Forbes Columnist Claims Microsoft Will Sell Xbox To Sony -- or Barnes & Noble

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News Posted: Mon, Jan 21 2013 2:30 PM
Forbes contributor Adam Hartung dropped a bomb on the business world this morning when he forecast the complete collapse of Microsoft's business and the company's sudden exit from the entertainment market. Hartung draws on Surface's mediocre sales and the PC market's woes to claim that "Microsoft makes nothing from its xBox/Kinect entertainment division."

He goes on to make dire predictions related to Windows, Office, and Microsoft's other businesses, but we're going to focus on the Xbox comments -- they're easily the most entertaining.

According to Hartung:
The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size.  Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows - and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
Mr. Hartung, Reality Would Like A Word

Let's start with the claim that the Xbox division is unable to make a profit. That's easy to check -- all we need to do is consult Microsoft's own press releases.


Note that the product mix inside the entertainment division changes a bit depending on Microsoft's mix. When Zune products were on the market, they were included in this category. Windows Phone 8 devices are also counted here. The Xbox, in other words, isn't the only contributor. Nevertheless, it seems odd to claim that Microsoft "can't make a profit" on Xbox, or that Microsoft has no idea how to grow the business unit. That giant bump in FY 2011 was partly thanks to Kinect. Smart Glass and Xbox gaming integration on Windows 8 devices might be small steps, but they're good steps.

Now, it's true that if we step back and consider the entire Xbox console cycle, from 2003 - the end of calendar 2012, Microsoft has lost $2.8B on Xbox and Xbox 360. To put that in perspective, Redmond lost $2B on its online services division (excluding a goodwill charge of $6.2B) just last year.. If we exclude the development costs of the original Xbox from those figures and only consider 2005 - Q1 of fiscal year 2013, the gap is much smaller -- only about $426M.

It was obvious from Day 1 that Microsoft would lose money for the entire run of the original Xbox, and that the Xbox 360 would lose large amounts of cash its first few years. That's why the company was strongly considering launching a next-generation Xbox that would be profitable from Day 1. Xbox has been profitable for nearly five years, and if it hasn't finished paying back the balance sheet on the initial investment, it's at least moving the needle in a consistently profitable direction.

But let's say Microsoft wanted to get out of living rooms, even though living rooms are its best bet for continuing to interface with consumers and build a non-Windows product. Raise your hand if you think Sony or Barnes and Noble want to buy Xbox.

Anybody?

This is what happens when analysts daisy chain figures together without bothering to research their work. Sony has a console, therefore, Sony would buy Xbox. Never mind the fact that Sony couldn't afford the division in the first place, doesn't need more debt, and that Microsoft would hardly prep the launch of a next-generation console by forecasting the imminent sale of the entire business. Barnes and Noble is such a ridiculous option I'm not even going to address it.

Hartung finishes off by forecasting the complete destruction and disintegration of Microsoft. Failure, according to him, is "already inevitable." Expect Redmond to lay off 50-60% of its employees within three years.

Or not. Forbes has pulled the story while I was writing this, but you can read the man's blog post in his own words at the link above.
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RWilliams replied on Mon, Jan 21 2013 2:59 PM

I am not a big console gamer nowadays, but I simply couldn't imagine Sony being the only real option. If I -were- a console gamer, I 'd be an Xboxer through-and-through. I hate the interface Sony has on its PS3, the store interface, the fact that there are occasions when the entire service is down (friend of mine couldn't play CoD: BLOPS II this past weekend because of a blip on -their- system)... it's nuts. Xbox is polished and the games, more often than not, tend to appeal to me there more (the same could have been said for Xbox vs. PS2, for me personally).

A world without Xbox would be a strange one...

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MCaddick replied on Mon, Jan 21 2013 3:38 PM

Do the 360 numbers just include the hardware, or do they also include the royalties MS collect for EVERY 360 game that is sold?

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Joel H replied on Mon, Jan 21 2013 5:11 PM

That's the revenue and operating income Microsoft reports for the entire Entertainment division. Royalty payments would be included in the division's figures, the same way Windows royalties are included as part of that division's revenue.

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Marco C replied on Mon, Jan 21 2013 7:41 PM

Forbes pulled this article. Shows you how much faith they had in the writer.

Marco Chiappetta
Managing Editor @ HotHardware.com

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realneil replied on Mon, Jan 21 2013 7:53 PM

Marco C:

Forbes pulled this article. Shows you how much faith they had in the writer.

'Twas a Whoops Moment? LOL!

 

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3vi1 replied on Tue, Jan 22 2013 8:00 AM

Not gonna happen.

Microsoft's main product is not Windows or Office: It is, and always has been their proprietary Windows APIs. As long as developers are locked into these APIs, people have to use Windows to use their software. And, since MS has such an overwhelming market share, there's been little incentive for devs to write proper, portable, code. It's a vicious cycle, that has made them rich without producing better products than the competition. Just look at what happens to them on platforms like phones and mp3 players, where they start with a minority share and try to shove their proprietary SilverLight at devs.

One of the XBox's primary purposes is to keep game developers locked into DirectX, which keeps their games locked-in to Microsoft's platforms only (for the devs who jump in with both feet and fail to properly abstract their rendering). Microsoft was hedging their bets with the creation of the XBox because games are the biggest selling point for Windows, and people were seriously talking about console gaming improving to the point where it would kill PC gaming. They knew that if games were not primarily developed using their APIs, they'd lose a lot of exclusives and see a huge impact.

It's all very smart business on their part; When you have a virtual monopoly you want it to be hard for people to leave. It's no wonder Microsoft has tried so hard to break OpenGL, implement an incomplete Java VM, etc. on their platforms in the past.

They're riding this one into the ground. Instead of selling, I expect them to try to boost profits and eliminate the competition via lawsuits: Lots and lots of lawsuits. They wrote that they would do this in the Halloween documents, and they already tried once when they gave SCO $106M to try to kill Linux.

All the while, they'll lose marketshare as more new developers discover Unity3d, Monogame, Unigine, the new Source, etc. Microsoft's got a real problem on their hands: Devs are more and more insulated from the platform APIs from the start, and can output Mac/Linux ports in minutes. Microsoft's main product is becoming less and less relevant.

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?

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Joel H replied on Tue, Jan 22 2013 6:46 PM

"I expect them to try to boost profits and eliminate the competition via lawsuits: Lots and lots of lawsuits."

Against who, exactly? Do you see Redmond suing Unity?

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realneil replied on Tue, Jan 22 2013 7:04 PM

The Halloween Documents are pretty interesting.

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Joel H replied on Tue, Jan 22 2013 7:22 PM

Eh. That's 15 years ago. Compare the company executives then and now, you'll find virtually all of them are different (Ballmer is one of the few holdovers). I think you're wrong about lawsuits because that's not how Microsoft operates these days.

Look at Android. Apple and Oracle led the charge to sue Google and various handset manufacturers. Microsoft opted to have quiet sit-down talks for licensing fees. From a PR perspective, Microsoft's strategy won, no question. I don't know if Apple's brand took a positive or negative hit, in total, after Samsung, but the case was hotly argued from both viewpoints.

MS quietly negotiated for royalty payments -- and that was that. I'm not saying that makes MS benevolent, kind, or friendly, but it's a good deal less acrimonious than Apple.

As for chaining developers to APIs, I think we should wait and see what the next-generation Xbox does and doesn't support before making too many assumptions on that front. With Win RT, MS led the push towards using HTML5 and Javascript for Windows Metro applications. I'd be surprised if the upcoming Xbox doesn't support OpenCL.

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3vi1 replied on Sat, Feb 2 2013 5:39 PM

>> Eh. That's 15 years ago.

Lawsuits against people implementing FAT32 compatibility on Linux devices (ala TomTom), and people that use Android instead of Windows Mobile are not.

>> Microsoft opted to have quiet sit-down talks for licensing fees.

And they still won't tell *anyone* what the 'infringing' patents are (and their terms won't allowed the sued parties to do so either) so that other companies or the Linux devs can avoid problems in the future. MS is making more money off Android than their own devices, and all through lawsuits of patents that obviously are not very good or would be revealed. Not good behavior.

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?

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