What market? I know I'll probably get crucified for saying this, but video games are only a good business if you're making the games themselves. The hardware is low margin, and you don't really make it up on the licensing anymore either since gamers have so many platforms to choose from. Worse still, you can't form a dominant platform through the methods Microsoft traditionally uses: you have to convince consumers directly. And video games are just a "good" business, never a great one: they are very risky and the maximum payout is limited. EA and Activision both made about $5 billion in revenue. Combined they made as much as half of the Server and Tools business (and at much lower margins.)
Microsoft's core strength is licensing software to businesses. Hardware and game consoles are a foray into a high-risk, low-margin business (well, low margin relative to software.) By contrast, Microsoft's operating margin on enterprise software is close to 50%. The margin on their entertainment and devices division is currently less than 1%. Comparables would say that a good margin in a hardware business like that is 10-20%.
Worse still, selling consumer electronics and media properties to consumers requires a sales channel that Microsoft has still not mastered. Windows and enterprise software are sold through a reseller model: Microsoft makes products and advertises them to a network of people who have discovered they can make a living selling and implementing Microsoft software (be they PC OEMs or consultants.) They have never been good at consumer marketing or retail sales. They've never had that "cool" brand image you need to succeed there, and the amount of money you have to spend on marketing is insane compared to their more profitable cash cow.
There's still plenty of room for them to innovate in the enterprise space too. Oracle and SAP suck donkey balls to use and Microsoft is actually really good at delivering rock-solid enterprise software with a good blend of usability and power. I just fear that if any new CEO focuses too much on the consumer side of the business, there are a lot of much more profitable options on the enterprise side.
The consumer side is a huge distraction to Microsoft, one that has produced a lot of red ink but never really any profit. Look at their historical results since, well, ever, and you'll see that the consumer products consistently lose money while the enterprise software keeps growing margins and top line.
Microsoft's core strength is licensing software to businesses. Hardware and game consoles are a foray into a high-risk, low-margin business (well, low margin relative to software.) By contrast, Microsoft's operating margin on enterprise software is close to 50%. The margin on their entertainment and devices division is currently less than 1%. Comparables would say that a good margin in a hardware business like that is 10-20%.
Worse still, selling consumer electronics and media properties to consumers requires a sales channel that Microsoft has still not mastered. Windows and enterprise software are sold through a reseller model: Microsoft makes products and advertises them to a network of people who have discovered they can make a living selling and implementing Microsoft software (be they PC OEMs or consultants.) They have never been good at consumer marketing or retail sales. They've never had that "cool" brand image you need to succeed there, and the amount of money you have to spend on marketing is insane compared to their more profitable cash cow.
There's still plenty of room for them to innovate in the enterprise space too. Oracle and SAP suck donkey balls to use and Microsoft is actually really good at delivering rock-solid enterprise software with a good blend of usability and power. I just fear that if any new CEO focuses too much on the consumer side of the business, there are a lot of much more profitable options on the enterprise side.
The consumer side is a huge distraction to Microsoft, one that has produced a lot of red ink but never really any profit. Look at their historical results since, well, ever, and you'll see that the consumer products consistently lose money while the enterprise software keeps growing margins and top line.