Investors Want Microsoft's New CEO To Abandon The Xbox Division

Microsoft's last two CEO's, Bill Gates and Steve Ballmer believed that Microsoft could successfully infiltrate the consumer tech market, with products like the Xbox and the Surface, but now that Microsoft has a brand new CEO in Satya Nadella, some investors are pushing for Microsoft to abandon these initiatives and focus on its core businesses.

And that core is selling software to businesses, an endeavour that's been continually successful for Microsoft. Its attempts at consumer technology have been less successful, with the Surface losing money for Microsoft and Bing being... well, Bing.

But, as the Washington Post reports, abandoning initiatives like the Xbox won't be easy. It'll require Nadella going against his previous mentors Gates and Ballmer, who have long supported a more front facing Microsoft.

If Nadella decides to make the break, it'll be a difficult choice to make, considering just how much Microsoft has invested in that area over the past decade or so.

For the full report, head to the Washington Post.


Comments

    Won't happen, it's two investors who have been asking for this for years now.

      I'd love to see what the rest of their portfolio is like - and if they'd benefit from the change in other ways.

    I would be very sad to see this happen being a fan of xbox since the very first. But at the same time it would be better just have sony and nintendo makes it much easier for choice and money wise

      the issue is nintendo's future is looking quite bleak at the moment. that would leave the entire market to sony... being a sony man myself, even i wouldnt want that. competition is healthy

        Nintendo have buckets of profits from the Wii/DS/3DS to sustain them, the WiiU needs a marketing overhaul but Nintendo aren't going anywhere.

          i totally agree they are not going anywhere, i guess i should have worded myself better. what i meant to say is that i dont see the wiiu exploding in popularity anytime soon, and it is the handheld business that is keeping them going. You can honestly say that nintendo is competing on the same level as microsoft and sony. as always nintendo do their own thing.

          Therefore i stand by my opinion that i honestly dont see nintendo as competition to microsoft or sony.

        This is what people would like to believe. The GC era was also disastrous for Nintendo and they recovered just right. The Wii U still has a lot of time and, more importantly, potential to even recover in this generation.

          a) Nintendo isn't going anywhere
          2) even if Microsoft divest themselves of Xbox - the brand will still continue

        Sony's future is actually looking worse than Nintendo's. 1.1 Billion projected losses in addition to selling off PC and TV divisions.

        Sony are in bad shape currently. I would put Sony out before Nintendo.

      They wouldn't abandon it, they would sell it. It's a cash cow ATM and you would just throw it in the bin.

    It'd make complete business sense to abandon a successful brand it's built up over the last decade. I can understand withdrawing from tablets and mobile phones as they haven't had the success in competing against iOS and Android, but the Xbox?

      Success for investors is measured in profits, and MS has been hemorrhaging cash like a stuck pig for a long time now.

        Could you explain what you mean in light of the fact that Microsoft has consistently had positive net operating cash flow?

        Last edited 11/02/14 11:20 am

          I think he means the Xbox division.

          I remember looking through their financial statements years ago. The original Xbox operated a a loss for every quarter exept for the quarter when Halo2 released, they made a small profit.

          I'd love to see an article on their current profitability. I've also heard that Sony's other businesses have been keeping the Playstation division afloat and we all know how Nintendo is at the moment.

            Fair enough. Consoles are slight loss leaders, the profitability of the division relies on a threshold of game sales per unit to bring the platform fees in and remain positive. I don't know if the financial statements you mentioned factor that in, but it also doesn't surprise me that a lot of units are in homes that haven't bought enough games for it to make it profitable.

              Yeah, as I said, these were from the end of the original Xbox era, I haven't looked at it since. The originals were sold at a loss with games to make up the difference. Since they were basically cheap PC's though, heaps were bought with no games to run as webserver farms and whatnot. Probably didn't help. I don't think you can do that with the new ones.

              The current xbox division may even have been profitable, but the real issue for investors isn't, "Is it making a buck?" but more, "How many bucks is it making back, compared to something ELSE I could be investing in?"

              If one company in your portfolio returned $500 for every dollar you sank into it, and another only returned $5 for every dollar you put in, you'd probably pull all your money out of the second company and put it into the first one. That's what investors are probably looking at with Microsoft's different divisions.

              That's called Return On Investment (ROI) which is the key here, and it's the big reason behind a lot of decisions which gamers can find mystifying or traumatic (such as MMO shutdowns). And as far as I know, the return rate on xbox isn't as good as their enterprise & government solutions.

              Hell, Sony's already sold its PC division, likely for exactly the same reasons. This is something which happens in the industry. And it's also the reason the big publishers are turning to mobile - sure, the blockbuster AAA titles might be selling millions of copies, but they cost hundreds of millions to make, whereas a mobile title can bring in just as many millions but take maybe a few hundred thousand tops. The ROI there is superb.

                Don't get me wrong, investors can demand Microsoft shut down whatever division they want. But investors don't invest in individual divisions, they get the whole package, and the whole package right now has had consistent growth, which means their demands have no teeth.

                There's no obligation for investors to have any understanding of how a large multinational corporation actually functions, how many use loss-making divisions as tax holes to write off tax debt, or anything like that. Any CEO worth his salt isn't going to bow to those kinds of demands.

                  Oh yeah, totally. That's just the investor perspective. And you're absolutely right - the divisions AREN'T separate companies they can choose to pull money out of or invest it, and there are a lot of other factors at play as well.

                  Such as the effect of diminishing returns: you might pump three times as much investment into E&G, but only see a slight increase in returns, because the market is already tapped and there's only so much innovation and market dominance money can buy. There's not a lot of difference between a $100 steak and a $1000 steak - meat can only taste so good, throwing more money at it won't improve the flavour after a certain point, only the prestige.

                  Not to mention the interplay on 'holistic brands' and consumer relations and all that shit. Surface might not be a stellar earner, with such powerful and established competition, but it doesn't actually NEED to be a winner - it only needs to fill a gap, to prevent consumers from flooding out of it. Products tie together, and if the Surface's competition is powerful enough with no viable alternatives, it's a given the competitor will have that market. And Microsoft knows pretty well that once you have a market locked down, you can siphon off business from product related to it, or get a foothold. There's a reason Microsoft's more recent ads focus on a 'windows household' with full integration across multiple platforms.

                  Yeah. You can see why an investor would want Microsoft to cut the dead weight which isn't earning 'really fucking big' and 'right the fuck now', and you can see why Microsoft hasn't jumped to the same 'obvious' conclusions that their investors have. The only thing that isn't quite right is investors not being able to decide where a company goes. That's what the board of directors is for. But obviously there are a lot of competing interests at play, so things get complicated.

          Because MS has a long standing habit of excluding all available financial information when announcing loss and profit.
          A good example is the last quarter of 2012. MS officially announced that they had gained a large profit during that quarter with costs well below expectations. However they failed to mention that the profit was not weighed against the 6 billion in losses that they had.

          The 360 was costing them 2 billion in losses annually alone and they have already admitted that they barely break even on the Xbone.

            Again, not really sure where you're getting this deception idea from. See Microsoft's Q4 2012 report here (http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY12/Q4/default.aspx). The statement clearly shows Microsoft made a loss of $492M, which was caused by a once-off write-down of the value of an investment from five years prior (the acquisition of aQuantive) that turned out to not meet value expectations. It's an on-paper loss that had no effect on the company's cash flow at all, and that kind of write-down is common - aside from it, the company actually produced record revenue in the quarter, including 20% revenue growth in the gaming division. The quarters surrounding Q4 2012 support the notion that the write-down was a once-off loss.

              Ah fair point, financial years end mid calender year. The story i am talking about was at the end of 2012 as in the end of the calender year, in which they announced record revenue and profits. But it was the analysts who spotted the losses which were higher than the first reported profit.

              I don't put much in official reports from MS since as mentioned it has already been revealed that they have to resort to cheap accounting tricks to hide losses, which is why they are looking at a possible investigation.
              On paper MS is making money, but the truth is it's being covered up with other assets that investors have no

              They are pretty much using one credit card to pay off another on a grand scale.

          The 360 still makes them money but their most profitable revenue streams are still OEM Windows licenses and education/corporate Office contracts. W8 is not the runaway success they hoped it would be; Lenovo is the only Windows OEM making any money, HP has begun to sell PCs with W7 again to energise lacklustre sales and Sony has sold off their Vaio business. With Macs now dominating the $1000 USD+ laptop market and Chromebooks chipping away at the bottom end, the PC market is not looking healthy.

          Plus small businesses are increasingly adopting Google Docs and open source productivity suites, so who knows how long that gravy train would last. Bing and Windows Phone still lose them a tonne of money and they wrote off $900 mil on the Surface. Microsoft is still in the black, but nervous investors is not something you expect in a growth company. That said, selling off Xbox would be a monumentally myopic decision.

          Last edited 11/02/14 1:11 pm

    As much as i prefer Sony and Nintendo over Microsoft i hope this doesn't happen. Without Microsoft there is no real competition for Sony which would mean there is no real reason for them to try and improve. The industry needs competition to drive things forward

      As someone who leans towards the Xbox I second these sentiments. Last gen we saw Sony's success lead to arrogance when they thought they could do what they want and Microsoft seized the opportunity and gained momentum. And this gen Microsoft has shown the same "we've arrived and we can do whatever we want" arrogance and Sony has been quick to slip in and steal that momentum back. With the exception of exclusive games, there's not really a downside to fierce competition between the console manufacturers. It keeps each company accountable and reminds them that they have to win our business.

    I was listening to Windows Weekly last week, and they mentioned this as a possible reason as to why more Microsoft employees are joining the Board of Directors, to essentially stack the deck in favour of keeping the company whole and not selling bits and pieces. Makes sense when you think about it, given than Balmer and Gates are the two biggest single share holders (Balmer is #1), then adding Nadela and making Thompson the new chairman does seem like a play to me.

    If Microsoft do this, it's the beginning of the end for their consumer division on the road to enterprise only. So I'll just go buy a bloody mac even though they're not touch screen, MS will be as good as dead.

    I'm pretty sure Microsoft would sell xbox rather that just abandoning it.........maybe sega or Atari might buy it?? Give the whole home console gig another go??

      Sega really wouldnt able to risk it and I think Atari are done, best bet would be Activision if they bought xbox and made COD only for it and there other games they could do quite well. Or Valve would be a good jump on point for them for console

        Maybe a big, successful electronics company like Samsung might decide to get into the gaming business (with a proper console, I mean, not some android microconsole monstrosity). An established brand like XBox might have some appeal there.

        But the problem is that XBox is tied so closely into MS's infrastructure (i.e. XBL, Azure, etc), it would be very difficult to separate it from MS. Unless they just bought the XBox name and the IPs (Halo, Gears, etc) but not the technology.

    Bing, by the way, has nearly 20 percent of the search engine market... which is a steady year on year increase.
    And xbox live is basically a license to print money...

    Surface I can see them getting rid of, but it probably serves as a good demonstrator of windows 8... so we'll see.

    Last edited 11/02/14 11:17 am

      Bing's growth hasn't been at Google's expense though. Bing has been cannibalising users from Yahoo, AOL and other smaller search engines. Google also had small growth in market share over 2013. It's not a bad thing yet, but it does seem to suggest that once the smaller competitors are gone, Bing may hit a growth wall against Google, which could make investors unhappy.

        Investors though, aren't interested in long term development and profitability.

        Ideally, they want massive surges of growth and profit... and they want it every year.
        They're not into sustainability.

          There are different kinds of investors, I don't think it's fair to lump them all in the same category. Some will jump ship at the first sign of trouble, some will ride it out. Some invest in companies like Microsoft for the long haul and don't care about a few quarterly losses, others are rapid fire investments that get spooked the moment the brackets appear around a number.

          That somewhat relates to what I said. An investor that actually examines Bing's growth will see that there's going to be a clash at some point with Google that hasn't happened yet. A cursory glance by another investor who doesn't care to get into the detail will just assume 'growth = good' and go with it. But there are plenty of the former, smart investors that will look at the reasons for a company's growth to figure out if it's once-off, temporary or on a long trend before throwing their money into the ring.

    Seems like bullshit. What investors. "Some investors" is ambiguous as fuck.

    They just bought Nokia for gods sake.

      Agreed sounds like a load of croc....or something has been taken out of context.

    I thought they already did?

    I'm here all week guys. Enjoy the veal.

    They made $4.6B in profit last quarter, Sony hopes to make $118M this year. MS should buy Sony.

    Posted in wrong spot, replying to proper comment with post :(

    Last edited 11/02/14 12:14 pm

    well, judging by how long I've been waiting to get my hands on a Surface Pro 2, I'd say they already fucking have.

    Even if they did abandon the Xbox, could you imagine the headaches of losing all that invested money in developers and exclusive content? But being a Sony man my self, getting CoD maps faster to PS4 would be a plus

    they should sell the rights to Rare back to Nintendo, then Free Radical should merge with them and maybe we'll see some amazing games from them again some day. *looks into the distance longingly*

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