Former PlayStation boss Shawn Layden has offered new Xbox CEO some words of advice as she resets Microsoft’s gaming business: “pick a lane.”

In an interview with The Expansion Pass, the former boss of Sony Interactive Entertainment America called the decision Asha Sharma now faces Xbox’s “Dreamcast moment.”

This is a reference to Sega’s earth-shattering exit from the console business following the commercial failure of the Dreamcast. That call, made early 2001, ended a run of console manufacturing that included the likes of the Sega Genesis, Game Gear, and Sega Saturn. Sega instead focused on releasing video games on previously rival consoles, such as Sony’s PS2.

Fast forward 25 years, and Xbox is in the middle of a dramatic restructure that has already seen nearly 2,000 staff lose their jobs, multiple studios either exit Xbox or face closure, and various games canceled. Xbox is now focused on fewer, bigger video game franchises such as The Elder Scrolls, Fallout, and Minecraft, with the likes of Halo moved over to Call of Duty company Activision. Through it all, there are question marks hanging over the viability of Xbox’s confirmed next-gen console, Project Helix.

With this in mind, Layden was asked if he had any advice for Sharma, having led a video game business of his own. He presented two options: go hard on taking on PlayStation now and in the future, with the assumed launch of Project Helix and PlayStation 6, or pack up those console plans and focus on software.

“You got to pick a lane,” he began. “Either you’re going to be a platform competitive with PlayStation — which Xbox has not been competitive with PlayStation for years — but that’s not out of the window. You know, you can still make another run at it. And there are certain decisions you have to make around that about the platform. We talked about exclusivity. We talked about, how do you incentivize third-parties to support your platform in a meaningful way? This is all things around the platform business.

“Or you sit back and realize you are the biggest game publisher in the world. Well maybe Tencent’s bigger, but in the Western world you are the biggest game publisher out there with Activision and Blizzard and Bethesda and all the other pieces. Be that. This is your Dreamcast moment, when Sega decided we’re just going to be on PS2 and we’re going to get out of the hardware business and just be a great software company. It can be done. It’s been done before. So, that’s my advice. Pick a lane.”

Microsoft has for years now fended off questions over whether it plans to exit the console hardware business amid poor sales of Xbox Series X and S and, before it, Xbox One. Publicly, Microsoft boss Satya Nadella and Asha Sharma have remained committed to console hardware, with Sharma saying it’s central to the company’s gaming plans. But Sharma has also said in recent months that Microsoft needs to think carefully about how Xbox consoles work and make money, particularly with the RAMpocalypse driving up prices.

In June, Sharma said the spiralling cost of new and existing consoles would require “radically different business models” over the coming generation. Speaking to Fortune, Sharma acknowledged the increasing price of existing hardware and components — fuelled by global crises and the rise of AI — and said the industry had “reached a point where it will be hard to imagine” mass audiences still being able to afford “thousands of dollars” for a new console generation.

And just this week, former PlayStation executive Shuhei Yoshida said Sony and Nintendo needed to make their current consoles last as long as possible amid soaring costs that have already prompted PS5 and Switch 2 price rises.

Big questions remain. What, exactly, does Project Helix look like? How far down the exclusivity road will Xbox go? And here’s the biggest of all: will Xbox eventually exit the console business?

Photographer: Patrick T. Fallon/Bloomberg via Getty Images.