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Is Microsoft's Next Major Move To Spin Out The Xbox Group?

It's been a strange, busy time for Microsoft.
In the past two weeks, CEO Steve Ballmer unexpectedly announced he was retiring, the company announced that it would be giving a board seat to activist hedge fund ValueAct, and it announced plans to buy Nokia's handset business for ~$7 billion.

What's next for Microsoft? Perhaps a spin out of the Xbox business.

After the ValueAct board seat news broke, All Things D reporter Kara Swisher laid out what was next for Microsoft. In her story, she hinted that Microsoft might buy Nokia. Swisher didn't report that as a fact, just sort of mentioned it. But, it did happen.

The next paragraph from Swisher said, "Microsoft could also spin parts of the company off, most especially its entertainment and games products, which is something many investors have already called for."

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Anon19742269d ago (Edited 2269d ago )

Another interesting piece from Business Insider adding their voice to the ever growing ranks of those saying they wouldn't be the least bit surprised if the Xbox division finds itself spinning/selling off from Microsoft.

As I've said before, those who claimed Valueact has no pull at Microsoft clearly haven't been paying attention.

They're now moving forward with a board seat (a move considered unprecedented in Microsoft history) and Microsoft's Ballmer is out rather than face the proxy battle Valueact was threatening. What company Microsoft size has ever welcomed an activist investor onto it's board? It seems clear they're getting their way and we know the XBox division is on Valueact's chopping block.

Personally I thought the buy of Nokia would squelch the growing chorus calling for the Xbox division spinoff. To me, the buy of Nokia's mobile business says that Microsoft is fully committed to devices within Microsoft despite the problems they've experienced this past decade and the low returns on invested capital. As this article stated, Microsoft ditching the Xbox would be surrendering the living room which was a prize Ballmer fixated on for the whole of Microsoft's "lost decade". But the article has a point. Where does the living room fit in with Microsoft's greater business strategy.

"There’s no doubt that simplifying Microsoft would be welcomed, especially if it allows its powerful and lucrative enterprise efforts to prosper."

Everything else doubles back into business software and services. Except the living room.

negative2269d ago

Well I hope you're wrong

JokesOnYou2269d ago (Edited 2269d ago )

Nope. All signs point to Xbox division growing, Id think a spinoff would have them focused on limiting expensive ventures like new studios prior to that rather than expanding.

YNWA962269d ago

Apple could buy Xbox, this takes them right into the living room, but extremely unlikely. Also, only other suitor with the power to compete, and well, mop the floor with Sony would be Samsung. Outside of that, no one else really could pull this off....

iamnsuperman2269d ago (Edited 2269d ago )

@YNWA96

Apple won't buy them. They are a clever company. A lot of gamers hate apple and they know it. Also their business model doesn't fit the gaming one (there are hints at Apple changing with the Iphone 5C). Samsung is a likely possibility but it depends if they really need to. It is a risky proposition. I think the most likely person to buy into it is an oil tycoon who likes the Xbox brand and wants to have a new form of income

@JokesOnYou. Yes it is growing but in Microsoft's terms at a slow and minor rate. It is like Microsoft is a grown man and he gets a part time job, along side his normal job, as a paper boy. It takes up time and resources but for little gain in his overall income. He could spend more time at work and improve that but his resources are being taken up by this side project because he likes to ride a bike

3-4-52269d ago

Expanding into what though?

If they split, they lose the support of the main brand a little bit because THEN both will have different goals that won't have to tie in together.

+ Show (1) more replyLast reply 2269d ago
humbleopinion2269d ago (Edited 2269d ago )

I wouldn't call it interesting, merely based on the fact that the writer seems to be pretty clueless, both about the Xbox part in the Entertainment and Devices division, as well as about the actual amount of money it made in the past year.
He's actually basing his entire argument on a single quarter P&L, without being able to distinguish the fact that we're at the beginning of a new product life cycle. It makes about as much sense as telling Google circa 2012 to cut down their phone business and stick to their search engine.

Microsofts biggest competitors are Google and Apple, and both keep expanding to the media and entertainment space. Deciding to cut the ground of the Xbox business and brand - which is pretty much the only advantage Microsoft holds over these two competitors - is delusional and borderline insane. Especially after all the money they already sunk in and now beginning to see steady stream of profit from it.

Thehyph2269d ago (Edited 2269d ago )

Sensible.

Most users on this site seem to take these articles as "xbox will be shutting down," and then they proceed to go on a rampage. A spin-off of the brand has no guarantees... good or bad.

It wasn't too long ago that this was proposed for Sony as well. Sony's consumer electronics division has been (presumably) dragging Sony Inc. down for a good while now. If the division was to be spun off, then shareholders can get a better grip on it and give it the changes it needs. Samsung notably has been capitalizing on Sony's follies in this market for the last few years. Sony used to have tremendous brand loyalty. What happened? They'll try to sell you a premium product, three midrange products, and seven low end products at the same time.

In my opinion Sony needs it more than Microsoft. Microsoft doesn't have nearly as many useless products. People poke fun of the Zune, and rightly so. People don't seem to poke fun of the almost countless mp3 players that Sony puts their name on. As I've stated before: Go to your local BestBuy. Now, see how many departments there are that DO NOT contain Sony products at many different price points. Some of them have even created their own price points.

I take this kind of news as a GOOD thing. People complain about Microsoft not being in the interest of gamers. If Xbox was its own brand, who do you think owners would target? They would target the core console gamers for their intitial install base, and then they would build upon that. Without the Microsoft juggernaut on its back, XBox would have to make some very pro consumer or value added choices to be competitive.

Worst case scenario for the fanboys out there is that another company buys the spin-off. I don't even see it as a bad case. If a company like Samsung (just an example) were to buy the spin-off, then we would assume that they're doing so because they have the means AND drive to compete in this market segment.

How does the consumer NOT win with this kind of competition?

edit: forgot to add: I don't think this spin-off will actually happen though. These are just my thoughts on if it were to.

second edit: This reply to darkride66 was not a one liner and took a bit of thought. I'm sure he feels the same way as I do: If you disagree, then I'd like to be able to read why. Share your thoughts, please!

OC_MurphysLaw2269d ago (Edited 2269d ago )

It is going to be interesting to watch MS in the coming year. Balmer clearly has laid down a path for the company to become much more Apple like in being device/service focused. Nokia is a prime example of that. Whoever takes the reins at MS has one of two paths in front of them.

1) Continue the direction Balmer put the company on. Its all there and layed out already. Nokia, Surface, Xbox...there is a full suite of hardware groups that on their own do make good product but its gonna take more work/better decisions to really flesh out a unified experience that consumers will want to flock to on all levels.

2) Redirect the company away from hardware which given all the moves of late will be no easy task and could be a bit disasterous in the short term future.

Either way I think it will be interesting to watch.

Anon19742269d ago (Edited 2269d ago )

humbleopinion said "He's actually basing his entire argument on a single quarter"

No he's not. He used it as an example, but this conversation has nothing to do with one, bad quarter. The whole problem is the Xbox division's profits, even when they're making them, pale in comparison to the other divisions of Microsoft. It's not that the division isn't profitable, it's that it's not profitable enough for a company like MS.

Investors have been calling for the division to be spun off for years and it's not due simply to one negative quarter. It doesn't have anything to do with product lifecycles but more to do with strategic management of resources within the greater company. If you have two divisions each costing a billion a year, and one brings in 8% and one 40%, how long do you continue to invest in the 8% division before shareholders demand to know why their money is being spent in this manner?

@stevehyphen. I agree with your Sony comment. Sony needs to trim back their product offerings as well, something they themselves have committed to recently.

I also don't think a XBox spinoff spells the death of the XBox brand. Far from it, I think it could be a good thing for the Xbox in the long run, but I'm also worried that the Xbox wouldn't take as many chances without MS's backing. It could go either way in my mind. But at least if they spun off they would have more freedom and not be consistently viewed through the lens of Microsoft's other, more vastly more profitable divisions. The next year will certainly be interesting.

humbleopinion2263d ago

"If you have two divisions each costing a billion a year, and one brings in 8% and one 40%, how long do you continue to invest in the 8% division before shareholders demand to know why their money is being spent in this manner?"

What kind of flawed logic is that!? If you have a division that brings in 100 MILLION DOLLARS a year the last thing you want to do is to close it. You want to nurture it and make it bigger - especially if you have other divisions practically making 40% return on the money for you.
It's pretty simply math: if you shut down a profitable division which is making multi million dollars and has room to grow, you're practically ruining your business. You're supposed to cut losses, not profits. Splitting the Xbox division into a new company will give MS less presence in your living room, will make them less money, and will make it harder for the new company to survive without financial backing and big investments. It makes as little sense as throwing out of their window their servers division, or their cloud, or their office utils - just because they don't make as much money as windows. What else do you thing Microsoft should invest in that gives them 8% ROI? That's much better then their own stock performance...

The whole point of a smart business is to wisely invest the money you already have in growth sectors, and gaming is a growth sector.
The Windows division is a cash cow, but how much bigger is it going to grow when the whole world is turning to mobiles? It will be a suicide to focus only on that and disregard the living room and mobile space - which is exactly the purpose of the Xbox (and mobile- the IEB in fact) division.

tokugawa2269d ago

take your rubbish away darkie...

and what do you know microsoft bought nokia today for 5B dollars

Gimmemorebubblez2269d ago (Edited 2269d ago )

The acquisition of Nokia’s Mobile arm and their R&D facilities and factories shows that MS is going to remain in the devices industry and that Xbox isn’t going anywhere yet.

Off topic: MS are such bad sports “the Elop effect” was clearly planned. MS planted him got him to kill off Meego and Symbian and send the stock prices plunging. Since he took over Nokia’s smartphone market share has gone from 40% in 2010 to 3% today. He is now returning back to MS. Mission Accomplished. Whats even more scary is that MS also has “moles” in Valve and of course Peter Moore of EA.
Smart but honor-less and shady business make me sick.

AngelicIceDiamond2269d ago

Question: Why are people so obsessed with wanting MS Xbox division to fail so bad here?

christocolus2269d ago

i dont understand it too...pls read the link below.it kind of debunks this rumour.

http://www.gamasutra.com/vi...

Thehyph2269d ago (Edited 2269d ago )

Not one comment above you called for the demise of Xbox. In fact quite the contrary. I don't think this spin off will happen, but I wish it would. Everything that happened between the Xbox One reveal and today would not have played out the way it did. A smaller spin-off Xbox company would completely tank from something like that, possibly even before the consoles launch. The console would be in better shape because it wouldn't have a financial behemoth behind it to take a risky move like that.

And to christocolus: this isn't a rumour to be debunked per se. It's more... speculative economics. There's no rumour that Xbox could be a spin off. This could happen, but at the same time probably won't.

warewolfSS2269d ago

You love stories about this. In fact. You post them nd are usually the first one to comment.

Maddens Raiders2269d ago

LOL -there is some weird *cough* JOY *cough* bubble action going on here. The multi accounts are strong.

OT - Why don't we just wait and see what happens to the gaming division instead of typing a bunch of stuff that has no impact on their next move whatsoever?

+ Show (7) more repliesLast reply 2263d ago
Foxgod2269d ago

Nope, they wont sell the Xb division as MS is looking to expand their hardware division, not shrink it.

Recently MS bought Nokia.

toxiichollow2269d ago (Edited 2269d ago )

Although you are correct about microsoft expanding their hardware division, microsoft didn't buy Nokia. They brought Nokia's Devices and Services, which includes their Mobile Phones and smart devices.

Wikkid6662269d ago

Technically they didn't buy anything... they are in the process of purchasing the Nokia mobile device division. Won't be finalized till mid 2014.

Anon19742269d ago (Edited 2269d ago )

@Foxgod. The article acknowledges the Nokia deal. It's in the second sentence in the summary, and they don't seem to view this as relevant to the discussion. Did you read the article? Microsoft isn't simply looking to expand their hardware out in all directions like a gob of dough tossed into an oven. They need to focus their growth and make sure it compliments their core businesses, which is what Microsoft stated when they announced picking up Nokia's mobile division.

And therein lies the problem for investors. How does putting an Xbox in people's living rooms compliment their other, more profitable divisions in Microsoft's new "Microsoft One" restructuring strategy? And if there's no truth to this, why are so many close to the company saying it's only a matter of time before it happens? Why is ValueAct, now getting a spot on MS's board saying the Xbox is next?

OC_MurphysLaw2269d ago

I think what investors really need to do is peel back the layers of the entertainment division. When they do that I think some interesting revelations will appear around other products the company has lumped into this division besides the Xbox.

I personally don't think MS needs to funnel off the Xbox, but I do think they need to re-focus on a few key areas and limit that scope. Get it running lean and mean again and not some broad stroke approach that destroyed its identity to a large extent. It in many ways this is a similar problem to what Sony had with the Playstation in the first half of the PS3 existence.

tokugawa2269d ago

this was wrote by an idiot. the nokia deal says they are expanding their hardware.

x phone anyone??

Thehyph2269d ago

I'm going to respectfully disagree with your comment with two points:
1) A spin-off is not a sell.
2) Microsoft became a recognized brand, and built the massive capital it has by NOT having a hardware division. Quite frankly, Microsoft got rich by their ethos of avoiding sale of hardware. This mentality can still work. Google, for the most part and until recently, has been using a similar approach to great effect. Android is doing in the mobile phone space what DOS and Windows did in the PC space. The mentality works.

DonFreezer2269d ago

Why the fuck do we believe this nonsense and the dgpu article has ps fantrolls claiming that it's bs?

+ Show (1) more replyLast reply 2269d ago
4logpc2269d ago (Edited 2269d ago )

There is no way they will sell off the Xbox division after last nights Nokia buyout, and yes i am aware it wasnt Nokia as a company, but their phone division. They are committed to becoming their own brand.

Xbox= Living Room
Windows 8= PC's
Windows Phone 8 = mobile

They are trying to take their entire windows operation and turn into a first party solution. Selling off Xbox would just kill that.

Anon19742269d ago

How? Where does the living room fit in and compliment Microsoft's other divisions? The Nokia devices division buy clearly compliments Microsoft's business software and services, windows 8, tablet business (as MS said, more phones sold, more tablets sold, more PC's sold) Where does the living room fit into that strategy, out of curiosity? And how would the spin off of the Xbox kill that, instead of give them more operating capital to invest more heavily into their core business and services?

4logpc2269d ago (Edited 2269d ago )

Where doesnt it fit???

Xbox Live
XBox Music
NFL Deal
ESPN Deal

Just to name a few...

ALl of that is living room, and all of those are services. It fits perfectly into their strategy.

Wikkid6662269d ago

Xbox One's OS is made from Windows 8 and Direct X 11. Skype is a major part Xbox One. And one of the major things they are working on is getting the 3 market places closer in line... so a developer can easily release an app across all 3 platforms.

Death2269d ago

The Xbox One and PS4 are PC based systems. We are seeing the lines blurred between PC, smart phones, game consoles, and to a degree smart tv's. Why would Microsoft want to give up cosoles that promote their platforms? Follow the money. Microsoft is making money on the Xbox brand. They are much less likely to spin off their gaming division then the competition is.

Anon19742269d ago (Edited 2269d ago )

@4logpc. That's my point. None of that is any benefit to the rest of the company. It's all rather self contained, which is why spinning it off makes a certain sense.

Those are some excellent points from the others. While I can't see the Xbox One moving many copies of Windows 8, it does compliment their Skype business, certainly. And although lines are certainly blurring between what a PC and what a smart phone can do, for example, the Xbox is a game console first and foremost.

While certainly there's some opportunity for the Xbox to cross sell, considering the billions poured into the Xbox division, can't it be said that it would have a much greater impact if that money was put directly into the divisions they're trying to boost? I mean, that's the point ValueAct is making, after all. The Xbox is cool, but ultimately a resource distraction when you consider it's returns compared to other divisions. How much is really to be gained here that couldn't be gained from simply putting those resources to work into something more like business software and services, where MS is already the leader?

Nice points by all.

Death2269d ago

@Darkride

The same can be said of Sony and has been said by investment analysts. Without the Playstation distraction, Sony could reinvest in the profitable segments that they are losing market share in. An exclusive deal with Microsoft or Nintendo placing a built in game console in their smart tv's would be a huge boost for lagging tv sales. (in all honesty doing it with a PS4 would be even better if I were Sony)

Anon19742269d ago (Edited 2269d ago )

@Death. Rather off topic, but the two situations aren't really similar. Sony is an electronics company making electronics. Microsoft is a software/services company dabbling in hardware. Analysts aren't recommending the Playstation division be spun off. One fund manager mentioned it, and most analysts and Sony themselves rejected the idea.

With Sony, their main focus is the consumer electronics market and they know what types of returns to expect in that market because that's the business they're in. Investors by and large aren't clamoring for Sony to exit making game consoles. They don't get upset when a particular model of camera doesn't sell as well as the others because this is the business they're in. Not all electronic products will sell as well as others.

Moreover, one of Sony's other major focuses other than consumers electronics is their entertainment division responsible for music and gaming, and it's a no brainer to see how the Playstation's success compliments the entertainment division as a whole. Playstation devices also support and compliment Sony's main TV business, and vice versa. Also consider that Sony's recent struggles with the Playstation division, among others, has been largely due to unfavorable currency fluctuations sometimes affecting their revenue as much as 25% since the market crash of 2008, something that has slowly stabilized.

With Microsoft, it's hard to pinpoint exactly how the Xbox really impacts other divisions, and their overall return on investments simply doesn't measure up to the rest of the company, something shareholders have been complaining loudly about for years. This isn't the case with Sony and the Playstation division has historically proven quite profitable and useful in driving Sony's other endeavors, like DVD and Blu-Ray technologies, for example.

Anyway, out of bubbles but it was nice chatting with all of you. It's refreshing to see some actual effort put into these conversations as opposed to those who just attack those who want to discuss game issues intelligently, or those who dismiss the article outright without reading or bothering to contemplate the impact of what's being discussed.

Cheers!

+ Show (3) more repliesLast reply 2269d ago
4logpc2269d ago (Edited 2269d ago )

@darkride
"That's my point. None of that is any benefit to the rest of the company. It's all rather self contained, which is why spinning it off makes a certain sense."

How does that offer nothing to the rest of the company??

Microsoft has been pushing services for awhile now, which includes Windows 8.

Xbox One is running on Windows 8, and everything that are doing in the Xbox Space is also being done in someway on their other services. Xbox Music is now the definitive music player in Windows Phone 8, and Xbox Music has gotten a massive update in Windows 8.1

SMartglass is also becoming a huge thing for Microsoft, and they are also pushing hard for this service on all of their games. Without Xbox, Smartglass is utterly useless.

If they suddenly drop Xbox and let another company do what they feel is right, takes all of the momentum from cross platform devices.

Tablets, phones, pc, and XBox running your services vs Tablets, phones and PCs is not nearly as effective.

Not to mention Skype is also becoming their main source of communcation, and the rumors are in Windows Phone 8.1 they will streamline it even more.

Microsoft NEEDS the living room. People are becoming more in touch with Technology than ever before, and they want to have a similar experience across their entire line up devices they have purchased for themselves.

If you get rid of Xbox you get rid of that vision.The ESPN, NFL, Twitch, and all the other deals they are striking is just the start. Eventually all of their platforms will be literally One expereince across all their devices, and when that happens Xbox will be even more important than ever.

DrRobotnik2269d ago

What if Sega bought it. It would be back to the original 3.

IcicleTrepan2269d ago

Original 3? What about Atari, Coleco..

DrRobotnik2268d ago (Edited 2268d ago )

I just referring to the original companies that escalated the console war. From 16-bit era genesis vs snes to the 32/64-bit era with playstation,saturn and n64, and then ended with the 128-bit era with dreamcast,ps2 and Gamecube. When sega died, they went and helped microsoft develop the first Xbox, might as well slap their name on it.

Death2269d ago

I really cant see Atari coming back.

IcicleTrepan2269d ago

That really wasn't my point. But aside from that, Atari is still around.

Death2269d ago

Yeah, I replied before your reply came through on my end. We both caught the "original 3" as missing many of the "originals" that came before.

Roper3162269d ago

I wouldn't mind Samsung buying the Xbox brand from MS, I think the Nokia deal has more to do with the Windows Phone than the Xbox. Windows phone just surpassed Blackberry for 3rd in market share.

http://news.yahoo.com/battl...

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