division, GeekWire reported. In her first memo as CEO, she pledged to keep games “crafted by humans” and vowed not to “flood our ecosystem with soulless AI slop.” By May, she had pulled Gaming Copilot from mobile and canceled its planned console launch.
Her time as CEO has also come with heavy cost cutting at Xbox. A restructuring announced in July called for about 3,200 job cuts, which equaled roughly 20% of the workforce.
Microsoft eliminated another 268 roles across Xbox Game Studios in September and shifted the next Halo title to Activision. Sharma said the company’s priorities remain unchanged and that it is still committed to its “4Cs” goals, a statement which positions Xbox Labs as a way to experiment with new technology while ensuring existing projects remain on track.
Microsoft’s AI gaming track record
Microsoft introduced its Muse generative model on February 19, 2025, stating it was seen as a tool for game ideation and preserving older titles. The company also later released XCP, described as an open-source framework that lets developers and AI agents build and run game prototypes on Xbox hardware via Developer Mode.
Microsoft’s AI gaming efforts also include a March 3, 2026 patent for a cloud-based AI “helper” for players, in addition to a 2023 partnership with Inworld AI to develop in-game characters and dialogue.
It remains to be seen how Microsoft will handle mods that combine its games with titles from rival publishers, and where it will consider a step too far between fan creations and unauthorized redistribution.
Don’t just read crypto news. Understand it. Subscribe to our newsletter. It's free.
Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.
Opeyemi Olanrewaju
Opeyemi specializes in creating and refining high-quality content focused on cryptocurrency, global financial markets and the economy. He graduated from the University of Ibadan with an MBBS degree. He has worked as Editor-in-Chief for his College’s editorial publication and previously at CFA. For over six years, he has helped safeguard uniqueness as news editor at Cryptopolitan.
