Microsoft CEO candidate Stephen Elop has said that if he gets the top position, he would consider killing Bing and selling the Xbox business. But that could seriously hamper Microsoft's ability to grow and thrive. Here's why.
Bloomberg reports that "three people with knowledge of his thinking" say that Elop:
"Would be prepared to sell or shut down major businesses to sharpen the company’s focus...He would consider ending Microsoft’s costly effort to take on Google with its Bing search engine, and would also consider selling healthy businesses such as the Xbox game console if he determined they weren’t critical to the company’s strategy."
That's a dramatic shift from Steve Ballmer's thinking, who has insisted that Bing and Xbox are vital to Microsoft's future.
Bloomberg also reports that Elop would make sure that Office was available on tablets and phones that compete with Windows Phone, notably the iPad and Android tablets. Ballmer has so far resisted making a version of Office available for the iPad, although he's been cagey about saying whether one will ultimately be released.
There have been calls for quite some time for Microsoft to kill Bing and to sell of the Xbox, notably from stock analysts, who say that by doing that, the company could boost its stock prices significantly. Nomura Equity Research analyst Rick Sherlund has been saying this for a very long time. Earlier this year, he wrote:
"While we like Bing as a service, we need to look at this from an ROI and strategic perspective. If Microsoft could sell or even give Bing to Facebook or Yahoo and eliminate its operating costs and get a Traffic Acquisition Cost (TAC) back to monetize the traffic that Windows/Internet Explorer or Xbox in the living room can drive to Bing, this might generate perhaps $1.0bn of profit and positive FCF rather than be a drag of a similar magnitude. If this were returned to shareholders, this could add nearly 1% incremental to the dividend yield, in our estimation."
Translation: Investors would make out like bandits.
Clearly, this leak about Elop's thinking is no accident. Microsoft has narrowed down its choice of CEO candidates to five, and some people believe the company will make a decision before the year is over. He's aligning himself with those on the board who are focused on higher stock prices.
But short- and medium-term high stock prices are one thing, and the long-term health and prospects of Microsoft another. While there's no doubt that killing Bing and selling off Xbox will boost stock prices, in the long term it will put Microsoft at a disadvantage, at least if the company wants to remain in the forefront of the tech world.
The fight among tech giants is no longer just to sell software -- it's to hook customers into entire ecosystems of software, services, media content, mobile, and hardware. That's one reason why both Apple and Google have been developing and selling devices to work with TVs, music services, and more.
With the Xbox, Microsoft has a great platform not just for gaming, but for content, media, and TV. If the company sells it off, it's writing off that massive market.
As for Bing, it's more than just a search engine. Bing is used throughout Microsoft's other products. For example, it's the brains behind a new category of Windows 8 apps that deliver fast-changing information and multimedia from the Web. It's also central to Microsoft's strategy for making money in mobile search.
Expanding Office to the iPad and Android tablets is certainly the right thing to do, and necessary for Microsoft's success. Morgan Stanley analyst Adam Holt says Microsoft could get $2.5 billion in new Office revenue by releasing Office for the iPad. And Gerry Purdy, principal of MobileTrax, believe Microsoft could gain an extra $1.25 billion in revenue in the first year Office is available for the iPad and Android tablets, and $6 billion in annual revenue by 2017.
But killing Bing and selling the Xbox would be the wrong thing to do. It might boost Microsoft's stock price temporarily, but it's a long-term losing plan.