After less than a week as the new CEO of Microsoft, The Washington Post reports Satya Nadella is reportedly under significant pressure to “abandon… non-essential product lines” and refocus on Microsoft’s bread and butter—Office, Server, and other things their business customers buy in droves.
That means Bing, Surface, and even Xbox are potentially on the chopping block.
It’s not all doom and gloom, though. Even if Microsoft were to decide their decade of being in the gaming hardware business was a strategic mistake, the financially prudent solution would be to spin off their gaming division into its own company rather than to unceremoniously end it.
Still, the idea of Xbox without Microsoft behind it is an ominous one. Much of the promise of the Xbox One has been built around granting developers access to Microsoft’s cloud services and using Microsoft’s deep pockets to fund developing exclusive titles.
It’s difficult to argue with investors who criticize Xbox’s track record. On paper, the Microsoft Gaming division has lost billions of dollars since the inception of the Xbox, although much of that was due to the very liberal warranty program Microsoft used to prevent the Xbox 360’s catastrophic hardware failure rate from destroying the brand’s credibility.
That hardware failure issue—due in part to then-new regulations mandating the use of lead-free solder in the assembly of consumer electronics—is unlikely to repeat itself with the Xbox One, and Microsoft’s biggest expenses for this console generation—hardware R&D—are likely behind them. A spun-off Xbox division may stand a chance at success, although Nintendo’s most recent financial reports are ominous for the prospects of any company trying to succeed solely via gaming hardware and software. Even Sony’s gaming division has spent money-losing quarters subsidized by the evergreen nature of their financial services group.
Still, it may be a non-issue—while Microsoft has a new CEO, Bill Gates also announced renewed involvement in the day-to-day operation of Microsoft, and Xbox was originally the main thrust in his strategy to target consumers as the future of Microsoft’s business. As much pressure as Nadella may be under to kill the Xbox, Gates might offer even more pressure not to.
