Satya Nadella, as shown in the picture above, is the new CEO of Microsoft, who had taken the seat in office just yesterday. Already, Nadella has received pressure from two influential shareholders to end the production of Xbox, Surface, and Bing to allow the company to focus on its strengths in software towards large companies. In the last year, Microsoft lost a net of over $2.2 billion in these three consumer products, while still managing to gain money through their software sold to businesses.
It's obvious that the shareholders are more concerned about business profit, but do you think that Microsoft should remain concerned about its consumer population? Do you think a cutback on consumer products would actually help Microsoft?
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I want to start off by saying that I'm a big believer in spinoffs; and I think that in this particular situation, Microsoft has the potential to generate substantial shareholder value by splitting up its enterprise and consumer businesses. As a company grows to be as large as Microsoft, it becomes increasingly harder to please shareholders, and sometimes the board has to get creative to keep the activists happy. Microsoft's core business is enterprise software, but they're also trying to juggle a bunch of side businesses: search, entertainment, mobile. Microsoft is just taking on too many things at once: they're trying to get into hardware (which is very low margin) with Surface, original content (a la Netflix and Amazon) with Xbox, and search with Bing. They're really not doing any of these things particularly well, and these products are a drag on the bottom line. I think the best route is for the company to spin off its consumer business (keeping a sizable stake for itself). That way the new company can focus on integrating its products and gaining market share (growth), while the old Microsoft can rake in cash (value). It sounds like a nice idea but I don't think it will happen; Microsoft's already dug itself a pretty deep hole. With the recent Nokia acquisition, they're trying to show the world that they can do more than boring enterprise software; and it'll be hard to cop out now, especially since mobile could fit into either the enterprise or the consumer category.
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