Actually, Microsoft needs Bing and Xbox as much as it needs Windows
The spectator sport of handicapping potential Microsoft CEO candidates continues apace, with a report claiming that Stephen Elop would consider spinning off Bing and Xbox to concentrate on putting Office on iPad. That echoes claims from Nomura analyst Rick Sherlund that Microsoft is using patent licensing revenue from Android OEMs (which he guesstimates at an implausible $2 billion) to hide the cost of running the Bing and Xbox teams. His suggestion: Alan Mulally from Ford could show up as the new CEO and sell off Bing and Xbox.
There are a few problems with this scenario, leaving aside the questions of whether someone as passionately committed to Microsoft as Steve Ballmer would sell off his stock the way Sherlund suggests or whether a CEO candidate currently in the middle of an acquisition deal with Microsoft would tell anyone his plans for the company before he even starts the job we know he's getting (in Microsoft's Devices group). Not to mention the fact that Ballmer has already committed to a version of Office for iOS once the touch-friendly version of Office come to Windows 8.1 next year, making Elop's alleged vision rather short-sighted.
$2 billion in patent licensing is patently poetic license
The first question is whether the sums add up. The $2 billion estimate is based on every Android phone sold by an OEM with a license bringing Microsoft $5 revenue. That might work for OEMs with no patents of their own, but OEMs like Samsung and HTC actually have cross-licensing deals with Microsoft that give both companies access to each other's IP. If Microsoft wanted to put the patented Samsung "camera in every pixel" system from PixelSense (the giant table computer formerly known as Surface) into a Perceptive Pixel display, for example, a cross-licensing deal would make that possible. That makes it very unlikely that Samsung is forking over $5 a phone, for example.
Are Bing and Xbox a huge financial hole in side of the Microsoft ship? There isn't much money in making games consoles, between the cost of R&D, subsidizing the hardware, and dealing with expensive mistakes like the infamous Red Ring of Death. There's plenty of money in having a successful game though: $220 million in the first 24 hours for Halo 4 and total revenue for the Halo franchise of some $3.4 billion. Having Halo be successful on Xbox means Microsoft can hope for a halo effect on Windows Phone and Surface with tie-in products like Spartan Assault (a tablet game) and Halo Waypoint (a companion app), and on Xbox TV, where Seven Spielberg has signed up to create an exclusive Halo TV series.
Xbox Live and Microsoft's own games make a few pennies as well: $1.64 billion in the latest quarter. That's 17% more than the same time the previous year, and Xbox Live transactions (like buying songs and renting videos) is up 25%. Want to reach women? Ignore the stereotypes -- 40% of regular Xbox 360 users are female.
So Xbox the platform might look rocky, but Xbox the platform and Xbox the service look more promising, especially as the PC becomes less prominent. The content we’ve been enjoying on our PCs is moving to the living room. If Microsoft doesn't want to give up the living room to tablets and Apple's AirPlay and Google's Chromecast, it needs Xbox.
Plus, Xbox brings Microsoft other significant advantages beyond a potentially huge entertainment platform. You could argue that Xbox is one of the things that taught Microsoft how to do cloud properly; running the Xbox Live service and the server that multiplayer gaming runs on are as demanding as anything an enterprise could want. More so perhaps; if your database report runs slowly, you can go and get a cup of coffee but if your ammo doesn't reload when you power up, you're dead. Handling live chat for millions of gamers at once? Good practice for building cloud services like Lync Online that offer unified communications for businesses. And running the Halo leaderboards and avatar rendering on Azure is a good way to make sure Azure can cope with workloads beyond Windows Server virtual machines.
Halo was one of the earliest customers for the HDInsight big data service that runs on Hadoop clusters on Azure. They used it to find players who were cheating in the Halo 4 Infinity Challenge, and to send custom marketing email to legitimate players to keep them interested. The mail you get depends on your gaming style as well as how long you've been playing, so you don't get annoyed by tips on completing a mission you ran weeks ago. The Halo analysis team isn't just a great case study for Azure; they were a great chance to test the new service at scale.
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