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Xbox For Sale - the rumours just won't quit

By Rob Fahey

Xbox For Sale - the rumours just won't quit

Fri 20 Mar 2015 7:54am GMT / 3:54am EDT / 12:54am PDT
Business

Microsoft is said to still be seeking a buyer, but who's in the market?

Microsoft's Xbox division is in a much healthier state today than it was a year ago. It's had a tough time of it; forced to reinvent itself in an excruciating, public way as the original design philosophy and marketing message for the Xbox One transpired to be about as popular as breaking wind in a crowded lift, resulting in executive reshuffles and a tricky refocus of the variety that would ordinarily be carried out pre-launch and behind closed doors. Even now, Xbox One remains lumbered with the fossilised detritus of its abortive original vision; Kinect 2.0 has been shed, freeing up system resources and marking a clear departure for the console, but other legacy items like the expensive hardware required for HDMI input and TV processing are stuck right there in the system's hardware and cannot be extracted until the inevitable redesign of the box rolls around.

All the same, under Phil Spencer's tenure as Xbox boss, the console has achieved a better turnaround than any of us would have dared to expect - but that, perhaps, speaks to the low expectations everyone had. In truth, despite the sterling efforts of Spencer and his team, Xbox One is still a console in trouble. A great holiday sales season was widely reported, but actually only happened in one territory (the USA, home turf that was utterly dominated by Xbox in the previous generation), was largely predicated on a temporary price-cut and was somewhat marred by serious technical issues that dogged the console's headline title for the season, the Master Chief Collection.

Since the start of 2015, things have settled down to a more familiar pattern once more; PS4 consistently outsells Xbox One, even in the USA, generally racking up more than double the sales of its competitor in global terms. Xbox One sells better month-on-month than the Wii U, but that's cold comfort indeed given that Nintendo's console is widely seen as an outright commercial failure, and Nintendo has all but confirmed that it will receive an early bath, with a replacement in the form of Nintendo NX set to be announced in 2016. Microsoft isn't anywhere near that level of crisis, but nor are its sales in 2015 thus far outside the realms of comparison with Wii U - and their installed bases are nigh-on identical.

"while the Xbox One looks like it's struggling, it's actually doing markedly better than the Xbox 360 was at the same point in its lifespan"

The odd thing about all of this, and the really positive thing that Microsoft and its collaborators like to focus on, is that while the Xbox One looks like it's struggling, it's actually doing markedly better than the Xbox 360 was at the same point in its lifespan - by my rough calculations, Xbox One is about 2.5 million units north of the installed base of Xbox 360 at the same point. Oddly, that makes it more comparable with PS3, which was, in spite of its controversy-dogged early years, a much faster seller out the door than Microsoft's console. The point stands, though, that in simple commercial terms Xbox One is doing better than Xbox 360 did - it just happens that PS4 is doing better than any console has ever done, and casting a long shadow over Microsoft's efforts in the process.

The problem with this is that I don't think very many people are under the impression that Microsoft, whose primary businesses lie in the sale of office and enterprise software, cloud services and operating systems, is in the videogames business just in order to turn a little profit. Ever since the departure of Steve Ballmer and the appointment of the much more business-focused Satya Nadella as CEO, Xbox has looked increasingly out of place at Microsoft, especially as projects like Surface and Windows Phone have been de-emphasised. If Xbox still has an important role, it's as the flag-bearer for Microsoft's brand in the consumer space; but even at that, the "beach-head in the living room" is far less important now that Sony no longer really looks like a competitor to Microsoft, the two companies having streamlined themselves to a point where they don't really focus on the same things any more. Besides, Xbox One is being left behind in PS4's dust; even if Microsoft felt like it needed a beach-head in the living room, Xbox wouldn't exactly be doing the job any more.

"All those rumours about Microsoft talking to Amazon about unloading the Xbox division came to nothing only a few short months ago, after all...Isn't this all settled now?"

But wait, we've been here before, right? All those rumours about Microsoft talking to Amazon about unloading the Xbox division came to nothing only a few short months ago, after all. GDC saw all manner of talk about Xbox One's place in the Windows 10 ecosystem; Spencer repeatedly mentioned the division having Nadella's backing, and then there's the recent acquisition of Minecraft, which surely seems like an odd thing to take place if the position of Xbox within the Microsoft family is still up in the air. Isn't this all settled now?

Perhaps not, because the rumours just won't stop swirling that Microsoft had quietly put Xbox on the market and is actively hunting for a buyer. During GDC and ever since, the question of who will come to own Xbox has been posed and speculated upon endlessly. The console's interactions with Windows 10, including the eventual transition of its own internal OS to the Windows 10 kernel; the supposed backing of Nadella; the acquisition of Minecraft; none of these things have really deterred the talk that Microsoft doesn't see Xbox as a core part of its business any more and would be happy to see it gone. The peculiar shake-up of the firm's executive team recently, with Phil Harrison quietly departing and Kudo Tsunoda stepping up to share management of some of Microsoft Game Studios' teams with Phil Spencer, has added fuel to the fire; if you hold it up at a certain angle to the light, this decision could look like it's creating an internal dividing line that would make a possible divestment easier.

Could it happen? Well, yes, it could - if Microsoft is really determined to sell Xbox and can find a suitable bidder, it could all go far more smoothly than you may imagine. Xbox One would continue to be a part of the Windows 10 vision to some extent, and would probably get its upgrade to the Windows 10 kernel as well, but would no longer be Microsoft hardware - not an unfamiliar situation for a company whose existence has mostly been predicated on selling operating systems for other people's hardware. Nobody would buy Xbox without getting Halo, Forza and various other titles into the bargain, but Microsoft's newly rediscovered enthusiasm for Windows gaming would suggest a complex deal wherein certain franchises (probably including Minecraft) remain with Microsoft, while others went off with the Xbox division. HoloLens would remain a Microsoft project; it's not an Xbox project right now and has never really been pushed as an Xbox One add-on, despite the immediate comparisons it prompted with Sony's Morpheus. Xbox games would still keep working with the Azure cloud services (Microsoft will happily sell access to that to anyone, on any platform), on which framework Xbox Live would continue to operate. So yes, Xbox could be divorced from Microsoft, maintaining a close and amiable relationship with the requisite parts of the company while taking up residence in another firm's stable - a firm with a business that's much more in line with the objectives of Xbox than Microsoft now finds itself to be.

"None of Xbox' rivals would be in the market to buy such a large division, and no game company would wish to lumber itself with a platform holder business. Neither Apple nor Google make the slightest sense as a new home for Xbox either"

This, I think, is the stumbling block. I'm actually quite convinced that Microsoft would like to sell the Xbox division and has held exploratory talks to that end; I'm somewhat less convinced, but prepared to believe, that those talks are continuing even now. However, I'm struggling to imagine a buyer. None of Xbox' rivals would be in the market to buy such a large division, and no game company would wish to lumber itself with a platform holder business. Neither Apple nor Google make the slightest sense as a new home for Xbox either; the whole product is distinctly "un-Apple" in its ethos and approach, while Google is broadly wary of hardware and almost entirely disinterested in games.

Amazon was the previously mentioned suitor, and to my mind, remains the most likely purchaser - but it's seemingly decided to pursue its own strategy for living room devices for now, albeit with quite limited success. I could see Amazon still "exploring options" in this regard with Microsoft, but if that deal was going to happen, I would have expected it to happen last year. Who else is out there, then? Netflix, perhaps, is an interesting outside possibility - the company's branching out into creating original TV content as well as being a platform for third-party content would be a reasonably good cultural match for the Game Studios aspect of Xbox, but it's hard to imagine a company that has worked so hard to divorce itself from the entire physical product market suddenly leaping back into it with a large, expensive piece of hardware.

This, I think, is what ultimately convinces me that Xbox is staying at Microsoft - for better or worse. It might be much better for Xbox if it was a centrepiece project for a company whose business objectives matched its strengths; but I don't think any such company exists to take the division off Microsoft's hands. Instead, Spencer and his talented team will have to fight to ensure that Xbox remains relevant and important within Microsoft. Building its recognition as a Windows 10 platform is a good start; figuring out other ways in which Xbox can continue to be a great game platform while also bringing value to the other things that Microsoft does is the next challenge. Having turned around public perception of the console to a remarkable degree, the next big task for the Xbox team will be to change perceptions within Microsoft itself and within the investor community - if Xbox is stuck at Microsoft for the long haul, it needs to carve itself a new niche within a business vision that isn't really about the living room any more.

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26 Comments

Jeff Kleist Writer, Marketing, Licensing

767 519 0.7
The biggest reason why Amaon would be a likely suitor is that they literally have poached many of the people who made 360 successful, including large chunks of the Kinect team (those features on the Echo look familiars?)

People don't understand the purpose of the TV in. Not only is it to allow you to stay on one input, but it's designed for minute to minute monitoring of every aspect of your TV watching far more accurately than any dedicated cable box is capable of doing. What channels and listings are you lingering on?

Keep in mind, that was the purpose of GoogleTv, keep in mind your cable company already does this. Do you think apple, Dony and Sling aren't doing it! Yup, they are.

I could see Amazon taking a piece of it, taking over Xbox video and music, the Microsoft retail operations.

Surface is doing well now, especially in the business sector. Xbox is a great conduit for selling the services that are Microsoft's new focus. While they may be looking for Alliances, like the one they've made with EA on Accesx, with Sling, with Netflix and ESPN in the past.

The vision is much more to use Xbox as a conduit. Thanks to the sabotage of Kinect by Sony's slime machine and the paranoid, it won't ever be that cable box replacement it was supposed to be. But the second question is with the habits of kids today, how much longer will there bec living room?

Posted:A year ago

#1

John Karageorgiou consultant

54 59 1.1
Great article and concur with the views and interpretations on the scenarios that are available to Microsoft with respect to selling or keeping (reluctantly) their Xbox division.
Would anyone want to enter into a hardware business today where profit margins are under increasing pressure and value to customer is being redefined by cloud-enabled services, including platforms such as Steam and OnLive?

Posted:A year ago

#2

John Owens CEO, Wee Man Studios Ltd

1,032 1,352 1.3
I wouldn't be surprised if Microsoft is completely split up so the success or failure of the division bares no reflection on the question of whether it will happen just the price it will fetch.

Microsoft is worth far more as separate entities than as one monolith and now that Balmer and Gates have no real day to day responsibilities I can see the board going that direction. It would probably be a good thing too.

The shareholders would love it.

Edited 4 times. Last edit by John Owens on 20th March 2015 1:57pm

Posted:A year ago

#3

Brian Lewis Operations Manager, PlayNext

170 120 0.7
Microsoft had the opportunity to finally re-unite the Xbox division with the core company with the launch of the Xbox One. The writing was on the wall, but they were too resistant to change to take the opportunity. They believed that they could go another 3-5 years before merging the two... but it isn't working out for them.

There really isn't anyone to buy the Xbox division, as a whole. It might be sold off in parts, but there is no good match for the whole thing because of the odd mismatches (as described in the article). It is likely that as this division is merged back into the core company, you will see parts of it be offered off to other companies.

Posted:A year ago

#4

John Kauderer Associate Creative Director, Atari

42 19 0.5
Popular Comment
Pardon me while I put my crazy pants on...

I could see Samsung making a play for Xbox, picking up some solid IP along with it. Since I have my crazy pants on why not buy Sega as well. Then Samsung can release Xbox as Sega and now have a ton of solid IP and huge influence in Asia. Samsung of course would have enough clout that they probably wouldn't need the Sega brand but why not go huge? Then do some wheeling and dealing and try to be the king console in China.

Back to normal pants.

Posted:A year ago

#5
May explain some of the embarrassing departures recently!

This has been an incredibly sorry saga for all concerned - and a cautionary tale regarding big egos, inflated claims and failed business planning. I would not be surprised MS board would like shot of this just to close the book on what was clearly poor judgement on hirings and promotions!

Posted:A year ago

#6

Klaus Preisinger Freelance Writing

1,491 1,880 1.3
Which company in their right mind would buy Xbox right now? Rather, who could add value to the brand by purchasing it wholesale? Because you need a pretty big name and tons of credibility, if you do not want to kill the brand.

The only company which has enough reputation with the audience, but especially with developers, to get away with taking over Xbox is Valve. But neither can MIcrosoft buy Valve and put them in charge, nor does Valve strike me as the type of company with the desire to spend that much money and try to assimilate this many people into their culture.

But hey, there is always giving it to Apple, have them raise the price of the hardware by 200% and watch it sell like crazy.

Posted:A year ago

#7

Andrew Jakobs Lead Programmer

297 169 0.6
How about Sony buying the xbox division.. LOL.... One thing Sony can learn from the xbox is OS...

Posted:A year ago

#8
The Early days of Xbox 360 were plagued with production issues, demand outstripped supply for months. The Xbox One hasn't had this issue. I think its misleading to say the One is performing at the same levels at this time in the life cycle as the 360.

Posted:A year ago

#9

Craig Page El Presidente, Awesome Enterprises

509 347 0.7
Instead of selling, Microsoft could just buy up half of EA or Activision for $8 billion, and make a couple franchises XBox/Windows exclusive.

Posted:A year ago

#10

Paul Jace Merchandiser

1,191 2,024 1.7
Popular Comment
Xbox For Sale - the rumors just won't quit
Outside of articles like this on this site I haven't heard any rumors regarding this since the last story I read about it.....here on this site last year. Could it happen? Sure, right after Microsoft buys both Sony and Nintendo in cash during the same weekend.

I can't see any scenario where Microsoft sells the Xbox division. If worse comes to worse I bet they would rather just shut it down and no longer operate it instead of selling it to another company for much less than what they would actually accept for it. We are more likely to see Nintendo for sale(especially if next years console also fails to catch on with consumers as the Wii U has) than we are the Xbox business.

But since we are passing along rumors I'm going to start a more believable one right here: Microsoft is rumored to be selling Bing to...someone, somewhere at some time and some place. With the sale of Bing they will purchase Nintendo and start producing the Xbox-Boy 3000. Sales will be huge and they'll use that money to buy Sony for the strict purpose of shutting them down so that they can be the only console player in town. And then they'll buy Valve and finally release Half-Life 3 as a Windows 10/Xbox One exclusive but you'll have to wait until the release of Windows 11 and Xbox Two before you can play Half-Life 3: Episode 2.5: Super Elite Hyper Extreme Non-Steam Edition.

Edited 1 times. Last edit by Paul Jace on 21st March 2015 12:43am

Posted:A year ago

#11

Roberto Dillon Associate Professor, James Cook University

56 40 0.7
Just dreaming but... I'd really love if it were Sega to buy xbox and get back in the console space! :)

Posted:A year ago

#12

Carl Hudson Studying Computer Science, University of Adelaide

74 87 1.2
What if Valve got in on it?

Posted:A year ago

#13

Morville O'Driscoll Blogger & Critic

2,017 2,370 1.2
Yeah, the fact is that there's few companies who would take on the entirety of XBox. Samsung is one potential, but seems unlikely - they'll have seen how Sony expanded way too far and too fast in the past, and won't want to run into the same mistakes. Personally, I think it would be a good fit for a dedicated PC manufacturer. Dell, for instance, already has the PC gaming side with its Alienware brand, and has ties to MS and component manufacturers, as well as its own resources (supply-chain, for instance). Take the XBox and they could either rebrand it as Dell's XBox, or just keep it as is and tie-up 3 segments of the market - gaming PC, gaming consoles, and business PCs.
What if Valve got in on it?
Valve wouldn't want any part of it, save for the IP, maybe. Trying to restructure or assimilate MS employees on such a large-scale would be too time-consuming for the potential benefit, and they don't need the walled-garden of the console world all to themselves. Whoever it's sold too will be more willing to talk to Valve than MS are regarding cross-play and the like, so why buy in? I'm sure MS are sitting on some nice IP that Valve could use (and I don't mean just software, but concepts and inventions), but MS likely wouldn't split the XBox brand up in that way unless it was losing money hand-over-fist.

Edited 2 times. Last edit by Morville O'Driscoll on 21st March 2015 9:37am

Posted:A year ago

#14

Jeff Kleist Writer, Marketing, Licensing

767 519 0.7
@Carl. Valve woulnt even launch their own console. They don't have close to the liquid capital to make it work

Posted:A year ago

#15

Duncan Dickerson Analyst, KKR

5 1 0.2
Are they not making enough cash off of steam to get into hardware?

Posted:A year ago

#16

Adam Campbell Product Executive, Hopster

1,451 1,534 1.1
Selling Xbox doesn't seem to make any sense.

Posted:A year ago

#17

Jeff Kleist Writer, Marketing, Licensing

767 519 0.7
@Duncan

Last I checked, the company valuation is about $4-5 billion. They'd be betting the farm. It's half that to launch a game console, and much of the rest to support the toddler years, with a brand no one in the real world knows and trusts.

They won't even spend the money on a real customer service department.

That's why they got everyone else to blow their money on Steam Machines.

Posted:A year ago

#18

Carl Hudson Studying Computer Science, University of Adelaide

74 87 1.2
Valve + Samsung ?

Posted:A year ago

#19

John Bye Lead Designer, Future Games of London

510 549 1.1
I've not seen any speculation online recently that Microsoft are trying to sell off the Xbox business, apart from this article.

And given that Microsoft just announced closer ties between Xbox One and Windows 10 a couple of months ago, including cross platform purchases, cross-platform play, and being able to stream Xbox One games to Windows 10 PCs and tablets, I really can't imagine any scenario under which they would then immediately turn around and try to sell off the Xbox business.

Unless of course they spin off their entire consumer business as a separate entity from their business services. Now that's a scenario that would at least make some kind of sense. But breaking off Xbox from Windows just as they announce closer integration between the two systems would be nuts.

Edited 2 times. Last edit by John Bye on 22nd March 2015 11:53am

Posted:A year ago

#20

Jeff Kleist Writer, Marketing, Licensing

767 519 0.7
@Carl

that is a scenario I could see happening in some way, shape or form. Samsung's recent initiatives have been all about trying to own the platform.

Like those initiatives, I still don't think it'll go anywhere. There needs to be a locked down spec on hardware that's cheap and affordable to produce, and game manufacturers will have to ship versions that will run on it alongside the graphic tart variants. That's not going to be easy.

Posted:A year ago

#21

Shane Sweeney Academic

503 597 1.2
Right, so they spend 2.5 billion on Minecraft and sell Xbox?

If this happens, management need to resign.

Posted:A year ago

#22

Jeff Kleist Writer, Marketing, Licensing

767 519 0.7
Minecraft's money is more in the everything else, the game itself has healthy sales, but the toys, movies, t-shirts, and bedsheets is where the moeny is

Posted:A year ago

#23

Klaus Preisinger Freelance Writing

1,491 1,880 1.3
Imagine what a buyer would have to say:
I, the buyer, have brand loyal customers who will buy the Xbox, but only if I sell it, not Microsoft. Also, I do not already have a console of my own. At the same time, I, the buyer, can promote and sell the Xbox better to the general public than Microsoft. Accidentally, the hardware fits all the parameters for the type of business I conduct, or, for some reason, I agree with all of Microsoft's design decisions

That already sounds crazy long before you delve into issues of patents, software source code, and licensing costs By the time this deal maybe in a position to make money, you will have to replace it with the next generation.

Sry, if there are current issues with the XO in terms of market penetration, customer happiness and software support, then Microsoft will have to fix them, or retire the branch.

Posted:A year ago

#24

Shehzaan Abdulla Translator/QA

158 294 1.9
Haha. I've got to admit, I started this article thinking it would be dull as mud but GamesIndustry actually impressed me by making it interesting.

Posted:A year ago

#25

Greg Wilcox Creator, Destroy All Fanboys!

2,603 1,678 0.6
@Jeff: Until it all goes Angry Birds on Minecraft. Actually, I saw a ton of licensed Minecraft stuff at Toy Fair and it amazes me how much of it is out there and selling well. So, I'm wrong (again). That said, Minecraft is still surprising people who think it's "over", so the merch domination will continue...

Posted:A year ago

#26

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