Xbox business spinoff? Could be possible with Ballmer out of the picture

Microsoft has seen better years. Between backlash due to initial Xbox One DRM policy, a slow adoption of Windows 8, and friendly competitor mudslinging dialog, it would seem this year Microsoft is having a tougher-than-usual time. Microsoft has been in the beginning stages of a *major* transition to that of a devices and services company while preparing for the launch of the Xbox One and the much anticipated Windows 8.1 upgrade. To add even more craziness into the mix, Steve Ballmer recently announced that he will be departing the company within 12 months allowing for a fresh new CEO to take the reigns and continue on his "One Microsoft" vision. 

We had already said that they weren't having a fantastic year and there are some stock holders that are looking at the CEO switch as an opportunity to possibly spinoff the Xbox brand as it seems mature enough to break away and make it on its own. Microsoft as a whole has lost $280 billion in market value (Ouch!) in recent years after struggling to gain tablet and smartphone market share as well as gain traction with Windows 8.

So let's stop and think. Is a spinoff of the Xbox business actually possible and would it be a good idea? 

First off, it ultimately depends on the new CEO. With Ballmer out of the picture, a fresh new CEO from the outside could be looking to take drastic steps in an attempt to put Microsoft on the right track and put some money in the bank at the same time. The Xbox division is worth an estimated $20-30 billion dollars, a pretty penny for a relatively small part of the company. A CEO picked from within Redmond however would probably stop the very idea of a spinoff right in it's tracks and continue with the plan to unify Microsoft into a device and services company just the way Ballmer intended it.

Secondly, we should remember that the whole purpose of the "One Microsoft" vision is to bring about tight product integration with services that consumers want. Get rid of the Xbox and you essentially lose a very critical piece of the pie. If Microsoft wants to be and stay serious about hardware and services, it would be taking many steps back if it were to sell its business that builds its most successful piece of hardware. As Microsoft builds its unified vision, the ecosystem of hardware will become a very important asset.  Microsoft isn't going to control the living room with PCs running Windows XP Media Center Edition.

As for this one, only time will tell, and the choice is ultimately in the hands of the CEO-elect and shareholders. We doubt and would personally hate to see the two split, but we will go ahead and download "Friends Never Say Goodbye" to our Zunes on the off chance a breakup goes down 12 months from now.

Source: Bloomberg

Report a problem with article
Previous Story

Nintendo 2DS is a good solution for a problem no one cares about

Next Story

New Zealand kills off software patents while experts question validity

67 Comments

Commenting is disabled on this article.

This article is straight garbage. As with most users above, I agree, where the hell do you get that Microsoft needs to be "saved"? Neowin seriously needs to look at the quality of the writers articles they have posting on here lately.

Seriously? MS needs 'saved' from record profits by being broken up? This is a news site, not a Gordon Gecko fanfiction site. Stop posting this garbage.

After reading some more on the ValueAct group, it looks like they won't try to bring MS down from within, however only time will tell.

Really worried about the vultures known as Valueact or whatever they are called. Now that they have a seat on the board (0.8% holding only!) the press rumours have already started.

MS needs an adventurous leader, its why they missed the whole mobile wave and were in denial far too long.

Even if you temporarily forget the fact that MS are moving towards and devices and services company (the new CEO can change direction). The fact more important than that is that MS sunk a whole pile of cash and IP into Xbox and now that it is a success selling it will be the first clear signal that the people at the helm are in it just to slash and burn instead of grow value. A "maximise profits" approach often means poor products and in todays market poor products don't stand a chance.

I hope the board chooses wisely and are not affected by the newest board member whop made an alarming statement even before he sat down. He stated that MS have undervalued their Enterprise solutions and they stated that they have over emphasized the retail side.

This causes me to scream Nooooooooooooooooooooooooooo!

Just as MS are unifying the code and the UI across Xbox, Windows, Windows RT, Windows Phone we have the danger of all that effort and massive cost being broken up by a stock price mentality. The sum of the parts may equal greater stock price but apart they are far weaker.

Also, remember that Xbox is more than a console )dear CEO don't be a dumbass) it is an entry into the media space which MS has been courting for a long time. Media ownership is very powerful (just look at the sway these outlets have). Just by being the darling of the press Apple has been fawned over. The actual press make governments and have massive influence.

MS is not a technology company it is an Enterprise, don't break it up, press ahead and make a new part of the group don't ransack it.

Oh and by the way when PC's start being purchased again next year don't put it down to the new CEO. People will start upgrading next year due to XP end of life.

This will not happen. The name of the game today is content delivery. All of the Kindles and Nooks, iPads, Android tablets, and smart phones, Smart TVs, Apple TVs, Rokus, etc., are positioning themselves as content delivery systems. They are means to consume. As Microsoft has failed notably to make inroads in both the tablet and smartphone markets, spinning off the XBox would give up the one potentially lucrative content delivery system they already have in place. With the XBox, Microsoft at least has a chance of dominating the living room. Selling that off would leave MS stranded in the past. They would essentially be selling the future of the company.

By the way, I do not think the new CEO will push Xbox into it's own and here is why I state this.

I am comforted by the board of directors that are wholly UNITED to keep Xbox and invest in devices and hardware including making their own chipsets.

This is the one thing in which Steve Ballmer and the entire board of directors are in agreement as of the Interview with Mary Jo Foley here...

http://www.zdnet.com/microsoft...-apple-and-more-7000019812/

What this means is that the board wants a CEO that shares their "Values" and part of those values is selling hardware and software to the consumer.

Xbox needs to belong to Microsoft. It gives them more freedom and also it gives them more resources. Xbox uses a ton of resources from the OS group and from Microsoft Research and you don't want to lose that and you don't want to have them on their own either because then they won't focus on studios as much and not be innovative instead fall on "safe" and conservative ideals.

gaming hardware business is a parasitic business model. it's in for the long haul and there's no way to make a quick profit without initially having profits from other businesses for it to suck off. spin it off is the quickest way to spin it down the tube. but don't mind me. just do it. lol.

LightEco said,
Why would you spin off one of your more profitable divisions?

It's only recently become profitable, and not by much. Patent royalties collected from android OEMs came up close to $3 billion dollars for fiscal year 2013 for Microsoft. The entertainment division, which both Xbox business and collections from royalties resides, still lost $229 million dollar. In total, Xbox division lost over $4 billions, as of fiscal year 2013, since it's inception.

Edited by AWilliams87, Sep 1 2013, 1:30am :

Yes but it is profitable and if you look at the pure economics the amount of money invested to get it there would signal madness to get rid of it now.

as147 said,
Yes but it is profitable and if you look at the pure economics the amount of money invested to get it there would signal madness to get rid of it now.

It was profitable last year. It's not this year. In terms of total return on investment, the Xbox division has lost about $4 billion dollars.

While they are it, lets make IE, Windows Phone and Office its own company. I mean the feds were wanting to in the anti trust case...right?

Samsung should just create the Galaxy brand and spin it off. Right? I mean yeah Sony should spin off Playstation.

Edited by Hi_XPecTa_Chens, Aug 31 2013, 10:17pm :

Possible, but author is not aware of the research and hardware services that are created in conjunction with the Xbox hardware team that also plays a role in the integration of these technologies in the PC world.

The Xbox 360 GPU is the base reference design for GPUs created by NVidia and AMD and Intel from 2006 forward.

The Xbox 360 S CPU/GPU (SoC) design is the base reference design licensed by AMD and Intel for their GPU integration APU and SoC technologies. (Which is ironic when PS4 fans proclaim Sony is using a superior CPU/GPU technology and not realizing it is based on a Microsoft design that AMD licensed.)

The shape of Windows NT's direction is coordinated and either influences the Xbox hardware and the progression of PC hardware or is scoped to reflect upcoming changes in architecture that originates from the Xbox team.

Even though the Xbox brand is seen as a modular to Microsoft, the technologies are intermixed with the entire OS and hardware technologies in Microsoft.

Even the Zune brand was more mixed in Microsoft than people realize, as it still exists, but the core technologies are still used that came from the Zune server and client side products and the media division. From Smooth Streaming IIS technology that comes from Zune to even improved touch screen responsiveness technologies in the Microsoft Surface that originated in the Zune product development, the name is gone, but the technologies are still used and mixed throughout Microsoft.

Ripping Xbox away from Microsoft would hurt the Xbox and would hurt Microsoft and would hurt the entire PC industry as well. The technology MS Hardware Engineers have given to the PC industry based on their work on each generation of the Xbox is massive.

while the xbox brand is strong but it is different than the market of windows / server and office brand. So it is not strange that people that uses office (for example) feel alienated with the xbox brand.
Separating the company opens a world of opportunities, for example expanding the service of xbox for android and ios, or merging some service of nintendo and playstation inside windows.

How could it possibly be a good idea? Microsoft doesn't need the cash - so it would just be a lose lose for them.

If they do it the motivation would be for the major shareholders otherwise known as Pirate Greed (short term gratification).

This isn't a news piece. It's an editorial expressing the views of the author most people here don't agree with as can be seen from the comments. Why isn't it labelled as such?

seriously, don't be ridiculous! the xbox brand is pretty damn good despite not generate much profit as windows and office suite but it was never mean to be in the first place. In fact, the xbox is one of the greatest entertainment device from microsoft.

So whoever come up with the idea of shutting down the xbox business is a flat out SOB and have no clue about it.

From the story ...

"Not all shareholders welcome a split. Richard Cook, co-founder of Cook & Bynum Capital Management LLC, which owns Microsoft shares, said the company has all the pieces to deliver a more cohesive “ecosystem” than its competitors and that he wants those pieces kept together."

Seems like a silly idea to me.
They are using the XBOX name for a lot more then just the console now
Why would you make that integration more difficult by splitting up the company

This is the age were people want integrated platforms and splitting off your set top box wouldn't make any business sense at all. I'm not sure why people keep repeating this rumor when it's not based on anything.

Personally I do not think Microsoft has a problem. Yet. The Xbox can make or loose money and so far they have lost money in the beginning and start to make money the longer the life of the product. If you think about it Xbox is huge and can stand alone as a separate company which will allow Microsoft and Xbox to focus on them selves. With Microsoft changing to a services company and integrating everything, how will it work if they separate the two products? That is something to think about and is an indicator of whether or not they will or can separate the two.

Obviously if the PC goes away then the majority of their business will be gone so they need to think of new things to keep them going in the future which they are by adapting to smart phones and tablets.

However, there OS, office and other software is still being used everywhere by governments, schools, businesses and others. I think if they want to make money for the loss of PC sales then they need to scale back their costs for the existing PC products. Without the PC sales they loose the money being made by consumers. The other customers are still buying their products. Consumers are not willing to pay a high premium for the software. They do when they buy a PC by no choice. It is build into the PC price. If they lower the price for the consumer then they are more willing to buy it but might not cover their costs to make and maintain the software. That is why they need to reduce their overall expenses and cost.

New delivery options will help people buy their software. The funny thing is that people do not see the value in their software and are not willing to buy it. People are willing to throw away two to five hundred every few years for a phone or iPad but not wiling to spend less for software. That is funny. There are other alternatives but less face the facts. Office, Windows, and Development software from Microsoft are great and I feel the best.

It does not help that Google got everyone's mind set and use to getting things for free. That is another problem for Microsoft. How do you monetize your products better. People are willing to allow Google to collect information on them for free services and cheap products but not willing to pay a little more for services or products that does not collect and sell information on the people. That is a challenge. Maybe the reason is due to the fact there are way more young people and cheap people who rather go with free or cheap.

Personally, I rather pay for a quality product or service. If they do separate the two then I will be disappointed. I am loving how they are integrating all of their products and how seamless their products have become.

Great idea! While they're at it, Google should spin off the Play store into its own company, Apple can spin off iTunes, and Amazon can spin off Kindle. Makes total sense to remove a huge piece of your brand just because you changed CEOs!

They need to separate the company into gaming and computers. Let the gaming division create games, let the computer software.people get back to creating software for people who don't play games on their computers. I don't need garbage nickel and dimming me to buy useless "apps" in my business environment. On laptops, I have gone through Vista, Windows 7, and now windows 8. Not a one a decent replacement for the Windows XP my company runs on. All full of cutesy trash to impress children, but also trash that gets in the way of productivity.

HawkMan said,
I guess that's why you don't run big or small multi faceted corporations.

Apple operates in the manner he's advocating for now. Each product are profitable on their own. If it cannot generate profit, whether direct or indirect, what purpose does it have of existing?

AWilliams87 said,

Apple operates in the manner he's advocating for now. Each product are profitable on their own. If it cannot generate profit, whether direct or indirect, what purpose does it have of existing?

Apple is nowhere near as complex as Microsoft. There is a lot more to be considered when calculating profit generated by particular products / departments...

M_Lyons10 said,

Apple is nowhere near as complex as Microsoft.

That doesn't matter. Point still is it makes no economic sense for a product to exist if it generates no direct or indirect profit. Since it's inception, the Xbox division has loss $4 billion dollars. The Surface tablet, which many people considers a failure, generates a higher per-unit income and divisional net-profit than Xbox.

Apple is a narrow company. MS is a much bigger and wider company, where you have several departments that are separate but co-dependent. One may lose money, but another makes a lot of money because of it.

spin it off, and not only does the losing department go under, but the other one suffers as well and may start losing.

HawkMan said,
Apple is a narrow company. MS is a much bigger and wider company, where you have several departments that are separate but co-dependent. One may lose money, but another makes a lot of money because of it.

spin it off, and not only does the losing department go under, but the other one suffers as well and may start losing.


As I tried to be clear before, if that division provides no profit, both direct or indirect (...that division serves as a loss leader to push sales of other products), it has no function of existing. It doesn't matter how large the company is. Microsoft isn't a charity. Their only real purpose of existing as a legal entity is to earn money and losses indicates that they should shift resources away to more profitable endeavors.

I'm not saying they should just spin off that division btw, but they should (in my opinion) think, radically, about the Xbox's current model. If Xbox as a separate business would sink on it's own, that is an indication that it probably shouldn't exist, at least how it does currently.

Edited by AWilliams87, Sep 1 2013, 7:21pm :

AWilliams87 said,

As I tried to be clear before, if that division provides no profit, both direct or indirect (...that division serves as a loss leader to push sales of other products), it has no function of existing. It doesn't matter how large the company is. Microsoft isn't a charity. Their only real purpose of existing as a legal entity is to earn money and losses indicates that they should shift resources away to more profitable endeavors.

I'm not saying they should just spin off that division btw, but they should (in my opinion) think, radically, about the Xbox's current model. If Xbox as a separate business would sink on it's own, that is an indication that it probably shouldn't exist, at least how it does currently.

If a product pushes sales of other products unending its by definition making money indirectly.

Anyway, Xbox is making money, but the way consoles work that's not enough. Even 5-7 years you have to spend a truckload of money developing a new generation. This requires a big solid company behind you to back it, or you'll be indepted for at least 5 years and it costs a lot more to pay interest on that.

On top of that, most consoles will lose money for at least two years after a new launch. This doesn't work if you split it off as a separate company. As a division of a big company like MS however they can thrive and succeed and be one of the major income contributors see over longer terms.

HawkMan said,

If a product pushes sales of other products unending its by definition making money indirectly.

Anyway, Xbox is making money, but the way consoles work that's not enough. Even 5-7 years you have to spend a truckload of money developing a new generation. This requires a big solid company behind you to back it, or you'll be indepted for at least 5 years and it costs a lot more to pay interest on that.

On top of that, most consoles will lose money for at least two years after a new launch. This doesn't work if you split it off as a separate company. As a division of a big company like MS however they can thrive and succeed and be one of the major income contributors see over longer terms.


Every service that is accessible on the Xbox comes under the entertainment division, and it has lost around $4 billion dollars since it's inception. Xbox music doesn't earn a profit, and after subtracting the new server costs, Xbox Live barely pulls in much. I don't know why you keep pushing this "[Xbox] pushes sales of other products" rhetoric if, all in all, the entire endeavor has been unprofitable. The numbers aren't hidden.

When you say consoles lose money after they're released, you're speaking as if this is just the way things are. It would only make any economic sense if it provided a profitable ROI in the long run, but it doesn't. If it can't turn a profit, it shouldn't exist; at least in it's current form.

ummm... the year is not 2007 last I checked...

Either way any console company today, making money or not, needs the economic brawn of a giant like MS or Sony behind it to succeed.

Then Playstation wouln't exist and the only console you would have would be awesome quality stuff like Ouya...

Console business is a co-dependent business, they need the economic grunt of a bigger master company.

Yeah, uh. No.

RROD and the hilarity with the One policies aside, the Xbox is one of Microsoft's strongest brands behind Windows. It would be utterly idiotic to spin it off into a separate business.

That said, I would not put such idiocy past managers/execs driven and placed by greedy shareholders. Shareholders are a cancer on innovation.

Let's hope this doesn't happen. The integration of XBOX and other XBOX branded services are tightly knitted into Windows Phone, Windows 8 and RT. Going forward these will have more of a web presence and will be integrated into other services. This would be a questionable move.

Microsoft is doing very well and is moving in the correct direction with their software and services, across the board. A lot of blogs and bloggers write whatever they want and because it is on the internet and attracts a large audience; people think of it as fact.

AWilliams87 said,
That analogy doesn't really follow.

Taking a cornerstone of your consumer product ecosystem and spinning it off into a new company? Yeah it does.

Enron said,

Taking a cornerstone of your consumer product ecosystem and spinning it off into a new company? Yeah it does.


Exactly. It is mind boggling that anyone can't see how stupid this would be. LOL

Enron said,

Taking a cornerstone of your consumer product ecosystem and spinning it off into a new company? Yeah it does.


Depending on your definition of cornerstone, I would never call the Xbox the cornerstone of Microsoft's consumer "product ecosystem." The market for that device is far too small; 77 million devices sold in 8 years.

Nonetheless, iTunes is a service used to tie Apple products together, not a standalone device. The new Bing and Xbox music is are two attempts by Microsoft to do just that, not the Xbox.

AWilliams87 said,

Why?

Well, for starters, they are positioning themselves as a Devices and Services Company...

But beyond that, one of Microsoft's biggest strengths (As with most large companies, particularly in tech) is their other products, services, departments, r&d, and expertise that they can leverage in their other products (such as... Drum roll... The XBox). All of which they would lose if they broke it off (and make future efforts all the harder)...

Splitting off this business is THE dumbest suggestion anyone has ever made in Tech, and whoever started it should withdraw themselves from all human contact so as to not spread their idiocy further...

Why does everyone seem to think that a new Microsoft CEO will bring ground-breaking changes? Do you really think that Bill Gates, as president of the board, was just sitting back and watching all these years? Especially given his close friendship with Balmer? I bet that most (if not all) of the decisions made had his blessing.

Also the abstract of this article on the main page talks about "saving" Microsoft. Save it from what exactly? Record profits every new quarter? They missed some major opportunities over the last few years, and at the same time, other parts of their business grew. Get over it! Overall their profits have been consistently raising quarter over quarter for years now. They've done fine for themselves.

tanybeen said,
Why does everyone seem to think that a new Microsoft CEO will bring ground-breaking changes? Do you really think that Bill Gates, as president of the board, was just sitting back and watching all these years? Especially given his close friendship with Balmer? I bet that most (if not all) of the decisions made had his blessing.

Also the abstract of this article on the main page talks about "saving" Microsoft. Save it from what exactly? Record profits every new quarter? They missed some major opportunities over the last few years, and at the same time, other parts of their business grew. Get over it! Overall their profits have been consistently raising quarter over quarter for years now. They've done fine for themselves.


Agreed. It's just foolishness...

this! the 'one Microsoft' strategy has been designed buy the board not Ballmer, also Mary Jo Foley's interview with Ballmer shows that the reason Ballmer left was because he didn't want to leave the company midtransition, this transition will take 3-5 years maybe longer and Ballmer(or the board) felt it best he retire now and the new ceo to push forward the one Microsoft strategy, there will be NO splitting or spinning off of core Microsoft properties.

tanybeen said,
Why does everyone seem to think that a new Microsoft CEO will bring ground-breaking changes? Do you really think that Bill Gates, as president of the board, was just sitting back and watching all these years? Especially given his close friendship with Balmer? I bet that most (if not all) of the decisions made had his blessing.

2010 some shareholders, including board members asked Ballmer out of the CEO position.
2011 some shareholders, including board members asked Ballmer out of the CEO position.
2012 some shareholders, including board members asked Ballmer out of the CEO position.
2013 Surface Problems, a group shareholders started a legal case against Ballmer, a business firm increasing his participation in MSFT and finally Ballmer say that he will quit in less than 12 months.


-

Brony said,

...
2013 Surface Problems, a group shareholders started a legal case against Ballmer, a business firm increasing his participation in MSFT and finally Ballmer say that he will quit in less than 12 months.
-

Messages like this remind me why the general population could never fulfill the role of CEO and justify why they get paid so much.

Tell me, how much % of Microsoft's profit was lost with the Surface? Furthermore, please enlighten me with your 5 year Microsoft strategy.

DarkerSeb said,

Messages like this remind me why the general population could never fulfill the role of CEO and justify why they get paid so much.

Tell me, how much % of Microsoft's profit was lost with the Surface? Furthermore, please enlighten me with your 5 year Microsoft strategy.


He doesn't need one. With him in charge, MS will go out of business within a year or two.

Ballmer has been the CEO of Microsoft for 13 years now. He has seen the company move to where I personally believe it is at its best, with innovative ideas and a new, much more interesting image.

Whilst Ballmer may have made a mistake betting a lot on the Surface, he didn't make a mistake doing it at all. He has done wonders for Microsoft and I think his merits are skipped over just because Surface didn't do "as well" as they'd hoped.

He has done a fantastic job and I hope that the next CEO doesn't do anything stupid like spinning Xbox off to be a separate company. Microsoft doesn't need saving - it is doing just fine.

I gave up on Microsoft releasing a TV box, and even if they ever do it'll probably require XBL. I have an Apple TV and it's fantastic, and this weekend I'm going to take my dad's from him for my bedroom TV.

They did. If you had a WMC PC, a cheap XBOX 360 did the same job. It's a shame they're completely neglecting this fantastic solution in favour of one driving entirely by the XBOX.