The topic of splitting up Microsoft is one that I’ve spent a lot of time digging into over the years, and not just in the context of the company’s antitrust trial. For a presentation at the Seattle Rotary last year, I outlined a concept to divide Microsoft into three new companies, including one centered around Xbox.

xboxI’m pretty sure the Rotarians thought I was nuts. But a report this week by longtime analyst Rick Sherlund is bringing new attention to the idea. Sherlund suggests that Microsoft should consider selling its Xbox and Bing businesses to be able to focus on more profitable parts of the company.

“Xbox is one of the areas of success for Microsoft and is cool to consumers, but it is perhaps time to assess whether this can ever be material to the overall company and might be more leveragable to a consumer-oriented company such as Samsung,” he writes.

It’s an interesting concept, but at this point it would be tougher than ever to make it work. The unveiling of the new Xbox One last week illustrated the increasingly tight connection between Xbox and other parts of Microsoft’s business. That’s happening not just through the integration of Skype and other Microsoft services into the Xbox One but also behind the scenes, as the Xbox team taps into resources from across the country.

“This stuff’s hard to do,” said Xbox development director Boyd Multerer during an Xbox One technical briefing last week. “Being at Microsoft we’ve had a lot of resources outside of our immediate group that we were able to take advantage of. There’s Microsoft Research, which has helped tremendously on Kinect, but we’ve also been able to take advantage of software like Hyper-V and really talented engineers.”

That virtualization technology lets Microsoft run two operating systems inside the console. Working on the project is Dave Cutler, the veteran Microsoft engineer best known for leading the development of Windows NT. “We’re super lucky to be able to work with people of that depth and talent, and it’s made this kind of project possible,” said Multerer during the briefing.

Xbox is one example of Microsoft CEO Steve Ballmer’s push to get the company’s separate divisions to work more closely together.

Of course, this doesn’t mean a spin-off of the Xbox business is impossible, but it’s far more complicated and even less likely to happen than it was in the past. And if shareholders do make a push for it, the company will be able to make a strong case that it wouldn’t be wise.

Bottom line, the timing isn’t right. Even so, it’s fascinating to see Sherlund float this idea, because he has covered the company literally since it went public.

For what it’s worth, I do disagree with Sherlund’s conclusion that the Xbox business “will not likely determine the success of Microsoft going forward.” On the contrary, the way this is shaping up, a huge part of the company’s consumer strategy hinges on Xbox One, which has big implications for Windows, Surface and Windows Phone — whether or not the console business itself becomes a significant source of profits.

RelatedXbox One: How Microsoft is trying to change the game

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