Rumor is that newly installed Microsoft CEO Satya Nadella is feeling the pressure to kill Xbox, among other hardware products like the Surface.
The pressure comes not only from analysts, but presumably from Mason Morfit, representing his company, private hedge fund ValueAct. ValueAct acquired a 0.8 percent stake in the company in the middle of last year, giving Morfit the leverage to join the board.
The pressure may be new but the argument is not. As analysts have claimed before, even if the Xbox business is doing well, it has lower margins than software and consistently loses money. The flip side to that is the argument that Microsoft’s strengths lie in software, and they should invest more in this in the cloud, in Office, etc.
Some analysts do see merit in Microsoft’s entry into hardware as well, so ValueAct’s opinion is not shared by everyone. Like Apple, Microsoft could build up brand loyalty for their ecosystem via their homegrown devices. The give and take really, is which approach would work best.
Under Ballmer, Microsoft has clung onto their hardware ambitions, but the underperformance of Surface and Windows Phone has made investors like ValueAct impatient. Xbox also grew under Ballmer, but rather than be seen as a strength, analysts see it as an a anomaly that confuses management from recognizing its weakness.
We don’t know yet what Nadella thinks of Xbox, but we do know he won’t resist investors as much as Ballmer. He is getting positive press for being more soft spoken, even conciliatory. Does this mean he's likely to listen and cut Microsoft's ties with console gaming?
