What would happen to the PlayStation brand if the biggest competitor was sold off?

It’s still under review, apparently. You may remember in the past year that Microsoft’s then-CEO Steve Ballmer announced his retirement. It led to a wide net of people being considered to succeed him in the job, including former Nokia CEO Stephen Elop, who didn’t seem that enamoured by the Xbox division.

The new CEO Satya Nadella is in place and is making changes. But just how far could those changes go? Microsoft founder and second largest shareholder, Bill Gates, recently said in an interview that he would “absolutely” support the sale of the Xbox division – if Nadella decided to do it.

My my, there isn’t much love at home for the Xbox business…With the change of guard over at Microsoft started last year, we couldn’t miss the lack of love for the Xbox business by then CEO candidate Stephen Elop who seemed prepared to sell it if necessary. Last November Bloomberg reported that insiders privy to the selection committee’s activities claim that Elop “would also consider selling healthy businesses such as the Xbox game console if he determined they weren’t critical to the company’s strategy”.

But Elop didn’t get the job; instead, Microsoft veteran Satya Nadella did. Elop isn’t gone, however – he is now head of the hardware division, including Xbox. It’s a little surprising that new CEO Nadella is considering this – this is the man viewed as the ‘safe choice’ of CEO because he was internally chosen, collegial with key high-ranking influential people and broadly supported their strategic direction. So how did the ‘safe choice’ go on to give any more thought to such a ‘radical’ proposal?

The fact is, companies as ambitious as Microsoft know that they must innovate or die. The landscape has changed dramatically in the time between the past two Windows or Xbox cycles. Smartphones and tablets are here, apps are worth a fortune and we play games online on our phones and consoles now. The new CEO has the best chance in years of evaluating what is needed and what is not for the corporation as a whole to continue to grow (there might be lessons for Sony here). The Xbox business has been losing money for Microsoft since it began. A Nomura analyst calculates that the company loses about $2bn on Xbox annually. He continued to point out that the deep losses incurred by Xbox are obfuscated by the blurry figures in the Entertainment and Devices division and that in fact, Microsoft’s bountiful Android royalty receipts hide the real truth.

So back to Gates, then. You may have heard that Bill Gates will no longer be an ‘outsider’ at the company that he created; instead, Nadella has asked him to be a technology advisor. Speaking on Fox Business, (about 20 mins in) Gates was responding to a question by a University of Chicago student:

 Do you think there’s an opportunity to create shareholder value by separating Microsoft into different companies, and more specifically, by spinning off Xbox and Bing? 

Regarding Xbox, Gates replied:

 Well, we’re taking PC gaming, Windows gaming and Xbox gaming and bringing those a lot closer together. The power of the PC chip, graphics chips, you can do great games there. So I’m sure Satya will look at that and it’s up to them. We’re gonna have an overall gaming strategy so it’s not as obvious as you might think. 

Interviewer Liz Claman:

 Would you support him if he wanted to spin it off? 

Gates:

 Absolutely. 

OK, it’s not a “we’re selling Xbox now” but we did get at least two key points here: that it is still under review and that Microsoft founder Bill Gates would “absolutely” support Nadella if he decided to spin it off.

What about PlayStation?

When the possible Xbox sale came up months ago, we discussed at length what that might mean for Sony and the PlayStation brand. One key word in all this is sale not wind-down which means that there would be a new owner – stuck with a long generation of gaming recently set in stone by the hardware that the current owner set. It depends on what a new owner might do with the Xbox One. Running with the more likely scenario that they may wish to stick with the Xbox One, Sony would face a period of change for the competition which would allow them to take advantage of the uncertainty and get ahead. At the very least, consumers would hear of the Xbox sale and wonder what that might mean. Even definitive statements of clarity from a new owner would still cause upheaval. If this happened, Sony would likely further cement its position as king of this generation.

We will have to wait and see what’s going over at Xbox before we know for sure what would happen over at PlayStation. We’ll keep an eye on how this proposal develops.

Note from Sohrab Osati
Editor-in-Chief

I think the other interesting thing to note about this is how open Gates seems to be to the idea of selling Xbox, while previously he replied that Microsoft has done a lot of work to make sure Xbox and PC gaming come closer together. The truth is that, beyond bringing those two platforms closer together (and we can argue about how much they’ve really done in that field), Microsoft has equally worked very hard at bringing Xbox and Windows closer together. Xbox One now features a layout similar to Windows 8 and Windows Mobile on smartphones and tablets. Equally, Xbox One is powered by Bing and its video chatting features are through Skype. The problem? Microsoft owns both of those platforms.

Xbox One is now fully baked into the Microsoft ecosystem and has access to a lot of services that they simply cannot just “sell off” to another company. Does that mean the next Xbox will then lose some features because MS doesn’t want that company to be able to poke around into its servers? If the answer is that MS will simply license/sell/rent them access to those services, then surely no one could actually afford to buy Xbox since MS has yet to make money from the division. Sure Xbox might be giving MS access to the youth and hopes that they stay in the Windows ecosystem, which in part means the division is profitable,e but that same equation won’t be true for a company who has no stake in the future of Windows or the growth of services like Bing and Skype.

While I can see why this might be an attractive move for MS who is looking to heavily focus on the cloud, I cannot, in its current state, see Microsoft simply selling off Xbox to another company. Nor can I see any company wanting to purchase the division which by all accounts would be a highly expensive affair with a painstaking path towards profitability.

Discuss:

What would happen to PlayStation if the Xbox business was sold?