November 23, 2013 in Business

Should Microsoft spin off Xbox brand?

Ryan Nakashima Associated Press
 
Associated Press photo

Nikolai Vacca, left, explains Xbox One accessories to customers at a Best Buy store in Evanston, Ill., on Friday, the first day the upgrade – eight years in the making – was available.
(Full-size photo)

LOS ANGELES – As Microsoft began selling its first new Xbox in eight years on Friday, some critics say it should spin its Xbox branch off. They argue that the gaming unit distracts management from the company’s fast-growing cloud computing business and its effort to catch up to rivals in tablet and smartphone sales.

Here are a few Xbox pros and cons:

PRO

It is profitable in the long term: The Xbox business has been profitable for the past few years, according to Yusuf Mehdi, Microsoft’s vice president of strategy. Mehdi says the company sees the gaming industry growing from an annual $66 billion to $78 billion in 2017.

CON

It will be a short-term profit drag: Nomura analyst Rick Sherlund estimates that the Xbox platform will lose at least $1 billion for Microsoft in 2014 and may not be profitable for another year or so after that. He says a spinoff, even to existing shareholders, would immediately boost Microsoft’s profits and stock price.

PRO

Its audience is huge: The Xbox Live online gaming and entertainment service has some 48 million members worldwide. More than 80 million Xbox 360s have been sold worldwide, providing a user base for Microsoft to sell things like music subscriptions, video rentals, more games and the new Xbox One. The platform is also a window into Microsoft services such as Bing search, Skype Internet calls and SkyDrive cloud storage.

CON

It’s not as big as Windows: More than a billion people worldwide use Windows personal computers and focusing efforts on polishing Windows 8.1 could have a bigger payoff.

PRO

It positions Microsoft in the living room: Microsoft’s Xbox 360 and Sony’s PlayStation 3 each sold more than 80 million units globally. Pulling even with the game console leader was a key strategic win for Microsoft because it prevented Sony from taking over the living room.

CON

The world’s gone mobile: By pouring time and energy into a home-bound console, Microsoft largely missed the mobile devices revolution. IHS predicts Microsoft’s Windows platform will be the operating system in just 6.5 percent of tablets and 3.9 percent of smartphones shipped worldwide this year. Together those devices will account for 1.2 billion unit shipments. Sherlund says dominating the living room “was a good idea 10 years ago.” “Apple and Google did an end run around you with smartphones and tablets,” he says. “You had your eye on the wrong ball.”

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