To spin or not to spin: Does Microsoft need Xbox?

Nov 22 2013, 22:15 IST
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Emanuel Jumatate from Chicago, hugs his newest XBox One after he purchased it at a Best Buy on Friday, Nov. 22, 2013., in Evanston, Ill. Xbox One is priced at $500. AP Emanuel Jumatate from Chicago, hugs his newest XBox One after he purchased it at a Best Buy on Friday, Nov. 22, 2013., in Evanston, Ill. Xbox One is priced at $500. AP
SummaryMicrosoft begins selling its first new Xbox One in eight years on Friday.

Microsoft Chairman Bill Gates donned a cool leather jacket when he first introduced the Xbox onstage in 2000. More than a decade later, the video game console Xbox One is still the hippest brand in Microsoft's portfolio. But as the company begins selling its first new Xbox in eight years on Friday, some critics say Microsoft should spin the gaming unit off. They argue that Xbox One 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 Xbox's 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. And Microsoft hopes to broaden the Xbox's appeal with features that make it more of an entertainment hub.

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. And the timing is right. The company is expected to name a new CEO to replace Steve Ballmer soon and is re-examining its future.

"I can understand the emotional attachment people have to Microsoft owning Xbox,'' he says. "But if you're trying to bring in new management here and have a course correction, I think this is one of the places you've got to take a look at and reassess.''

PRO

ITS AUDIENCE IS HUGE: The Xbox Live online gaming and entertainment service has some 48 million members worldwide, many of whom pay $5 a month. 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

BUT 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'S A POPULAR BRAND: "There are not a lot of products that Microsoft makes that people are pumped and

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