Is This the End of Microsoft's Xbox?

Source: xbox.com

The last year has been a difficult one for Microsoft's  (NASDAQ: MSFT  )  XBox business. Even though the most recent estimate from the company has its newest gaming console surpassing a respectable 3.6 million units sold, Xbox One is being overshadowed by Sony's  (NYSE: SNE  )  Playstation 4. The claims that Xbox One is a complete and total failure are premature, but the console's current market difficulties were largely predictable. Amid the controversies and negative press that accompanied the introduction of the One, powerful voices within Microsoft began a heightened push to sell off the company's gaming business.

That the Xbox business returns small margins in comparison to those of Windows and Office is undeniable. Whether that means that the gaming division is not worth maintaining is another matter entirely. The ascension of Satye Nadella (a man with a background in network and cloud services) to the company's top position only encouraged notions that Microsoft could be looking to find a buyer for Xbox. Now, former Nokia CEO Stephen Elop has been named the head of Microsoft's devices and studios division. What could this mean for the future of Xbox?

From Microsoft to Nokia and back
While Microsoft searched for its next CEO, Stephen Elop was one of the most visible candidates. Elop guided the sale of Nokia before returning to Microsoft. There was even some speculation that Elop's ascension and management of Nokia included elements of corporate espionage and that he had intentionally made Nokia an easy buy for Microsoft. His tenure at Nokia received widely varying reviews, with many critics pointing to his engineering of the $7.2 billion sale of the company's devices and services division as his defining (and somewhat suspect) achievement.

Source: computerworld.com

Nokia's stock price dropped approximately 60% between the time of Elop's appointment in 2010 and his departure amid the first substantive rumblings of the big sale in 2013. In the lead-up to Satye Nadella's appointment, Elop stated that he would consider selling the Xbox business.

Amazon gets in the game
The appointment of Elop as the head of Microsoft's devices and studios division came on the heels of rumors that discussions with Amazon (NASDAQ: AMZN  ) had begun about a potential purchase of the Xbox business. All signs point to Amazon becoming a bigger player in the gaming industry within the next several years. The company is expected to release a set-top box sometime this year and it has already started to acquire game development studios. While some voices within Microsoft are eager to get out of gaming, Amazon appears intent on moving in. The Internet giant's market-leading cloud infrastructure would make it an ideal purchaser of the Xbox business.

Sony slims down
If Microsoft is looking to engineer an exit from the industry, Sony is currently in the process of making its gaming outfit a more-efficient entity. The company has run into problems by offering its development studios too much freedom and failing to provide the necessary oversight. This has led to massively budgeted projects with unjustifiably lengthy development cycles that have contributed to the company's cash problems.

The Last Guardian from SCE Japan Studio began development in 2007 with an intended development cycle of approximately four years. While Sony has confirmed that the game is still in development, the title has not been seen since 2011. Company-wide layoffs have recently taken place and a number of gaming-related projects have been canned in the last year. Staying in the gaming business is more important for Sony than it is for Microsoft, but improved efficiency will be needed to secure the Japanese company's place in the industry.

Source: playstation.com

Don't fear the reaper
If Microsoft is really looking to unload the Xbox business, there are few people with more experience in the related proceedings than Stephen Elop. His roles in the sale of Boston Chicken (later rebranded as Boston Market) to McDonald's and Adobe's purchase of Macromedia establish these types of massive transactions as his specialty. Throw in Elop's openly skeptical take on the viability of the Xbox business and it's easy to see where this could be heading.

Give it a few years...
With Sony's PlayStation 4 pulling ahead of the Xbox One in the early stages of the console race, the calls for Microsoft to separate from the gaming business appear increasingly valid. Microsoft built a strong brand with Xbox at considerable cost. With powerful voices like company co-founder Paul Allen publicly stating that the company should exit the gaming business, the days of the Microsoft Xbox look to be numbered. Stephen Elop could soon be adding another notch to his designer belt.

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Read/Post Comments (32) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2014, at 1:33 PM, URALLFOOLS wrote:

    Yup.... we all need to now sell our Xbox Ones and all things Xbox related. Motley Fool has spoken and obviously they have all the inside information to everything. According to Motley Fool, Microsoft fails at everything they do and everyone should sell all stocks and just have MS close it doors. They cannot possibly be a profitable because they are so unsuccessful in everything they do. With Motley Fools track record of being so right in everything they blog about it seems only right that MS just does what they say and gives up. As an entity Motley Fool has obviously had more success than the collection of idiots that is Microsoft whom certainly dont know how to run a business. (End Sarcastic Rant). Must be nice to be a "blogger" and get paid. Say what ever your want, true or not and get paid.... you bloggers here at MF are just like weathermen....

  • Report this Comment On March 09, 2014, at 1:41 PM, cathy140 wrote:

    Motley Fool,

    I am unsubscribing from your list.

    Im tired of hearing how Microsoft will succeed, then they fail. The Wii U is doomed and Nintendo will burn. How sony wins but they lose.

    Your journalism isn't based off of gaming and irrelevant myths and legends about the gaming industry.

    Every day for 3 times a day, are the same articles about nothing.

    This has nothing to do about journalism, but who has paid the most revenue to you for the week and the most advertising space.

    And for the record, I DO NOT have an xbox one or a PS4.

    Yes, I know there are more reputable and ACCURATE sites that actually GET REPUTABLE sources for the games, and ill be heading there shortly.

  • Report this Comment On March 09, 2014, at 1:45 PM, cone1317 wrote:

    All I will say is that this blog is aptly named because everything that gets posted on it is foolish and stupid. But don't worry, his source is xbox.com so everything he says must be absolutely legitimate and accurate.

  • Report this Comment On March 09, 2014, at 1:48 PM, ryguyus wrote:

    Actually no it's not because the second the price point hits $400 when they drop the kinect sales will rise. I really don't understand your motivation for continually reporting fake news about Xbox. Its mildly embarrassing.

  • Report this Comment On March 09, 2014, at 2:02 PM, virgilcole wrote:

    To be honest, Microsoft getting out of the console business does make sense. If they have to be involved in the games industry as far as consoles go then they should focus on making games as their top priority.

    Plus, video-gaming really isn't Microsoft's bread and butter. It's not like they will go under, or lose much if they sell off the console side.

    And to the Xbox fan-boys that post with complaints here every time there is an Xbox article, why do you even bother if you know it's going to be doom and gloom (as you say)?

    Motley Fool is just reporting the same information that everyone else is.

    It's not like they are making stuff up.

  • Report this Comment On March 09, 2014, at 2:11 PM, virgilcole wrote:

    @ryguyus: (and the rest of you that think the same)

    If you think the Kinect, and the extra $100 that goes along with it are the only reasons that the Xbox one is lagging in sales you are sadly mistaken.

    The PS4 and the Xbox one are systems made for "hardcore" game players. The games for these systems are $60, and sometimes more than twice that for collectors editions.

    That much for games that they will play, and then eventually discard, by trading or selling them.

    How is it that these "gamers" don't mind paying $60-$150 for the games, but an extra $100 is stopping them from buying the entire console that they can use for a decade or more?

    Sorry, but the Kinect, and extra $100 that goes with it, is just a symptom of the disease.

  • Report this Comment On March 09, 2014, at 2:14 PM, miker529 wrote:

    Xbox one is superior sony just has better marketing oh and they plain lie about it as well, go ahead and buy your ps3.5 suckers.

  • Report this Comment On March 09, 2014, at 2:24 PM, liebevision wrote:

    "The claims that Xbox One is a complete and total failure are premature"

    You JUST ran an article stating this. Sure, they're in second place behind PS4, but it's still one of the fastest selling consoles ever. Much as I hate the XB1, let's not lose sight of that.

  • Report this Comment On March 09, 2014, at 2:33 PM, Njancek wrote:

    Christ, either you people need to stop trying to weigh in on the gaming industry, or you need to fire all of your journalists and hire on some people who actually know what they're talking about, and how to be objective.

    Bonus points though, that this isn't a Nintendo Article for once.

  • Report this Comment On March 09, 2014, at 2:37 PM, anrbfan wrote:

    Give it a few years? Why? What will change over time? Will gamers suddenly want lower res graphics? Will Sony decide to quit the field? Don't count on such happening. XBO is dead.

  • Report this Comment On March 09, 2014, at 2:44 PM, jamessmith wrote:

    I wish this were true. Even though I want this article to be true I believe it to be a troll. motleytroll seems more apt than motleyfool. Thanks for the "insight".

  • Report this Comment On March 09, 2014, at 2:46 PM, Azzras wrote:

    With this logic Apple should definitely STOP selling Macs, iPhones, and iPads because they have been surpassed in market share 10 fold.

    Why continue when other companies are outselling you, right Fool? Maybe Apple should just sell their business to Google, since Android outsells iPhones 10 - 1 easy.

    /s

  • Report this Comment On March 09, 2014, at 3:02 PM, funyahns wrote:

    Some of you are really taking this personally. Management has been discussing selling off the division for a long time now. They don't make as much money selling Xbox stuff as they do software. There is a higher risk in selling consoles for a smaller return. If they could sell the division off for a huge lump sum it would be appealing to a lot of people within the corporation.

  • Report this Comment On March 09, 2014, at 3:03 PM, jamessmith wrote:

    I just had an after thought, this article fails to mention who he's replacing.

  • Report this Comment On March 09, 2014, at 3:13 PM, chrismireya wrote:

    This is yet another ridiculous asinine article from Motley Fool regarding gaming consoles. It is based upon NOTHING. Nothing. Zero. Zip. Nada. Nothing.

    When did pure speculation (and beginning words with "If" in your "analysis") become the norm at Motley Fool?

    Was this website always so ridiculously unprofessional?

    Contrary to funyahns or wacky fanboys at Motley, Microsoft has NEVER indicated any serious intention to sell off or partition away one of its best cash cows (Xbox). The notion is absolutely STUPID.

    You might as well write about theories that Sony would sell off the Playstation division...or that Google would sell off the YouTube division...or that Texas Instruments will sell off their calculator division...or that Toshiba will sell off their television manufacturing division...or that Facebook will sell off their Instagram division.

    Seriously: Motley Fool needs a credible editor to weed through ridiculous "articles" like this. Otherwise, the reputation of the website will be hurt by the morons who write such tripe as a means to gain "clicks."

  • Report this Comment On March 09, 2014, at 3:14 PM, 3dpenguin wrote:

    @virgilcole

    A breakdown of the two devices show that neither are making money on the hardware, the PS4 and XB1 both cost over $400 a piece to make, and the XB1 has the extra cost of the KINECT to contend with, which pushes the costs above the $500 they are charging for the system. The pricing of the XB1 is a stop loss tactic, nothing more, if they removed the KINECT from the package they would still charge $400 for their system and would be taking a loss at that price.

  • Report this Comment On March 09, 2014, at 3:20 PM, chrismireya wrote:

    I am beginning to believe that Motley Fool allows morons to write such stupid articles like this in order to:

    A.) Get Sony fans to click on the "article" and celebrate the "triumph" of their favorite console in the make-believe "Console War;"

    and,

    B.) Get Microsoft fans to click on the "article" and voice their frustration at the absolute stupidity of the notions and/or simply roll their eyes in numb disbelief at the smug display of ignorance here.

    Either way, Motley is becoming a "click-hungry" company that has decided to sell its soul (and integrity) for a few dollars made by peddling the most asinine articles -- over and over again -- in the hope that money will be made from advertising clicks.

    REMEMBER: In the last gen console, the Xbox 360 was initially outselling PS3 by great margins. The PS3 was priced higher than the 360 too. Does that mean that Sony should have sold off the Playstation division? OF COURSE NOT! The market can change on a dime (or quarter) -- and Sony recovered well.

    It is a shame that Motley's new group of "fools" can't see the forest for the trees.

  • Report this Comment On March 09, 2014, at 3:28 PM, eugimon wrote:

    Funny how when the 360 was dominating the NA market and the attach rate for 360 vs PS3 was 3:1, motely fool was strangely quiet.

  • Report this Comment On March 09, 2014, at 3:33 PM, GK15 wrote:

    They would be foolish to sell off Xbox. There is too much potential to sync with their other platforms like Windows, Windows tablets and Windows phone. Xbox Music and Video are on all of their devices and XB1 also has the potential to do apps.

    Plus, Xbox actually turns out a profit unlike Sony's gaming devision which hasn't been profitable in 9 years. Sony took the early rounds w/ the PS4, but there is no reason to panic.

  • Report this Comment On March 09, 2014, at 3:54 PM, JWSviper wrote:

    Microsoft is totally doomed. It's a shame they only made $1,796,400,000 off their 3.6 million units sold. Not sure how they can even afford to eat. Maybe they should license off their tent pole software to Sony now.

    There's a reason that this site is called fool.com because you have to be a fool to believe the drivel you put on the internet.

  • Report this Comment On March 09, 2014, at 4:27 PM, enog24 wrote:

    I never really comment on articles I read, nor am I a fanboy of any system. Seems like a couple times a day there is a negative article slamming the XBOX and MS, and talking about how great Sony and the PS4 is.

    I used to trust this site and their articles but I am unsubscribing from anything you post from now on. It seems like Sony has you in their pocketbooks and your only interest is to promote a platform and pass off your articles a genuine "news". No wonder why the site is called Fool. Anyone that writes, and also the people who believe this crap are fools.

  • Report this Comment On March 09, 2014, at 5:30 PM, RavenFaust wrote:

    Yeah get out of here xbox! No one likes you anymore and your exclusive games are crap

  • Report this Comment On March 09, 2014, at 5:43 PM, webguy76 wrote:

    My plead to Yahoo is to PLEASE stop posting this crap from Motley Fool! What a bunch of garbage!! You have young, inexperienced "writers" who know absolutely nothing about nothing yet write these ridiculous articles that are a complete and total waste of my time. Any company not named Apple (according to the Fool) is a complete waste of time, while anything Apple does is brilliant. Please Fool just go away, you are making a fool of yourself....

  • Report this Comment On March 09, 2014, at 5:53 PM, RMacky wrote:

    I was convinced MS wants to sell the Xbox line when I noticed the Microsoft name is not anywhere prominent on the green boxes, including the accessories. The line is all boxed up and ready to sell, as is, to someone... anyone... hello? Anyone out there?

  • Report this Comment On March 09, 2014, at 9:54 PM, Stealth2k wrote:

    The same horrible site that slams Nintendo.

  • Report this Comment On March 09, 2014, at 9:54 PM, Stealth2k wrote:

    This is the same bad site that slams Nintendo.

  • Report this Comment On March 09, 2014, at 11:14 PM, speculawyer wrote:

    LOL. Motley fool is just so filled with user-generated crap analysis that they have become a joke.

    No, MS is not gonna sell xbox. There is no one that would buy it anyway.

  • Report this Comment On March 10, 2014, at 2:26 AM, GamerGod wrote:

    They cannot remove Kinect as it is integrated into the system's OS and is needed to navigate the UI.The RAM is also designed to process Kinect/Media features which is why the console cannot run games as good as PS4. Some of you really need to learn how the systems work before you speak.

    @ GK15 You are wrong as Sony has been making a profit with their gaming division since 2010. They got back in the black last year because of a record breaking sales of the PlayStation brand which dominated completely.

    MS has never made a profit from the Xbox brand.The original Xbox was a colossal failure, 360 lost money because they kept dropping the price (without lowering development costs) and it never sold well outside of the S and the UK. So you need to check your facts.

  • Report this Comment On March 10, 2014, at 2:28 AM, GamerGod wrote:

    I meant the US. Xbox is not a global seller like the PS and they lost money trying to expand in places like Japan/Europe.The X1 is not even in Japan yet because they know they don't have success there.

  • Report this Comment On March 10, 2014, at 2:39 AM, SolarFlareDagger wrote:

    Ya know what, I hate to make yet ANOTHER stupid account just to post, would rather use Facebook or twitter, but this is getting so annoying. I go through Yahoo for articles and I See out of 10 articles, at least 6 or 7 of them being how good the ps4 is or how crappy the xbox one is, I have to say this tho, DO WE CARE? There are fans of both systems out there, there are fans of those systems who hate the other, and those who don't care, I don't care about this but I am tired of seeing "Xbox One sucks, PS4 is kicking butt in this console war" WHO CARES, or as Peter Griffin said "who the hell cares"

    So what if Xbox 1 sucks, So what if the PS4 is so good, WHO CARES. I am tired of seeing these stupid articles. Xbox is doing good compared to what they should of done by what these articles keep saying, Plus if I am not mistaken, between the PS4 and Xbox 1, Xbox one is actually making profit due to the extra 100 bucks they charge for the system. So yea. Keep saying the Xbox 1 is gonna kill Microsoft. They are making money Sony isn't. But thats due to also being more expensive. I am getting one when I can, and I am gonna love it. Why you might ask. am I a xbox fan boy, I am in a way, but I love video games. I have one of each companies console, or handheld system.

  • Report this Comment On March 10, 2014, at 9:34 AM, DEA wrote:

    People are illiterate. This story says NOTHING about Xbox failing. It is about Microsoft possibly selling the division because it isn't a money maker.

  • Report this Comment On March 10, 2014, at 3:01 PM, DrTek wrote:

    "All I will say is that this blog is aptly named because everything that gets posted on it is foolish and stupid. But don't worry, his source is xbox.com so everything he says must be absolutely legitimate and accurate. "

    I could not have stated it better. The so called authors who write this crap, flip-flop quicker than a Politician taking a bribe!

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