Will Microsoft Abandon The Games Market?

According to AllThingsD, Microsoft CEO Steve Ballmer has been considering a plan to switch Microsoft’s focus from the current path and into a business model that gravitates around devices and services for the consumer and enterprise markets.

The idea came to light in a letter to investors on October 2012.  As Ballmer stated in his letter the restructuring of the company would change the way they develop new experiences and how they take products to the market for both consumers and businesses.

The new organizational structure would also be intended to solve internal management problems that have affected the company’s internal ecosystem.

Regarding the reform to Microsoft’s organizational structure, Nomura Equity Research analyst Rick Sherlund said that the measure was taken as a result of pressure from stockholders looking to increase their ROI and recommended Microsoft to abandon (sell) the Xbox division which, despite its good performance, “…doesn’t seem like a good enough business for Microsoft to focus on.”

“Xbox is one of the areas of success for Microsoft and is cool to consumers, but it is perhaps time to assess whether this can ever be material to the overall company and might be more leveragable to a consumer-oriented company such as Samsung. Perhaps they would be willing to pay several billion dollars for this to leverage their substantial consumer electronics business?”

As a result of the restructuring Microsoft President of the Interactive Entertainment Business, Don Mattrick could find himself in the spotlight with expanded responsibilities and a larger role in the overall direction of the Entertainment Division–which could end up being a spin off with its own managerial structure and relatively independent from Microsoft’s hierarchy.

As regards to Sherlund’s advice to sell the Xbox division, the question is: Why would Microsoft invest all these resources into the Xbox One just to sell the division in the middle of a key moment? Not to mention Sony and Nintendo lurking around waiting to plunder Microsoft’s Market share.

 Billy Pidgeon an independent analyst told GI.biz

 “I don’t think this scenario is likely at all. I can’t see the upside of a deal like that for Microsoft or for a potential buyer at any time, but particularly before the Xbox One launch such a move would be beyond stupid”

“I think the Xbox division would probably get a better valuation by itself than it is in the current conglomerate form of Microsoft as Xbox is outgrowing the sluggish Office and Windows divisions. That being said, I think it is very unlikely that Microsoft would spin it off. The idea that another company like Samsung would acquire that spun off Xbox division is even less likely. Xbox is the only thing that has investors excited about Microsoft, so it makes little sense to divest of the division” explained Asif A. Khan, CFO of Virtue LLC.

According to Kahn, there is a solution that would be beneficial for Microsoft. If Microsoft decided to establish Xbox as a subsidiary, it would allow the market to value Xbox separately from Microsoft and they could benefit from the capital appreciation of Xbox as an independent traded subsidiary without divesting or selling the Xbox division.

In my opinion, from a consumer/gamer perspective, I think that Xbox would perform better as a subsidiary with its own tailored goals and strategies–maybe Xbox could focus more on the games industry without being influenced by corporate managers whose knowledge of that industry and culture is rather limited. As a subsidiary that trades independently from Microsoft, and with its own market value, Xbox could be free from the influence of other Microsoft divisions and would be able to focus on the games market; plus, investors would know that the Xbox subsidiary value fluctuations are exclusively related to the performance in the GAMES industry without interference from other ventures like PCs, tablets, Windows 8, Office, Consumer Cloud services and Microsoft’s “business intelligence solutions.”