NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

Microsoft’s Massive Xbox Downsizing Signals the Brutal Reality of the AI Revolution

We’re beginning to see the secondary and other follow-on impacts of AI.

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @TULLMAN

Jul 14, 2026

 

Sony’s PlayStation has been the global market leader for years, while Microsoft’s Xbox has been a distant second even after failed attempts by Microsoft to make its games a visible presence in the desktop world, where it clearly dominates the office installed base worldwide. Both Sony and Microsoft missed the migration of gamers to small mobile devices, where Nintendo prospered for a while—even before the phone revolution completely changed the video gaming space.

Now, we’re in the early innings of another sea change where the major tech players in the gaming industry are realizing that they no longer need armies of programmers, designers and developers to build and deliver the next generation of games. This is due to AI, of course, but also because the new games—mainly mobile—will be so lightweight and rapid as a result of the AI enhancements that there will be no need for any kind of bulky and costly game boxes or platform devices. Finally, as is the case across dozens of industries these days, the cost of the chips used in these boxes has been driven skyward by the adjacent and competitive demands of the AI companies for product that has cut into margins and may ultimately result in price increases at the worst possible time.

The latest salvo in this latest war of enforced attrition was last week’s announcement that Microsoft was making major changes in the Xbox video game business which entailed specifically cutting the Xbox workforce by 20 percent—about 1,600 employees now and another 1,200 plus over the next year. More importantly, the company is largely exiting the studio space, where it spent billions on expensive acquisitions not too many years ago.

The personnel growth in the MSFT games division was massive while the overall demand, player base and playtime all decreased substantially. It turns out—as with many other pre-phone and streaming activities—that millions of gamers would rather watch the play of truly talented players on YouTube than be second-rate participants in multiplayer competitions or simply play older games at home by themselves.

As far as the various studios are concerned, a few big ones like Activision Blizzard will shrink but remain, some others will simply be shut down, some are being encouraged to spin off and go off on their own with temporary support and assistance from Microsoft, and a few will remain until they too can be responsibly booted one way or another or quietly sold off to other buyers who right now seem to be few and far between.

But the most important takeaway from this highly visible and intentional effort at downsizing one lagging division to help offset enormous commitments and investments elsewhere in the enterprise—particularly in AI capabilities—is that we’re beginning to see the secondary and other follow-on impacts of the AI revolution. Thousands of Microsoft employees didn’t just lose their jobs because the AI tools could build new games, faster, cheaper and even more compelling than the former workers, they were also directly dismissed because the sales, marketing, manufacturing and promotion efforts of the entire video game division were shrinking and Xboxes were losing share and playtime as the gamers went elsewhere and the old boxes lost their sway and value.

This is only a single example, but I fully expect that we’re about to see many other industries rapidly roiled by similar advancements in process and speed or response time which will permit—in the name of speed, efficiency and massive cost savings, the wholesale elimination of entire groups and departments in businesses which will simply no longer be necessary because all of their functions in the value-creation chain will be substituted for with new AI-infused technologies. I’ll be writing shortly about a staggering combination in the advertising industry that brings together two powerful technologies and will completely upset and reorganize the ad creation business into a faster and cheaper system, which will also create more engaging and effective products.

It’s clear that a new form of M&A is already actively helping to connect and combine disparate companies with tools and services that are addressing common overarching problems in industries like advertising, and it’s also clear that these individual companies aren’t likely to build end-to-end systems by themselves in a timely fashion whether through lack of capacity or all the necessary resources or because they have been so deeply focused on solving their segment of the overall solution that they didn’t realize that a better and more robust and compelling solution could be offered by combining multiple offerings into a single comprehensive process.

 

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

The 1 Thing AI Still Can’t Do Better Than a Human (and How Startups Can Use It to Build a Moat)

As AI kills the traditional software moat, this strategy can help startup founders survive.

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @TULLMAN

May 12, 2026

 

For quite a long time, the most common assertion regarding the threats presented by AI has been that even the most advanced systems will never reach the point where they will replace humans who are creative and innovative and who are designing new ideas, products, and solutions every day. At the same time, these are the very folks looking most anxiously over their shoulders at the oncoming onslaught.

To the extent that millions of these new ideas are never commercialized or even implemented—and worse yet, that other millions of these concepts turn out to be nothing more than incremental changes, enhancements or extensions of existing products and services which essentially add nothing to the aggregate base of human knowledge—it’s no great loss to humanity that these kinds of menial materials will soon be left to the tender mercies of AI-driven applications and programs. Ideally, getting rid of the scut work will free up folks to do more challenging and valuable tasks. Hopefully sooner rather than later.

The absolute flood of AI slop that’s already overwhelming every social media channel and other information delivery system serves as the first of many proof points in this regard. If humans who previously toiled in the creation of massive mounds of this kind of promotion, media, marketing and advertising crap are soon replaced by machines doing the same work more efficiently and economically, there’s an argument to be made that we’ll be doing those poor impoverished souls a favor to put them out of their misery so they have some prospect of finding meaningful work. And it’s not like the ultimate AI-driven output is likely to be materially better or worse. The truth is that you can’t polish a turd no matter how hard you try.

More recently, there has been a despondent group of technologists who dejectedly argue—especially because AI has proven so overwhelmingly adept at coding—that there are simply no longer any barriers to the advance across the board of these technologies. They believe that even building the best and most novel software offers an entrepreneur, a new business builder or even a senior and highly talented developer no sustainable moat or substantial protection from readily available AI tools simply copying, rewriting, reverse engineering or otherwise duplicating any of their new offerings and solutions in a matter of hours or days. How accurate this threat turns out to actually be is an open question, but it doesn’t take much talk like this to scare away early-stage investors and prospective employees. Years ago, the fear was that Microsoft (and then Facebook) would either buy you or roll right over and crush you. Today, AI is the new boogeyman.: 102006)

So, the real strategy for software startups looking to survive beyond only a momentary flash in the pan seems to be a two-fold approach. First, take what you need in the way of funding but stay lean and don’t be a pig in terms of raising capital because that only makes it harder for you to pull off the easiest of the most likely positive outcomes. In these crazy times, if you hit on a compelling idea and can build an early viable offering, you want to always have one eye on a quick exit.

I call this plan: Build to be Bought. You want to make sure that, when an eager buyer shows up, you haven’t created too many financial or other impediments to an attractive sale which can get in the way of giving your investors and your team a great return and give you all the ability to happily move on to the next challenge.

The second plan, if you’re planning to stay in the race for the long run, is to keep moving forward and head to where the machines can’t follow. Your most effective moat is that you’re constantly in motion and that you’re always at the tip of the spear, which is essentially and inevitably the point of human contact and interaction. This is hard, but not as difficult as you might imagine because what it translates into is always being focused on and building to the front end—upgrading, simplifying, and extending the points at which the end users access and interact with your product or service. That relationship which is so central to every part of our lives will never be fully appreciated and mastered by the machines because they don’t appreciate that we’re never going to be willing to fully abdicate our actions to any of our devices or machines.  

The machines keep getting swifter and smarter, but they will never bridge the final space which will always be defined by EQ emotional considerations (the user interfaces) rather than IQ technical attributes (the operating core). We see this dilemma every day when prospects are presented with and swayed by powerful utility claims and new levels of agency and then are quickly and totally turned off by the substantial technical implementation and onboarding challenges which they never signed up for. New users and even early adopters don’t want to build these things; they just want them to work. They don’t want to read a manual or learn a new trade or even invest a reasonable amount of time learning the basics.

This is where AI falls off the cliff because the machines’ tendencies are always to growing complexity, increasing bells and whistles, and expanding functionality while the target users want simplicity, rapid access, obvious controls and inputs and useable results and outputs. This is the old curse of engineers who are building to impress their peers and not to satisfy the real needs of their customers. It’s the reason that less than 5 percent of the tens of millions of users of all of the major Microsoft products never use or even discover 95 percent of the bloated and buried functions and features of the software.

The moat that still makes the difference and the key to sustainable success is to be constantly focusing on the quality of the end users’ experience, building customer confidence and continuity, and managing and meeting or exceeding the buyers’ expectations. The goal is simple: you want the competition to find your warm campfires and by then, you’ll be over the next hill.

 

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

That Airport Charging Station Could Be Hacking You. Here’s How to Stay Safe

Ignorance is bliss until it bites you in the ass.

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1

APR 14, 2026

Photo: Getty Images

It’s hard to know these days whether the greatest risk to our personal and financial security is laziness or ignorance. I’d say it’s a tossup but, while ignorance is theoretically curable (perhaps not for team MAGA), laziness is a lifelong curse. Worse yet, if you’re too lazy to learn, you’ll never be free of your own ignorance. So many of us, even apart from politics, choose the blissful comfort of ignorance over the inconvenience of painful truths. We go through life with our fingers crossed just hoping and praying that bad things won’t happen to us. But hope is not a strategy, and we have to stop kidding ourselves and admit that knowledge, for better or worse, makes life messier.

One of the problems we’re facing with the rampant spread of all kinds of new technologies is that—in far too many cases—we don’t even understand that our mundane, habitual behaviors now represent dangers that we could have hardly imagined a few years ago. Real knowledge gives us the ability—if not necessarily the will or desire—to recognize and acknowledge the extent of our ignorance. The recent announcement by Anthropic that its latest AI model is too powerful to trust to mere mortals is just the latest warning that the world is likely to shrug off as more tech hysteria. The time has come to overcome our studious obliviousness and at least listen to the folks who know better.

We decided long ago that we were willing to sacrifice a great deal of our privacy for immediate access and convenience in virtually every aspect of our social and shopping activities. Virtually everyone suffers from the stupidity of employing the same simplistic password or phrase multiple times for access in various applications and accounts that we use regularly. And today we hear jokes all the time about people using the word “password” for their passwords. On average, each household has about 100 critical passwords for their many accounts and services and experts estimate that more than half of those are the same word or phrase. Google and Microsoft systems regularly alert users to the fact that they have multiple identical and common passwords or that their codes have been included in data breaches or other dark web listings. But, because we’re all too busy or too lazy, we almost never take the time to update and change them.

Now we’re seeing several new threats which don’t rely so much on new or exotic technologies as they do on our habits, typical actions and behaviors, and the fact that we have reached the point where we take far too many conveniences for granted and never even consider that they might pose security risks. We’ve seen this problem for years now with crooks inserting skimming devices in ATMs and other card readers in order to steal credit card numbers. But now our increasing reliance on ubiquitous connectivity and shared infrastructure is presenting a whole new level of exposure and risk.

We don’t give one second’s worth of thought to plugging in any of our devices to any available power outlet. We’re just grateful they’re there. But when public USB ports and power stations began to be deployed in airports and elsewhere, the focus was 100 percent on location, access and convenience and not a bit on security. As a result, a new threat—juice jacking—which is based on our incautious use of public USB ports to charge our devices can lead to compromised equipment, data theft, and the insertion of malware in moments. When we’re in a hurry, distracted, and grateful to find a source before we hop on a plane, no one’s thinking about data loss, identity theft, or worse. But in doing so we’re all sharing a common port and an anonymous connection.

As Eric Plam, the CRO of SIMO says: “The safest move today is simple—don’t share infrastructure with strangers.” SIMO makes portable and powerful devices which supply both power and secure dedicated Wi-Fi connectivity for mobile workers and especially for travelers. And to be clear, these kinds of risks aren’t limited to power concerns. SIMO’s devices also address another new connectivity problem which is the growing development and deployment in public spaces of imposter Wi-Fi networks.

Plam calls these “evil twins.” They look very much like a legitimate network that we’re all familiar with and to which we readily connect without taking a moment to verify anything. In fact, we’re pleased that we see a rapid connection and, where necessary, that our password is accepted (along with anyone else’s). Once the connection is made, your messaging, transmissions and other traffic can be intercepted, your credentials captured, and you can even be sent to other fake or spoofed sites. There’s no magic here or complex technology, it’s just a case of crooks riding on our typical conduct and routine actions.

Avoiding these threats isn’t hard once you’re aware of them, but habits are ridiculously difficult to break or change. Moving from using public facilities and infrastructure to reliance and use of a secured and trusted private connection is clearly the way to go and, frankly, cheap compared to the likely costs of losing your data or your identity. SIMO suggests a few other basic steps for travelers to take:

(1)  Avoid public Wi-Fi for sensitive activity

(2)  Verify network names before connecting

(3)  Disable auto-connect on the road

(4)  Use wall outlets rather than USB ports

(5)  Carry a power pack whenever you’re away from home or office

(6)  Use a Solis Go secure Wi-Fi + Power Bank

(7) Always enable two factor authentication for all sites, services and apps

(8) Use a security key such as a Yubikey especially for work-related computing

Ignorance is the absence of knowledge. Stupidity is the rejection of knowledge. Now you know. Forearmed is forewarned.

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

Beware the Coming Carnage in the Electric Vehicle Industry

Car buyers are no longer beating down dealers’ doors to get in line for the latest electric offerings, regardless of how smart the cars may be.

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1

Nov 18, 2025

 

If you ever doubted that the electric automobile industry was rapidly becoming a pedestrian and commoditized business of wrapping steel around smarts, where the software was everything of value and the shell was simply the latest look-alike clone, the signs couldn’t be any clearer than they are today. We are reaching the point where the carnage is about to hit every car manufacturer who is trying to make a go of it in electric vehicles (EVs).  The public is increasingly taking a pass. All the German manufacturers are backing away from their electric-only focus. Mercedes just reported almost a 20 percent year-over-year sales slump.

Buyers are simply no longer beating down dealers’ doors to get in line for the latest electric offerings, regardless of how smart the cars may be. Tesla’s recent profits fell almost 40 percent and, while they sold more cars in the third quarter year-over-year, they earned less money per car due to price cuts and low interest loans.  However, as I suggested many years ago, it’s likely when all the dust settles that Tesla will be the last U.S. player standing that’s making a real business out of EVs and also trying to hold off the Chinese onslaught, even without being able to sell the highly-profitable clean-air credits to all the other carmakers or the other prior government incentives. Mercedes, for example, is getting killed in China by BYD and Xiaomi, with sales off 27 percent in the third quarter.

The tariff problems are substantial for all the foreign automakers, but even if you put the current tariff issues aside for the moment and ignore the expiration of the EV credit that incented domestic sales for quite a while earlier this year, the fact that—according to the Kelley Blue Book—the average price of new cars has risen above $50,000 (driven largely by EVs and luxury models) has nothing to do with the realities that the vast majority of car dealers are seeing every day in their stores. This “real world” scenario is reminiscent of the fact that the continued surge in the stock market is a grossly misleading metric for what life is like for the average American at the grocery store, gas station, or local greasy spoon restaurant. Inflation continues to rise, prices at the pump keep jumping, and every shopper sees the truth regarding the sad shape of the economy despite Trump’s daily lies.

The real early warning signal for the car guys isn’t simply the slowdown in new EV sales, which have not been successfully altered by aggressive price cuts that are simply cutting into the dealers’ profits. It’s what you see in terms of the product sitting on the floors of the showrooms these days. They simply can’t sell anyone on the idea of buying a used EV. Upfront in the store, they may have positioned all the fanciest high-end versions of the 2025 and 2026 models, but if you step into the second or third tiers of demos and used cars, the asking prices for the 2023s and 2024s EVs are simply shocking. These are typically low mileage trade-ins that the dealers had to grudgingly take in to make a new sale—typically not an EV—and the prices look to be around half of what they were originally listed and sold for. Depreciation in luxury cars has always been a dramatic hit in the first year (right after the buyer drives the car off the lot), but these prices are absolute fire sales, and they still can’t move them.

The truth is that if you ask an honest dealer what’s going on, they will admit that the EVs are tough and costly to service; their unhappy owners are still plagued by the scarcity and wait times of charging stations—even though range anxiety is largely a fiction for folks driving six-figure vehicles to begin with—and the dealership owners hate taking these cars back in trades because they can’t do anything with them other than sending them to auction. The very last thing a Cadillac dealer wants to see sitting on his lot is a used Tesla. Dealers make a material portion of their overall income from the sales of pre-owned vehicles and there’s simply no buyer appetite right now for taking in or taking over someone else’s EV problems at any price.

But if anyone is going to come out of these dramatic dips in demand, it’s likely to be Tesla because Elon’s interest and business have always been about the software and the massive amounts of driver data that his systems were capturing. I’m sure he’s interested in selling plenty of cars (although he’s already more likely interested in selling them to fleet operators of trucks and robot taxis), but the long run view—typically tech-centric—is always the same, and that’s a winner-take-all game.

There’s never going to be a future for the majority of the manufacturers in the U.S. to try to build, maintain or enhance their own unique control and software systems. It’s just a matter of time before they begin to license Tesla’s tools and systems just as they’ve all been buying credits from Tesla for some time and since they’ve already begun to provide adapters for their vehicles to use Tesla charging stations. The ultimate value and the critical margins are in the software and the captured data which informs and strengthens the Tesla algorithms—not in the platform/shell that they’re housed in. At the same time, in a very new and rare twist, it appears that Tesla may be getting ready to license Apple’s CarPlay for its vehicles. 

Interestingly enough, in a completely different industry, we’re finally seeing a similar phenomenon where meeting the need and demand for increased access and expanding the reach of the “software” is far more important to all the parties than exclusivity, competitive considerations, or the platform on which the product is delivered and enjoyed. Microsoft is adopting this expansion strategy in the computer gaming industry, where it has bought two leading game studios in order to grow its multi-platform content offerings. But its most dramatic move has been the recent Halo announcement. Microsoft’s Xbox has been the exclusive home of the Halo video game for the last 25 years and Halo’s success has been responsible in part for the successive launches of four generations of updated Xbox consoles.

But Microsoft just announced that the 25th anniversary version of Halo will also be available for Sony’s PlayStation. Sony and Nintendo are Microsoft’s most important direct competitors in the game space. It’s clear that the new MSFT plan is to provide its games, software and other properties everywhere and make them available on all of the various platforms. Selling software, data and games is a lot more lucrative than building cars or consoles. These days, it’s not clear that it makes sense to manufacture anything.

In fact, following the many earlier examples in the mobile phone industry, where Facebook and others struggled and rapidly failed to introduce their own proprietary phone hardware, or the fitness field, where dozens of players entered and quickly exited the dedicated hardware device competition, I wouldn’t be surprised to see Microsoft step away entirely from its console hardware offerings and focus all of its attention on its desktop computers and its online offerings.

Since Microsoft Windows is installed on about 75 percent of all desktops worldwide, it’s a pretty short step to turn them all into mini-Xboxes as well. An early indication is the development of a new genre of video games that sits on your desktop just above the task bar (taking up only a fraction of your screen) so that you can keep one eye on the action and jump back and forth from work to wasting time in no time at all.

This takes multi-tasking to an entirely new level and is a significant step up from the old one-button fake spreadsheets we used to use to hide our screens from roving supervisors. But it’s also a reminder as well that—for too many of us—multi-tasking is simply another word for trying to do a lot of things all at once and doing each of them poorly. The critical key to success is to focus on being productive, not just being busy.

 

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

Time to Ask Some Tough Questions About AI 

Has there ever been as much hype about a product that has yet to prove its value for most businesses? That doesn’t mean you shouldn’t take a hard look at what AI might do for you. 

 

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1

MAR 4, 2025

You just might need AI to help you list all of the issues and concerns that surround AI today.  

One of the most persistent worries in the business community is whether any of the various large language models (LLMs) are really ready for prime time and for widespread adoption by companies looking to incorporate these new technologies into their day-to-day operations.

Even if you are willing to put aside all of the commentary about hallucinations and false references, and the circularity problems raised by these systems blindly ingesting the garbage already being generated by other AI systems and thereby diluting the value and accuracy of their own outputs, you still reach the fundamental question of which version of the “truth” your own people can rely upon. Or even choosing among competing offerings that are now creating and delivering inconsistent and conflicting results.

It’s a very tough choice for the IT department to decide which LLM, if any, to endorse and adopt at this point. While a segregated sandbox to be experimented with wouldn’t cost a bundle (apart from the overhead and personnel time), once any firm tried to incorporate these systems into their own workflow at the enterprise level and install it in hundreds of seats, you’d be talking about a few hundred thousand dollars.

I guess that if you don’t care where you end up, and you’ve got money to burn and want to tell your board that you’re doing something, any road will get you there.

A free consumer offering and a novelty accessed by millions of curious users is one thing. People will try anything for nothing, especially folks with plenty of time on their hands and nothing to lose. But this is not a sustainable solution for serious operators on either side of the equation and – as we have already seen – it’s also not a remotely profitable model for the primary providers, since they lose money on every inquiry.

Why They’re Trying to Get Everyone Hooked on AI

All the big guys are racing to create a viable AI assistant for the little people in the hopes (as has happened in the past) that adoption from the outside in (remember all the ad world creatives using Macs) will eventually dictate which larger solution a given business will adopt. If your people all love Perplexity, you don’t really want to start swimming upstream and pushing some other choice.

The civilian population is already reaching the point of confusion and fatigue because there are at least half a dozen major offerings in the market with more variations and versions coming every day. ChatGPT presently towers above the rest with more than 350 million monthly active users.

But Microsoft, Google, and DeepSeek are already reaching some reasonable levels of scale and it’s never smart to bet against fast followers when they are as deeply entrenched and well-funded as these guys are. Watching Microsoft Teams slowly eat Slack’s lunch is a good indicator of where these things often end up.

Microsoft’s decision to shut down Skype and put the functionality into the Teams package is another good indicator of the old tech rule that winners take all. Remember that Microsoft itself spent $8.5 billion in 2011 to buy Skype to replace its own mediocre video offering.

The AI Race Is Still Wide Open

No one is there yet in the AI race. The main riddle is to make the assistant contextually savvy, and surprisingly Amazon is a player in this race because of Alexa. With more than 600 million Alexa-enabled devices, the world is already comfortable asking Alexa for help. And with new tech, familiarity builds acceptance and comfort rather than contempt. It’s still a “go with what you know” world.

All the major players aspire and claim to be delivering the most accurate and comprehensive responses to carefully crafted prompts. In fact, the demand for prompt architects and prompt engineering  has exploded as it becomes clear that even the best answer is useless if you’re asking the wrong questions.

We’re also seeing a surge in new businesses aiming to deliver industry-specific AI tools like GPT-4o for Law and also startups that offer to help companies build their own small and custom models based on their own proprietary data.  The idea is to avoid the generic overkill and costs of the major LLMs. You don’t have to boil the ocean and burn big bucks every time you need some straightforward answers about your own business and customers.

One other interesting new startup, Avatar Buddy,  builds low-cost, task- and role-specific “buddies” for sales and support people, as well as experts and digital twins for educators, which provide real-time assistance and direction to folks in the field.

But all these conversations tend to return to the core issue, which is: How is a buyer supposed to evaluate and decide between these many alternative tools when even extensive, comparative tests are inconclusive or contradictory? There’s very little credible guidance so far; the players keep updating their solutions and moving the measurement goal posts.

Which means that for the foreseeable future, if you want to hold your nose and jump into the pool, you’re probably best advised to follow Yogi Berra’s classic advice: When you come to the fork in the road, take it.