Paul Allen’s investment chief: Microsoft should consider spinning off Xbox, Bing

Paul Allen

Paul Allen

The chief investment officer for Vulcan Capital, the investment arm of Microsoft co-founder Paul Allen, says the company’s next chief executive should look at spinning off its consumer products — including its Bing search engine and Xbox game console.

Paul Ghaffari, who manages Allen’s $15 billion fortune, made the comments this week at the Financial Times Investment Forum in New York, as reported by the newspaper overnight. Ghaffari said Microsoft should focus instead on serving business customers, a traditional strength for the company.

“The search business and even Xbox, which has been a very successful product, are detracting from that. We would want them to focus on their best competencies,” he said, according to the paper. “My view is there are some parts of that operation they should probably spin out, get rid of, to focus on the enterprise and focus on the cloud.”

The comments are notable because of Allen’s history with the company, but Ghaffari isn’t the first to suggest this path. Rick Sherlund, a longtime analyst covering Microsoft, made headlines with his own version of the proposal earlier this year, just the latest to make the suggestion. The problem is that Microsoft’s recent reorganization, led by now-outgoing Microsoft CEO, has made any initiative to spin off businesses considerably tougher.

Allen still has a $2 billion stake in Microsoft, according to the Financial Times.

  • Dan Levitan

    Amen!

  • SilverSee

    Of course that’s what an investor would say. No vision. Just returns.
    I’ve got news for him: this is very reason Microsoft is in trouble. For years, Microsoft let many consumer-facing properties languish to the point where they became running jokes (Hotmail, IE, Windows Live, Zune, et al) because management could see no path to growing revenue from these products.
    In the meantime Google was building the world’s best array of free online services, the world’s best web browser, the world’s best search engine, the world’s best business model. And let’s not even talk about Apple.
    Today more and more people live entirely on the Web, using Gmail or Facebook, via Chrome, and almost all of the consumer engagement is with Apple and Google. If Microsoft had invested earlier (and smarter) not only in devices, but in Hotmail, IE, Windows Mobile, and cross platform technologies, it would have been much harder for Google to beat them.
    But that would have required the vision and leadership to focus on building brand loyalty and consumer engagement in areas that don’t offer a high return on investment (at least given Microsoft’s old business model). That didn’t happen because Microsoft was chasing the more profitable enterprise business.
    Yeah, I’m sure investors would like to turn Microsoft into IBM. Personally, I’d rather see Microsoft change the world again. This will only happen if the new CEO has the ambition to embrace change and the fortitude to tell Wall Street to take a hike.

  • guest

    Not gonna happen.

  • Guest

    @SilverSee:disqus you actually articulated well the reasons why this approach does make sense. By seperating enterprise and consumer business Microsoft would have have the ability to focus on each segment independently and to make offerings in each space as strong as possible. By running these as independent businesses, with different customer requirements, the management of each would be forced to make the right decisions to tailor products to their respective target markets. In other words, they could make world class products for each segment.
    As is, the linkage between enterprise and consumer confuses product offerings and results in watered down products that don’t fully meet the needs of either segment. However, if this split was made the end result of such a change would be stronger products for each segment. I also believe this would then increase the overall value stockholders would see since each business could be independently valued based on profits instead of the failings of one segment watering down the results of the other.

    • SilverSee

      Reasonable people can disagree about this, but I think Microsoft makes a strong case for why the company needs to be in the consumer sector (as reported here by PC World):

      http://www.pcworld.com/article/2049048/microsoft-to-analysts-consumers-are-the-gateway-to-cloud-enterprise-usage.html

      Steve Ballmer is given the blame for Microsoft’s lack of traction in mobile computing, and I believe consumer neglect I alluded to above is due to his leadership. But—I also think he deserves credit for setting the company on its current path to radically rethink of its business and product strategy. I think they’ve missed a few beats on execution, but I actually find their current strategy pretty compelling, and I think it needs time to play out. That’s why I feel investor calls to break up the company are premature.

      • guest

        Yeah, I get their whole “consumer is pathway to enterprise” thing – but that neglects one important point: Micrsoft will not win in the consumer space. They may become more than the 2nd, or 3rd or 4th place they are in now (depending on what you compare with), but they will not likely have dominant position anytime soon. No competitor will likely have a truly dominant market share in fact.
        If you then buy the argument that consumers drive enterprise anything – you get a bunch of devices made by a bunch of companies that either all won’t work together within the enterprise or have to adhere to standards that if followed, make enterprises device agnostic. Maybe compelling services instead of devices could drive something in the enterprise, but then you have to go back to the fact that Microsoft is at best #2 in the primary market spaces (e.g. search). So that doesn’t really offer a compelling argument either to drive anything to the enterprise.
        I say breaking up along enterprise / consumer lines is really the best way foward

  • yaddamaster

    Completely agree with SilverSee. Companies only last in the enterprise while they remain relevant. But the enterprise doesn’t really care about innovation in IT – they care about consistency and stability. And now you’re seeing the situation where IT departments are being forced to accomodate iPad and Android because workers are bringing them to work with them. And Microsoft has no real answer. Surface Pro 2 is still too clunky. Surface 2 has no backward compatibility.

    MS got rid of all their consumer apps (encarta, ms money, to name two) and just when they really needed some great consumer apps to drive users to Windows 8 and the new Metro UI they have nothing to entice users. Nothing.

  • bressennuit

    An investor also has a choice – if he doesn’t like the direction a company is already in or planning to be in, he can choose to sell his shares. It isn’t always about him thinking he has to change the company just to suit his profit goals.

    If MS *wants* to be both consumer and enterprise based, Paul Allen is closed-minded by saying that MS should only split up, without looking at alternatives like *he* can split by selling out.

    Kinda ballsy for him to want to call the shots, but yet not want to be working in the business itself and only watching from the sidelines as a past co-founder and as an investor only.

    And why get rid of Xbox, which they even state was “successful”? why would you dump something that is still making you money?

    and when you already have 15 BBBBillion $$$ already?

    I’d say get rid of Paul Allen before getting rid of Xbox or Bing.
    Oh, and bring back MS Money, i still miss that software!

  • panacheart

    I’ve long argued that Microsoft would be worth more, and would be more nimble if it were split up. The parts are worth more than the whole, and each “silo” would be free to prioritize its own business.

    Microsoft might even have a great phone now if the mobility division had been split off years ago. Currently many divisions have a mandate to work with each other, but little or no financial incentive, and the company is mired in a monolithic process, mind set and culture.

    Imagine a bunch of smaller companies, all more nimble and free to innovate and make their own decisions, but with the financial backing of the larger parent company.

  • yomama

    swag c;