The Xbox's days may be numbered, at least as part of Microsoft. In his first letter to Microsoft staffers, new CEO Satya Nadella makes it clear that he sees a "software-powered world," a "mobile and cloud-first world," and that doesn't sound like a world where Microsoft makes a gaming system – or one where it makes a lot of hardware at all, in fact.
This isn't a surprise coming from Nadella, the former head of Microsoft's successful enterprise and cloud services division. Xbox is about as far from his wheelhouse as you can get – hardware not software, play not business – and you see no shout-out to a big living room set-top box in his opening salvo. Instead, he wants to deliver "devices and services that truly empower every individual and every organisation ... platforms and ecosystems that create broad opportunity."
Xbox is a good business, a strong business, and a profitable business. It's not going to be shut down – rather, sometime in the next year I expect it to be spun off into an independent company with close ties to Microsoft but one not run by Nadella. I can also see him getting rid of the random hardware businesses – the keyboards, the mice, those sort of things. They make money, but they distract from his focus.
Nadella's Microsoft will evolve into more of a platforms company. With the creation of Xbox and Surface, and the acquisition of Nokia, Microsoft was becoming more of an Apple; Nadella's Microsoft, I think, will be more of a Google.
What of Nokia and Surface?
Okay, so he'll spin off Xbox. But hey, it just bought Nokia. What about that and Surface?
There are some key differences between Microsoft's Xbox and mobile businesses. Xbox is successful, and Nadella doesn't see it as a core competency. But the mobile businesses aren't very successful yet, and they are key to his view of the future. So Nadella will hang on to Surface and Nokia until he can figure out a structure where Microsoft can succeed in mobile.
It's "a mobile and cloud-first world," after all.
Surface will go first, along with the consolidation of Windows RT into Windows Phone that Microsoft's Julie Larson-Green predicted last year. Microsoft only needs to make Surfaces as long as other partners' Windows tablets aren't succeeding. Intel's Bay Trail chipset for Windows 8.1 is helping to solve that problem; Asus apparently can't keep its Transformer T100 tablets in stock, they're such great value. If Asus, HP, Dell, and their ilk can get some momentum next year, I can see the Surface business easily rolling off to one of those firms.
The success of Windows Phone is absolutely critical to the success of Microsoft: The company needs a major mobile platform if it's going to survive. Microsoft needed to take Nokia under its wing because its other licensees were doing lousy jobs. HTC makes nice phones but can't market them, so as a result it's barely keeping its head above water. Samsung's Windows Phones, up until now, looked like they were made from cast-off Galaxy parts. LG dropped out of the game after Windows Phone 7. Nokia was the only company selling any real quantity of Windows Phones.
So Microsoft had nothing to lose by buying Nokia, and it could gain better integration between hardware and software. For now, it doesn't look like Windows Phone is going to flourish as a multi-vendor platform, even if Samsung and Huawei are talking about making more (low-key) Windows Phones.
That's obviously a puzzle for Nadella to solve, and I see him working on solving it in the Windows 9, 2015 timeframe. He'd rather not be building phones, but he'd rather build phones than have no presence in that market.
Are there consumer winners?
Nadella might be an enterprise guy, but that doesn't mean his vision is all enterprise-focused. There are some primarily consumer Microsoft businesses that I think will come out winners under his leadership.
Let's start by setting aside Office, Windows, and the enterprise businesses. You know he'll be solid with those.
For one thing, I think Skype has found a fan. Mobile? Cloud? Software? Empowering? You bet. Skype has been a bit of a stepchild under Steve Ballmer, but I can easily see it as a flagship communication and collaboration product under Nadella, being baked into everything from Windows 9 to Office to Windows Phone.
Nadella loves Bing – he says so on his Twitter feed – and if the man is interested in cloud intelligence, expect to see an expansion of Bing's capabilities and an aggressive pursuit of Google there.
Windows Phone is close to my heart, and I think it's going to get even more focus under Nadella. Google Now-like prediction via Bing, tight Skype integration, even better Office capabilities – Windows Phone can be a showcase platform for Nadella's software and cloud philosophies, and Microsoft has plenty of assets to bring to bear there.
Satya Nadella's Microsoft isn't going to look like Steve Ballmer's, and that's a good thing. Hopefully, a tighter focus on integrated platforms will help solve some of the company's stumbles in consumer software.
For more, check out 5 things you should know about Satya Nadella, and our closer look at the appointment of Nadella as Microsoft CEO.