Why Selling the Xbox, and Shutting Down Bing, Makes No Sense for Microsoft

Why Selling the Xbox, and Shutting Down Bing, Makes No Sense for Microsoft

Microsoft has, according to Reuters, narrowed its list down to just five possible candidates to succeed Steve Ballmer as CEO. One of those candidates is said to be Stephen Elop, Nokia's now-former CEO. If Elop gets the job, he could sell off Microsoft's Xbox division and shutdown Bing, according to Bloomberg.

Both of those moves would be terrible for Microsoft. Although Bing remains far behind Google , it offers Microsoft great strategic value. Likewise, Microsoft needs the Xbox if it plans to continue to compete against Apple among consumers.

Why would Elop make those moves?
On the surface, selling the Xbox and shutting down Bing appear to make some sense. Neither division has been a source of major income and both divisions are arguably outside of Microsoft's core business.

Bing, in fact, has cost Microsoft over $11 billion since its inception, while Microsoft has little to show for it -- it remains in distant second place behind Google. The Xbox, buried within Microsoft's Devices and Consumer hardware division, has been thought to be modestly profitable, but last week, analysts at Nomura wrote that the Xbox is actually costing Microsoft billions -- losses on the Xbox have been masked by patent royalties collected on Google's Android.

Getting rid of these two divisions could help Microsoft focus on Office and Windows -- the two products that have brought in the vast majority of Microsoft's earnings and revenue in recent quarters. Microsoft shares have underperformed over the last 10 years, as the company's mammoth size may have kept it unfocused.

Bing is finally starting to show some promise
But to get rid of Bing right now would be short-sighted. Although it's been a money pit for Microsoft to date, Bing could finally be on the verge of emerging as a key Microsoft technology. Windows 8.1, the recent update to Microsoft's Windows operating system, integrates Bing heavily into the Windows experience, using the search engine to power local desktop searches.

But more than serving as the backbone of Windows, Microsoft's Bing has great potential in terms big data. Predictive search appears to be the next great growth area for technology -- apps like Google Now processing immense amounts of information to provide personalized recommendations before the user even requests it.

Microsoft is well-positioned to move into this area because of Bing, according to Microsoft's current CEO, Steve Ballmer. Last year, he told the Churchill Club that he was glad to spent so much money on Bing (via Business Insider):

"We've made a tremendous investment...And it's not easy to make. It's not easy...in terms of talent...in terms of infrastructure...you don't have big data until you have it...indexing the web is kind of the biggest big data problem...these are big data/machine learning and we've made a big investment and it's one I'm probably far more excited about than people would think."

The Xbox One is more than just gaming
Likewise, the Xbox might be thought of as an investment. Microsoft's upcoming Xbox One is far more than just a video game console -- its advanced TV features make it an all-in-one entertainment hub; a connected centerpiece of a digital living room.

As Microsoft's rivals, including Apple, prepare to enter the space, Microsoft would be well-served standing pat. Although it hasn't (yet) materialized, an upcoming Apple smart TV has long been rumored, and has been reinforced by statements both from Steve Jobs and Apple's CEO Tim Cook.

If Microsoft is no longer interested in competing in the consumer market, then getting rid of the Xbox might make sense. But if Microsoft still wants to compete with Apple, then getting rid of the Xbox would be a mistake.

Microsoft is a company in flux
Clearly, Microsoft is in the midst of a major upheaval. Whichever executive is ultimately named Microsoft's next CEO will get an opportunity to remake the firm dramatically. Though it hasn't faltered, Microsoft's performance in recent years has definitely been disappointing, and a shakeup of some sort could help the company regain its position as the top technology firm.

If, however, that executive is Elop, and his shakeup includes shutting down Bing and selling Xbox, investors should be concerned with the firm's future.

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The article Why Selling the Xbox, and Shutting Down Bing, Makes No Sense for Microsoft originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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