Windows Weekly Episode 939: "The House Hippo - Microsoft Lays Off 9,000 While Worth $3.7 Trillion"

Release Date: July 3, 2025

Hosts: Leo Laporte, Paul Thurrott, and Richard Campbell

1. Microsoft’s Massive Layoffs Amid Soaring Valuation

Paul Thurrott opens the discussion by addressing Microsoft's recent announcement of laying off approximately 9,000 employees. This marks the second or possibly third round of downsizing within the company, following previous layoffs of 6,000 in May and additional cuts earlier in the year.

Paul Thurrott [04:01]: "Through our own sources, through third parties like the CL Times, Bloomberg, Windows Central, etc., the story emerging is that approximately 9,000 employees will be laid off."

Despite Microsoft’s impressive market capitalization of $3.7 trillion, these layoffs have raised eyebrows, especially considering the company’s robust financial performance.

Richard Campbell points out the seeming contradiction:

Richard Campbell [12:00]: "Right now, it doesn't make sense. Right now their market cap is $3.7 trillion. They've had a record quarter seven."

The layoffs predominantly impact the Xbox and Microsoft Gaming divisions, constituting about 4% of the workforce. However, sources suggest that over 50% of these layoffs might be within the gaming sector, including significant studios like Raven involved in popular franchises such as Call of Duty.

Phil Spencer’s Correspondence: A leaked letter from Phil Spencer, head of Xbox, attempts to contextualize the layoffs by linking them to broader corporate strategies and previous tough decisions aimed at ensuring future success. However, Spencer’s communication has been criticized for its vague language, avoiding direct references to AI initiatives.

Paul Thurrott [06:06]: "He really, I don't want to say punts it, but he kind of pushes it out to the broader corporate strategy."

2. The AI Factor: Efficiency or Cost-Cutting?

The integration of Artificial Intelligence (AI) into Microsoft’s operations is a significant undercurrent in the discussion about layoffs. Internal communications hinted at a compulsory adoption of AI tools across the company, suggesting that employees not leveraging AI might be at risk.

Paul Thurrott [14:06]: "Everyone is using AI here. And one of the things they're very careful not to say is that these layoffs have anything to do with AI."

Richard Campbell adds that AI-driven tools like GitHub Copilot are boosting developer productivity by over 100%, allowing teams to deliver projects at unprecedented speeds.

Richard Campbell [15:24]: "They are using AI, they're able to use the tools at a level I've never seen before."

However, there is skepticism about the sustainability of relying heavily on AI, with concerns that over-reliance might lead to quality issues and other unintended consequences.

3. Windows 25H2: A Minor Update with Major Implications

The hosts delve into the latest Windows 25H2 release, distinguishing it from the significant 24H2 update. Windows 25H2 is characterized as an "enablement package," focusing on incremental feature updates rather than foundational changes.

Paul Thurrott [28:09]: "So the next version of Windows will be Windows 11 version 25H2."

Leo Laporte expresses relief at finally having clarity on the versioning:

Leo Laporte [28:21]: "We have a name."

Key updates in 25H2 include integration with Microsoft Copilot, enhancing user interaction with natural language processing directly within the OS. Additionally, Microsoft is advancing its passkey system, aimed at streamlining authentication across devices and platforms.

4. Enhancing Security: Passkeys and Password Managers

A substantial portion of the episode is dedicated to discussing passkeys and their implementation in Windows 11. The conversation highlights the challenges and inconsistencies in current passkey systems, emphasizing the importance of using third-party password managers like Bitwarden or 1Password for enhanced security.

Paul Thurrott [43:05]: "The passkey implementation that Microsoft has right now in Windows 11 is bare bones to say the least."

Leo Laporte and Richard Campbell share personal strategies for securing their accounts, stressing the balance between convenience and robust security measures.

5. Browsers in the Age of AI: Edge and Alternatives

Leo Laporte discusses the latest updates to Microsoft Edge, including AI-driven features like an on-device natural language search and the integration of Copilot into the browser’s interface.

Paul Thurrott [63:27]: "But if you can get by that stuff, honestly, it is the browser that comes with the operating system so it has these integrations that are really nice."

The conversation also touches on alternative browsers such as Arc and Opera Neon, which are rethinking browser functionality to incorporate AI more seamlessly, although these innovations are still in their nascent stages.

6. The Future of AI in Development and Content Creation

The hosts explore the transformative impact of AI on software development and content creation. Paul Thurrott shares experiences with AI tools like Copilot, noting both their potential and their current limitations in handling complex coding tasks effectively.

Paul Thurrott [75:35]: "The next level version of that is you try to figure something out. You have a problem. Whatever it is. It's like this thing is not doing what I want it to do. Can you please fix it?"

The discussion extends to AI-generated images and videos, highlighting applications such as FramePack for animating static images, and lamenting the superficial fixes AI sometimes offers without fully understanding the user's intent.

7. Xbox Gaming Segment: Shutting Down Studios Amid Layoffs

Transitioning to the Xbox segment, Paul Thurrott reports the shutdown of the Initiative, the studio behind the anticipated reboot of Perfect Dark, and the cancellation of an open-world game titled Ever Wild. These closures are part of the broader layoffs and reflect shifting priorities within Microsoft's gaming division.

Paul Thurrott [108:58]: "So the Initiative is a studio, but there was. Everworld and Perfect Dark are two different Games."

Despite the discontinuation of these projects, Microsoft Gaming remains a powerhouse in the industry, maintaining its status as one of the largest game publishers globally. The discussion hints at future directions, including potential cross-platform hardware developments and the integration of Activision Blizzard’s assets.

8. Concluding Thoughts: Navigating a Rapidly Evolving Tech Landscape

The episode wraps up with reflections on the swift advancements in AI and their implications across various sectors, from operating systems to game development. The hosts underscore the necessity for both individuals and large corporations to adapt continuously to these technological shifts to maintain competitiveness and operational efficiency.

Notable Quotes:

• Leo Laporte [03:50]: "That's a lot of people. Holy cow."
• Paul Thurrott [06:06]: "I think they're trying to ease into it."
• Richard Campbell [14:06]: "Everyone is using AI here."
• Paul Thurrott [28:09]: "So the next version of Windows will be Windows 11 version 25H2."
• Leo Laporte [43:05]: "The passkey implementation that Microsoft has right now in Windows 11 is bare bones to say the least."
• Paul Thurrott [63:27]: "But if you can get by that stuff, honestly, it is the browser that comes with the operating system so it has these integrations that are really nice."
• Richard Campbell [15:24]: "They are using AI, they're able to use the tools at a level I've never seen before."

This episode of Windows Weekly provides an in-depth analysis of Microsoft's strategic decisions amid its financial prowess, the integration of AI across its platforms, and the ongoing transformations within its gaming division. The hosts offer critical insights into how these developments might shape the future of technology and the user experience.