Investors to Microsoft: Drop the Xbox

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MS obviously haven't made the business case to investors well enough if they're grumbling. You've got to go back to the reason MS got into the console hardware game in the first place, which wasn't about bringing more choice to gamers, or establishing another source for more profits. If MS thought console gaming was going to stay as a simple recreational device for geeky teenagers they never would have gone into it. PC gaming is still very much alive and well after all.

MS saw a threat to its core business coming from left field out of the gaming console. It saw the future with MS not in the gaming console arena and decided it wasn't such a bright future for MS. So it spent some billions of dollars to shore up a long term future where that 72% profit margin core business was preserved long term, which meant getting into the console hardware business.

I don't think it's MS's long term strategy to make consumer electronic devices its core business (unlike Sony and Ninty for whom it is and always has been their core business). Those devices are there to protect MS's core business. If MS never makes any profit from consumer electronic devices, but in being in those markets it protects or even increases the profitability and long term viability of its core business then it's money well spent.

Investors don't expect MS's HR department to turn a profit, but an excellent HR department that spends considerable amounts of money ensuring MS is staffed by the best people possible, including investing in its current employees (staff retention) helps to maintain a viable and profitable company. EDD should be looked on in a similar vein, although because EDD can potentially be modestly profitable that should be part of EDD's long term business strategy.

So the thing for MS's board to consider is whether the original purpose for MS to get into the console gaming hardware market is still valid, and whether the Xbox brand is achieving that purpose. If the answers to those questions are yes, then the profitability angle is secondary. Given Xbox is now contributing positively to the MS bottom line I'd say there is almost nothing that investors can legitimately complain about.