To spin or not to spin: Does Microsoft need Xbox?
Innovation has been costly » Microsoft took a $1 billion charge in 2007 on Xbox hardware defects and a $900 million charge on unsold Surface inventory this year. And it's not clear whether the company's new user-interface technologies are as advanced as they need to be to make money. As several reviewers have noted, Kinect's voice-recognition ability is hit and miss.
It positions Microsoft in the living room » Microsoft's Xbox 360 and Sony's PlayStation 3 each sold more than 80 million units globally. Strategically, pulling even with the game console leader was a key win because it prevented Sony from taking over the living room. The strategy was intended "to create a halo effect for other Microsoft consumer devices," according to Evercore analyst Kirk Materne.
But the world's gone mobile » By pouring time and energy into a home-bound console, Microsoft largely missed the mobile devices revolution. IHS predicts Microsoft's Windows platform will be the operating system in just 6.5 percent of tablets and 3.9 percent of smartphones sold worldwide this year. Together those devices will account for 1.2 billion units sold. Sherlund says dominating the living room "was a good idea 10 years ago." "Apple and Google did an end run around you with smartphones and tablets," he says. "You had your eye on the wrong ball."