Will Microsoft Axe Xbox?

In the world of large, successful, public corporations, a new CEO means renewed investor pressure to get things sorted… their way. 

So appears to be the case for the current inner workings at high king Microsoft, whose top-tier reshuffling has piqued global attention with the introduction of Satya Nadella as the new CEO of Microsoft. Now that the welcome celebrations and speeches have died down, what is the future of Microsoft going to look like?

Well, down one fork in the road is a future without Xbox.

Which sounds weird, isn’t it?

While the head-to-head console battle against PlayStation is long-running and very real, it’s no secret that Xbox owns an enormous chunk of our fledgling video game industry. In fact, it was the highest-selling console during the extremely important holiday season within the US – while pushing out a constrained supply.

Microsoft’s Bing search engine may also be heading towards the chopping block. While Bing may not have become the ubiquitous search tool of the decade, it remains the biggest contender to Google’s omnipresent dominion over the Internet – and nothing keeps an overlord honest like some healthy competition.

And that’s not the whole of it. Microsoft’s ultra-powerful Surface tablet may not make the cut, either. Admittedly not the superstar tablet that the Apple iPad is, the Surface 2 promises lighter, brighter, and faster usability, and the original Surface has now dropped to an attractive price that is a fraction of an iPad’s with all the easy functionality.

So how can all of these popular consumer products go the way of the scrap heap?

Sales.

The primary (in fact, one might argue the only) priority of the investor is money. And to get that, the company needs to turn a profit. In the case of Microsoft, it has to be a big one.

Two influential Microsoft shareholders are pushing to abandon what they see as nonessential product lines so that Microsoft can focus on its core strength: selling enterprise software to businesses. Since Nadella has spent the last seven months running Microsoft’s $20 billion server and tools division, he could be the ideal person to lead that kind of transition.

So will the business of Microsoft be strictly business? 

Former CEO Steve Ballmer envisioned Microsoft as a “device and services” company, reorganizing the company last year to help execute that vision. But since Ballmer is now out of the hot seat – although still with a place on the board – it remains to be seen just how much one new face at the head of the table can change. 

Microsoft would be essentially giving up the decade-long fight to stay in the consumer market without a whimper – and accept the consequences of opening its steadiest market to new blood as well. 

And if you think about it, the change would make sense. According to the Washington Post, Microsoft has been facing shrinking profits for its Windows division, and a loss with both the Surface tablets and Bing:

“Microsoft’s Windows division has been facing shrinking profits; last year, the unit pulled in a net $9.5 billion, down from $11.6 billion in 2012 and $12.3 billion in 2011. Company filings suggest that the drop is largely attributable to declining demand for Windows among consumers, even as sales of Windows to businesses remain strong. The same division also reported a $900 million loss on unsold Surface tablets. The online services division, which oversees search engine Bing, reported a loss of $1.3 billion in 2013 — less than the previous year but still in the red.”

Even the Xbox deserves to go, according to Paul Ghaffari, the wealth manager for Microsoft co-founder Paul Allen.

Would it work? Dumping the heavy weight probably would increase profits perhaps, but at what cost? Wouldn’t it also mean putting all of Microsoft’s eggs into one basket?

In the consumer world, Microsoft has been steadily losing ground to both Apple and Google in matters of new gadgets and hit innovations – and this is not simply because the brains behind Microsoft’s doors aren’t churning out crazy new ideas that would wow the public. 

“According to one recent former employee, the company has a wealth of potentially inspiring research that would benefit Microsoft’s public image but that’s never publicized because the corporate structure discourages such results from trickling out. Many of these projects resemble the kind of work that rivals such as Google routinely turn into conversational hits, if not commercial ones, the former employee said. Unlike Google, however, the focus on selling products at Microsoft detracts from any attempt to publicize an interesting piece of experimental work.“

And yet, in a global society that is showing a definite turn towards smaller companies and self-made startups, the technology that you use as a consumer is also likely the technology you will carry into your office as well. More and more Apple computers are making their way into doctor’s offices, design studios, and company boardrooms… places they would never have been seen even as early as a decade ago.  

Microsoft would be essentially giving up Ballmer’s decade-long fight to stay in the consumer market without a whimper – and accept the consequences of opening its steadiest market to new blood as well. 

It would also mean turning on the legacy of Bill Gates and Steve Ballmer and telling them they were wrong.

Nadella has been in the company for 22 years, and owes much of his career to both Gates and Ballmer – both, who incidentally steadfastly believe that Microsoft needs to win over consumers, not just corporate IT managers. 

Considering that Ballmer is still on the board, and Bill Gates stepped down as chairman of the board in order to advise Nadella on products and devices, it’s clear that there are still at least two huge hurdles Nadella will have to navigate past if he intends to bow down to the investor train.