Microsoft co-founder Paul Allen may want the company to spin off Xbox business

There's been lots of public advice from financial analysts in the past year who have claimed Microsoft would be better off ditching its consumer businesses, including a spin-off of its Xbox division. This week, the head of the financial investment group Vulcan Capital, Paul Ghaffari, said that Microsoft should consider such a spin-off.

However, the twist here is that Vulcan Capital is the investment firm that manages the $15 billion fortune of Microsoft co-founder Paul Allen. The Financial Times reports that Ghaffari believes that Microsoft should concentrate just on its business customers and that even a successful division like Xbox is a distraction from those enterprise efforts. He added, "We would want them to focus on their best competencies."

Ghaffari said that Allen, who still owns about $2 billion in Microsoft stock, is "intrigued and interested" in the upcoming changes at the company which will likely be made when a new CEO is selected to replace Steve Ballmer. Ghaffari added that he felt the search for a new Microsoft CEO was going well but did not get into specifics. It's unknown if Allen has any say in the CEO selection process.

Ghaffari also stated that he might put some of Allen's money into Twitter when that company started publicly trading in early 2014. He feels that Twitter already has a strong base for advertising and they have just started on those efforts, adding, "I hope we get some shares."

Source: Financial Times | Image via Microsoft

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should've launched XBox mobile, to compete against Nintendo's 3DS & Sony's PS Vita.
Surface are too bloated for that purposes.

I think this is a great idea. After decades of ****ting down outright hostility onto its userbase, Microsoft has gotten to the point where they are too ashamed to put their own name on the one product left that doesn't incite instinctive fits of apoplectic rage. This would be a logical next step.

Ghaffari is an investor that want to see MS disconnect itself from the consumer market in hope that the consumer and entertainment division will not drag down MS' profit in a quarterly or yearly basis. Basically, he wants his MS stock value to increase.

It sounds like they have no faith in Microsoft in the consumer market and they would like to minimise risk (as they see it).

Many financial analysts have said this.
Just because the one in control of Paul Allen's money says it, it's newsworthy again?

The board is actually split on this issue with many taking this stance.

Time will tell, once they have a new CEO.

My belief is that If the Ford guy gets in, it will be all but guaranteed.

I think a spinoff of the Xbox division is a very good idea. As a separate company, the Xbox company spinoff can grow bigger and have more leverage. Having the Xbox division within Microsoft is like having your kids live at home after they graduate high school and attend college.

Why is that? I feel like Xbox has plenty of leeway under Microsoft, and honestly quite a few more advantages, given all the resources Microsoft has to offer. Kinect 2 is pretty much a product of Microsoft's Research Division, likely among other parts of the console. I don't see how it would grow bigger and have more leverage on its own.

Another example is the deal with the NFL - it's going to be pretty lucrative for Microsoft/Xbox and Xbox on its own wouldn't likely have the $400 million to shell out for it.

Sounds good, I think MS is slowing them down. The rumor was that business decisions outside the xbox team hampered their vision and interfered with development of the Xbox one.

If Microsoft's entertainment offerings labeled with the Xbox brand were to be spun off along with the console portion, it'd be extremely harmful to its overall efforts in the consumer space. Apple and Google both have their own dedicated music and video services, and Microsoft would have to find a way to make new services if it wanted to realistically compete in the mobile space.

It could allow the Xbox brand to expand much more, have more leverage and be more successful financially. Its like kids who live with their parents after high school, they'll have to leave at some point to start their lives.

Title of this post is very misleading! Paul Allen never made a comment about the Xbox. A financial adviser made a statement... very different than Paul making a comment.

dloendorf said,
Title of this post is very misleading! Paul Allen never made a comment about the Xbox. A financial adviser made a statement... very different than Paul making a comment.

that's what i was thinking. Microsoft right now is trying to have the same experience on all screens. The push for the reorganization is part of this effort also. They don't need to spin it off they have people that work on things in all there divisions. This rumor pops up all the time. The Xbox one is made to be profitable from the start unlike the 360. They are not losing money except for Bing.

That would be a bad move, its all interconnected. Microsoft's business succes wont last unless they get their consumer side in order. Organizations are consumers working together. They like to bring their home toys to work. So unless Microsoft also focuses on consumers they will eventually lose marketshare on the business side as well.

In turn Xbox is an important building block in creating an ecosystem that can compete with Android and iOS. Granted Microsoft hasnt gotten the most of it so far and Xbox on WP and W8 is rather weakly implemented but they should strengthen it not diminish it.

I understand the argument of focusing on core competences, it holds true for most organizations. However Microsoft operates in an extremely complex market. You can't simply excel in one thing and expect to do ok. They need divisions such as Bing, Skype and Xbox to make the endproduct competitive.

Funny. One of the reasons Microsoft is having issues is because it essentially ignored the consumer space. It did not jump on key areas or when it did it was late to the game. It ignored the Mp3 player, it ignored the advancement of the smartphone, it ignored the tablet. Maybe ignored is too strong of a term but their slowness to react or take advantage technology that they had developed long before has hurt them now. In the past such mistakes would not been as earth moving. But that was when technology flowed from the enterprise to the home. Computers were mainly for business and moved to the home in 90's. But businesses still determined the direction of tech. Today the movement of tech is a mixed bag as tablets and phones from consumer use has forced or moved to invade the enterprise space. These devices and the fact they are new way of thinking is also transforming the enterprise. Missing the consumer space also allows individuals to create new brand loyalty and invest in other ecosystems. The enterprise control by Microsoft today is still strong but the lack of consumer push has hurt them in strengthening this important area, allowing others to make inroads. So the consumer market is key for Microsoft and Xbox is key as part of that overall design, loyalty and ecosystem. Xbox is not just a device but a marketing branding across platforms. Separating would not guarantee it to successful (a big backer is required to support these moves). As a separate company it could align itself with a competitor (Google Xbox). It may fail and ruin other Xbox consumer integrations (like music).

I think if Paul Allen really wants to look at things he owns that are money losers he could really start with several of his sports teams that are hemorrhaging cash.

They've never been all that interested in the gadget market, so I really wouldn't expect them to be leaders in mp3 players or phones. The Xbox was their first big hardware platform and that was really an offshoot of gaming on Windows. When it comes to the bottle line, they are almost completely a software company.

It's nice to want things but this is just more click bait fodder aimed at Sony fanboys who circle jerk to some utopian one console future they have dreamed up for themselves

Even if they spin off the xbox business they've still got a massive portion of their company not dedicated to businesses, their two biggest money makers, windows and office, make most of their money from consumers not business.

Having Xbox spun off and away from the massive talent pool of software and hardware developers MS has would be an insanely bad idea. Sure it would make more money to begin with, but once they start to struggle with pumping out new software and hardware it'd struggle and they'd lose sales.

Considering ms wants to become a device and services company losing their best selling device of all time would be a huge blow.

Someone seems to recycle this rumor about once a month. It really makes no sense at all as lack of diversification is a much riskier position. Even if entertainment isn't a big part of revenue, it's a good hedge against a slow economy as entertainment spending tends to go up as business spending goes down.

Even if MS did break xbox off into it's own division not many consumers would even notice a difference. So of course the only people who would be upset over something like this is people who follow it, which isn't many people compared to the amount of people who don't follow tech stories.

Idiots need to understand the "business" market will soon get mixed up with the "consumer" market. Leaving one for the other will only cripple MS in future where Apple, Google and Amazon will rule.

Not sure I quite understand what spin off means? Does this mean creating a separate company that is just focused on Entertainment and separate from their Cloud, Server initiatives? If so, that might not be a terrible idea. Microsoft is too big, too much gets lost and forgotten.

Yes it would mean separating the Xbox brand into a separate entity from Microsoft

I is one of the dumbest ideas a so called money manager can come up with, there has to be something else going on in the background

this dude have absolute no clue about xbox. it isn't about making money but to provide the best gaming service for gamer and let them enjoy the all in one entertainment. Paul allen is flat out clouded by MONEY! His whole life is about making money and he should have consider before commenting on something he isn't really good at. In fact, if xbox didn't exist then PS4 might be more expensive than $399 if isn't xbox one.

Um no seriously, it is about making money. That's the whole purpose of a business. Microsoft isn't a charity, they don't make the XBox just so people can enjoy it. Obviously they do want people to like it since that means better sales, but they aren't making it out of the goodness of their hearts.

i do understand they still need to make money off the xbox but if they really care much about it(x2) wouldn't continue the business for such a long time since it isn't generate enormous of profit. My analogy might be a little bit hyperbole but that's how it works and Paul allen just think of it as useless less profitable business which completely isn't the whole purpose...he should have known better but it surprise me when he made such a utterly ridiculous comment!

As much as people like to dog the Xbox One, I couldn't even begin to imagine how fast it would turn to crap if a company without Microsoft's full backing took control of it. The only reason we have consoles like the Xbox One and PS4 is because these companies can afford to lose money. If the Xbox division was responsible for turning a profit every year then the Xbox division would have disappeared several years ago.

Spinning off certain divisions isn't always a bad thing. It allows those divisions to be managed better and be more profitable. But Microsoft should not separate their software from hardware, specially since they're working so hard to make them work together.

This, a million times. I'm not happy with the xbo right now, and I hate paying for xbl for Netflix, but there's a lot to be said for having the hardware and software made by the same company.

This would be the dumbest idea. Having a game or app that could run on the 3 screens, holds a unique promise that noone but MS could pull off. What has in part propelled Apple and Google in the tablet space is this ability to buy an app in one ecosystem and have it work on all of their products. I'll be the first to say MS isn't the best with idea execution, but if they get it right they could offer the best over all experience. Breaking away the Xbox Division would mean that MS not only has given up on that vision, and would put Xbox at a disadvantage to a potential Apple TV or reimagined Google Android based Google TV especially if Sony decides to allow Android apps to work on the PS4 in the future.

EvilAstroboy said,
Don't be Stupid, MS make a crap load from XBOX

It's not just that, but I think their xbox branding now is too deep. To simply discard would devalue a lot of what they've built up on in Windows now, and wouldn't make it exclusive enough.
We'd see xbox games across iOS, Android and Windows Phone, along with things like xbox music and subscriptions across the platforms too. With such a weak platform as Windows 8's store and Windows Phone in general, there certainly wouldn't be incentive left to upgrade or use Windows hardware... unless they did something crazy.

sagum said,

It's not just that, but I think their xbox branding now is too deep. To simply discard would devalue a lot of what they've built up on in Windows now, and wouldn't make it exclusive enough.
We'd see xbox games across iOS, Android and Windows Phone, along with things like xbox music and subscriptions across the platforms too. With such a weak platform as Windows 8's store and Windows Phone in general, there certainly wouldn't be incentive left to upgrade or use Windows hardware... unless they did something crazy.


Agreed. But not only that, it would eliminate the potential of leveraging the other software, services, and work by other departments within Microsoft...

Spinning it off would be asinine...

AWilliams87 said,

It became profitable a few years ago. However, it still hasn't been enough to recoup the overall investment. In the next year or two, they'll lose a more money again on the Xbox One though.

Microsoft isn't selling the Xbox One for a loss, so it's doubtful they're going to lose money as licensing will likely offset the R&D costs, and the Xbox 360 will continue selling for a profit.

Anthony Tosie said,

Microsoft isn't selling the Xbox One for a loss, so it's doubtful they're going to lose money as licensing will likely offset the R&D costs, and the Xbox 360 will continue selling for a profit.

Sure they'll make money on each Xbox, but once operating expenses are accounted for, they'll go back in the red. Marketing cost, for example, will be substantial and not be made up on in sales for FY14 at least. Also, there are indirect cost which Microsoft doesn't include in the entertainment and devices division, such as investments made to Azure.

AWilliams87 said,

Sure they'll make money on each Xbox, but once operating expenses are accounted for, they'll go back in the red. Marketing cost, for example, will be substantial and not be made up on in sales for FY14 at least. Also, there are indirect cost which Microsoft doesn't include in the entertainment and devices division, such as investments made to Azure.

I doubt that will be the case, but we'll see. Azure investments are going to be made regardless, as Microsoft continues to ramp up that portion of its business from both enterprise and commercial aspects.

You're acting as if the Xbox 360 isn't going to buoy its fiscal 2014 year -- it's still going to bring in $300-$500 million in profit, most likely. I imagine Microsoft will be slightly profitable or around the break-even point.

AWilliams87 said,

It became profitable a few years ago. However, it still hasn't been enough to recoup the overall investment. In the next year or two, they'll lose a more money again on the Xbox One though.

Microsoft has stated that they have recouped the cost of both previous XBoxes... Your statement is factually incorrect.

M_Lyons10 said,

Microsoft has stated that they have recouped the cost of both previous XBoxes... Your statement is factually incorrect.

That's not true. They've never even said so. And they're still over $2.5 billion in the whole at FY13 since 2001. A simple google search would suffice. What they said is that they're now profitable.

AWilliams87 said,

Sure they'll make money on each Xbox, but once operating expenses are accounted for, they'll go back in the red. Marketing cost, for example, will be substantial and not be made up on in sales for FY14 at least. Also, there are indirect cost which Microsoft doesn't include in the entertainment and devices division, such as investments made to Azure.

well, they charge for gold membership (which cover cost for the network). based on your logic sony should sell playstation business too because they loose money for the network etc. I believe the reason they want to do that (sell xbox business) is to put their focus on windows (and mobile) more. I believe its a wrong decision (if they do it) and the reason is xbox is heart and soul in MS multimedia and entertainment which is inside their both desktop and mobile OSes too.

EvilAstroboy said,
Don't be Stupid, MS make a crap load from XBOX

Apart from that I feel its a perfect tool to tie into an ecosystem. If done correctly it could be their link against smart TVs, apple tv, Google tv, etc. It just needs to be integrated to capitalize by WP, W8, RT, etc.

EvilAstroboy said,

got a link ?

Got a link from 2008 on where MS was making a profit from the 3Q of 2008

http://www.joystiq.com/2008/01/24/the-xbox-turns-a-profit/

Yeah I know they are/were turning a profit per quarter now I still believe the overall balance of Xbox is still a net loss for Microsoft still. Basically they are making a profit now but they still have a long way to go in clearing off the initial cash to get the project off the ground.