Microsoft analyst says Microsoft should sell off Xbox and Bing

Microsoft just announced the Xbox One game console last week, and the company continues to add new features to its Bing search services. However, a noted financial analyst who has covered Microsoft since the company went public believes it would be better off if it were to sell off one or both of these divisions.

GeekWire reports that in a research note to investors today, Nomura Equity Research analyst Rick Sherlund stated that the Xbox business was not "profitable enough" for Microsoft. He suggested selling off that portion of the company to one that has a bigger consumer electronics focus, such as Samsung, or perhaps spinning it off into its own separate company.

As far as Bing, Sherlund believes Microsoft would be wise to sell that part of the company to either Facebook or Yahoo, companies that already use Bing as the basis for their search engine. Sherlund thinks Microsoft can cut a lot of its operating costs by making this move while also getting" ... a Traffic Acquisition Cost (TAC) back to monetize the traffic that Windows/Internet Explorer or Xbox in the living room can drive to Bing."

Sherlund also thinks Microsoft should expand its Office software to Android and iOS devices, something that has been rumored to be in the works for some time but has yet to materialize. Sherlund states that there are many Android and iOS product owners who will be willing to get access to a version of Office for a monthly fee. Instead, those same users are moving to other productivity software such as Google Docs. He states, "This is bad – Office is being disenfranchised on the hottest growth platforms.”

Source: GeekWire | Images via Microsoft

Report a problem with article
Previous Story

Surface TV ad remixer back with iPhone slamming Nokia Lumia ad concepts

Next Story

Tumblr's Windows Phone app updated to support new languages

69 Comments

Commenting is disabled on this article.

It's not about profitable..microsoft want to keep that business as long as they can regardless of how what happen to the xbox one. Simply put, no other company except sony PlayStation even close to the level console that microsoft can give to a gamer with a unique experience.

Those analyst are clearly clouded by the number and revenue.

What do you expect from a analyst?

They're as useful as the lady at the carnival, looking into that glass sphere for your future......

What looks good on the balance sheet today doesn't necessarily look good on the balance sheet a decade from now. Integrating between the desktop, web, and set top platforms is a big competitive advantage that everyone is going after.

Why doesn't Microsoft just fix Windows-8, and then end up with three "winners?" I'm sure the three products represent three separate divisions. But, at some point the "three-headed dragon needs to start working together."

Yeah financial analysts are SO worth listening to. Remember how they all happened to not know that the global financial crisis was about to hit!

An analyst at Nomura... says it all really. I didn't think they had any left to be honest, he's probably just the mail boy filling in while they continue to downsize.

Their IT is in the dark ages, I'm amazed the analyst even has a browser capable of reading about the Xbox.

Why would they sell one of their biggest business' in the Xbox, and one of the products they've poured tonnes of money into, now that it's starting to gain a bit of traction?

Jackass analyst.

Meanwhile, in a nearby reality ...

Analyst says Microsoft made a big mistake in selling off Xbox and Bing. The company can't continue to milk cash from its Windows and Office produce lines forever, analyst states. Analyst concludes that Microsoft must expand aggressively into different markets, or become irrelevant.

Oh really..?? Microsoft should sell off core functionalities of a modern OS? Is this guy serious?

How are Windows and Windows Phone supposed to compete with Android and iOS if it doesnt have any music, game, search, voice search, maps,etc functionalities?

Bing and Xbox might not be profitable on its own but they are important parts of the total Microsoft package. And it needs to remain a complete package. We have already seen what a mess it is when Microsoft can't have something (youtube).

If the Xbox and Bing are "core functionalities of a modern OS," the Microsoft really needs to fix the "modern OS" to be really functional on non touch-centric devices. As long as it blatantly panders to tablets and other touch-centric devices, it will never gain the much more universal acceptance of Windows-7. Remember--two totally different form factors require two totally different UIs. How could MS miss that basic truth?

They are important features for consumers. No gaming platform like Xbox and Xbox games, music and video. Why stick with windows for your gaming, movie watching and music? Probably the 3 main uses of software/devices today.
Even though Android is horrible for desktop use, for most people that OS will be sufficient for 99% of their computer operations. So why buy Windows?
Microsoft losing its consumer market will be a big loss to Microsoft, and to us Windows users in the end too wont you think.

A platform can not compete anymore without the features Ronnet mentioned.
Windows is not only the desktop or server anymore, its the phone, table, tv, tablet and even Xbox. And in the future, more devices.

Oh yeah, that's right, so that Microsoft can get short term gains if they sell off those divisions. Brilliant idea! Brilliant!

Now I thorougly believe that even analysts are affected by this Internet age of "I want it now."

It might make "pure" financial sense at this very moment... but that's the problem with analysts: They overrate past and present and forget about the future potential or invent a future potential without thinking about how that may be achieved.

Analysts might think they understand finances, and they probably do when it comes to simple raw material things (steel/oil prices), but if we analyse the past only one thing is clear and that is that analysts are incapable of understanding creativity and never forecast that which had yet to be invented.

Microsoft have for decades been good at forecasting the future. Some projects make huge profits some make huge losses, but these aren't things that develop overnight - and sometimes they are almost pushed to market a little too early and exist for years at a loss.

I'd dare say that the microsoft developing tablets for almost 15 years certainly hasn't been profitable, but the Surface is an incredible piece of kit and Microsoft are now paving the future of portable computers. As prices continue to fall and hardware continues to shrink combined products (tablet/laptop hybrid) is the inevitable next step rather than having multiple devices.

and most analysts would be first in line to buy the new company's stock just so they can profit off it..... coincidence?...

"Article"
has a bigger consumer electronics focus, such as Samsung, or perhaps spinning it off into its own separate company.

Then we are going to see Xbox S, Xbox Ace (Utter crap. Will only play 2D-games), Xbox mini, and lots of many other **** that one won't know which is which and that won't be able to play decent games

No thanks.

That analyst is high on some pretty potent stuff. Makes him say stupid things. Why would they sell the XBOX which is one of their biggest brands and Bing that powers search for many things. What a moron.

Poor old Rick - still wrong about Microsoft after all these years. Seriously this guy is appalling at his job - why are they still paying him?

oh dear analysts - not everything in this world has to produce money all the time.
investment in xbox is extremely valuable in my opinion. it offers a great share of mind and links the "boring" windows and office brand to something fancier.

xbox & and the movie The Island - tahts how i want the future of video games to be

wonder why he is an analyst that gets paid peanuts and not a company exec at a large company making such amazing decisions.

ok guys,lets ditch all long term investments even though we're making record profits and record revenues year over year.

Microsoft Xbox division should buy Sega, then they get exclusive titles like Sonic and other Sega games for the Xbox. Not to forget all of Sega's console designs and patents! This sounds stupid, but it could really give Microsoft an edge in the gaming market!

He is looking at the direct money the divisions are making and not at the synergy and collateral money that is being generated for the entire company. The Xbox is a direct gateway into the living room and opens up MS to other markets. Also key is that it raises the barrier of entry for competitors and pushes them away. Literally they have pushed Sony into the back ground in this market. I can see the Xbox adding value to future Surface and Windows Phone devices.

As for Bing, if they give that up and they might as well concede the Web. Yes, the are losing money but they are slowly gaining market share and more importantly they are gaining mind share. More and more people are just tried of Google.

Sell Bing to Facebook or Yahoo! so Microsoft can make money off of Bing? So, in other words, be 2nd party to the profit instead of 1st party? And if they sell it and rely on others to update the service, and those others don't, it stagnates and becomes irrelevant, much like Facebook and Yahoo! have done.

As for Xbox One, everyone knows that consoles are sold at a loss, at least initially, and real revenue and profit comes in from the games and licensing. Given Microsoft is gambling on TV / video content streaming through the unit also, one can safely assume there's some licensing going on there too, particularly if Xbox can replace cable TV set-top boxes and such.

Fus10n said,
Bing.. just trash that and come up with something better.. Xbox.. don't sell that off.. dumbass
Bing is so much more than a search box and resultset.

MrHumpty said,
Bing is so much more than a search box and resultset.

Agreed. And it's not bad at what it does by any means... I really don't understand the Bing hate...

M_Lyons10 said,
Agreed. And it's not bad at what it does by any means... I really don't understand the Bing hate...
If you're searching for something technical it doesn't do well enough to compete with google, but everything else it's just fine and dandy.

if you are using it for something technical, why use it for anything else? Why use two search engines? Don't get sroogled.

Fus10n said,
if you are using it for something technical, why use it for anything else? Why use two search engines? Don't get sroogled.
I only head to Google if I can't find what I want on Bing. Which is rare. I'll hit Google Groups for example. As far as why use two search engines? Why not? When did it become a source of ego to refuse to use any tech. I generally don't like Google's data collection policies, but if their service will help me get something done... I'll use it if I need to.

MrHumpty said,
I only head to Google if I can't find what I want on Bing. Which is rare. I'll hit Google Groups for example. As far as why use two search engines? Why not? [bold]When did it become a source of ego to refuse to use any tech.[/bold] I generally don't like Google's data collection policies, but if their service will help me get something done... I'll use it if I need to.

It always was. It's kind of like picking a sports team.

MrHumpty said,
Bing is so much more than a search box and resultset.

In the US yes, abroad Bing is the child of a lesser god....

Never said "refuse".. I guess I always find what I need on the Google Machine I never gave anything else much thought..

But yes, their data collection policies are bs

what a dumb thing for an analyst to say. from a business perspective a business is more valuable in smaller pieces or units then as a whole. remember when back in the day, I forget who it was but, they wanted to break up Microsoft?

LOL... this analyst is "Stupid is.. as stupid does."

Analysts only look at the short term 1-5 years. Microsoft is currently doing that rare thing of looking 10-20 years out. And they have been doing it that way for quite some time now. So when you try and analyze them against standard norms you can't see the forest for the trees.

Exactly, something many people still don't understand. I still remember to this day the people claiming the engineering of the NT kernel was going to be the downfall of Windows and ultimately Microsoft. 15 odd years later its paying some pretty friggin massive dividends.

Oh yes. Genius... Let's break off (Or sell) one of the most valuable brands the company has AND the search services platform that is powering search on everything else... Genius... LOL

I do think MS should bring Office to more platforms. Would force Google to up their game more and compete better in different markets.

Edited by techbeck, May 28 2013, 7:16pm :

Because those 18 people that use Linux will
1) buy Office even though it is "infected" with closed source
2) Increase Microsoft's bottom line

And Google has any game at all when it is about Office apps? They have a glorified Notepad, not even WordPad quality, online word processor, but that is game?

techbeck said,
I do think MS should bring Office to more platforms. Would force Google to up their game more and compete better in different markets.
I'm curious, which platforms?

MrHumpty said,
I'm curious, which platforms?

Xbox One of course. We can have a metro app on there and use Kinect to select Excel cells, and just simply speak and the xbox will type for us! It's going to be EPIC!

MrHumpty said,
I'm curious, which platforms?

Thought it would of been obvious...especially since I mentioned Google in my comment and its rumored Office is coming to iOS.

Xbox, no, that business is doing great for them and I doubt they'll sell it now since xbox one is their huge attempt into the living room. If they didn't sell the xbox business back when the rrod issue cost them billions, ms won't sell it now.

And about bing...I doubt they'll sell that either, seeing as how bing is being integrated in all of their products.

Misleading title again. It sounds like the guy is working for Microsoft. If this guy actually works for Microsoft, he may need to find new job pretty soon.

About to say the same thing about the title.

To be fair, Microsoft Entertainment Business (which includes Xbox) has been a money pit (that and Bing). So from an investor perspective, makes sense.

That being said, having to lose money to make money is Microsoft's Goal, which doesn't always align with the owners of Microsoft (aka the shareholders)

Not every area of a business can make a profit, without investment your surely going to fall behind someone willing to invest.

Edited by Gaffney, May 28 2013, 7:51pm :

"Today's news means that the Analysts were spot on with their predictions five years ago." I've never seen that happen, unless it's a very loose claim. Never listen to an Analyst that makes even a slightly bold claim, unless it's painstakingly obvious they will most likely be wrong.

Pluto is a Planet said,
By this logic, Google should sell Youtube since it's never been profitable

Google should sell 99% of their services because almost none are profitable. Only their ads are.

Pluto is a Planet said,
By this logic, Google should sell Youtube since it's never been profitable

YouTube alone has made more profit than MS' entire online business for the last three years in a row.

Pluto is a Planet said,

Maybe it has, but my point is that Youtube basically isn't profitable and according to the analyst, that's the only reason to keep a service afloat. By the way, there is no word on how much profit Youtube garners.

Source: http://247wallst.com/2013/03/2...n-users-and-little-revenue/

We've had statements from the past about Google making a little profit every year. As long as its making any profit there's no point getting rid.

thealexweb said,

We've had statements from the past about Google making a little profit every year. As long as its making any profit there's no point getting rid.

That's not the point lol. If Google was losing money on Youtube (which for a while it was), they wouldn't shut it down.