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Preston Gralla: Time to break up Microsoft? Not so fast

Preston Gralla: Time to break up Microsoft? Not so fast

There are increasing calls for Microsoft to sell off Bing and walk away from mobile. Would those moves be good in the long term?

Now that Steve Ballmer is on his way out the door, there are increasing calls for Microsoft to be split up by selling off or giving away Bing and walking away from the mobile business by killing off Windows Phone. But while doing that might make Wall Street happy by bringing in short-term profits, in the long run it would be disastrous for the company.

The call to sell off Bing started back in May, when Nomura Equity Research analyst Rick Sherlund proposed it. He argued that from an "ROI and strategic perspective" it makes sense for Microsoft to sell Bing to Facebook or Yahoo. His reasoning? Microsoft would be able to cut its Bing losses and get revenue from the buyer by routing users to Bing at so much per visit. He estimates Microsoft would generate $1 billion in profit a year that way, and eliminate $1 billion a year in losses.

"If this were returned to shareholders," Sherlund wrote in his report, "this could add nearly 1% incremental to the dividend yield, in our estimation."

Another prominent analyst targets another big chunk of Microsoft that he believes should be sliced off: its Windows Phone business. Ben Thompson argues that Ballmer's services-and-devices plan is bound to fail and that Microsoft should stick to services and abandon devices. The reason? "The danger is that the services that ought to be pushed, like Office 365, which could run on every platform, are going to die on the vine because of the emphasis on [Microsoft's own] devices," he told Computerworld.

There's certainly some evidence for that. With its own tablet business on life support, Microsoft has refused to release Office for the iPad and Android tablets. It may be forgoing billions of dollars as a result. Gerry Purdy of MobileTrax estimates that Microsoft could get $1.25 billion in additional revenue in the first year it released Office for the iPad and Android tablets, and $6 billion in annual revenue by 2017.

But the critics are wrong. Microsoft needs Bing and Windows Phone. Although getting rid of Bing might prove to be a short-term boost to Microsoft's stock price, the service is strategically vital for Microsoft's future. Bing is central to Microsoft's plans to take over the living room with the Xbox. It's a core component of Microsoft's big data plans, including for machine learning. And Bing is baked into the DNA of Windows 8, particularly in an interesting new app category that grabs multimedia content and fast-changing information from the Internet and formats and displays it on the fly.

As for abandoning Windows Phone, Microsoft's recent $7.2 billion deal to acquire parts of Nokia makes that a nonstarter. And Microsoft needs Windows Phone. Mobile, not services, is where the growth is. Without mobile, Microsoft will become a bit player in technology's future, and it will find it harder to attract talented engineers.

Services and devices can coexist in a company, if each division is allowed to pursue profit regardless of how it affects the other. In Microsoft's case, that means releasing Office apps for the iPad and Android, even if it makes it more difficult to sell Windows tablets.

The battle among giant tech companies today is between entire ecosystems, not individual products. Selling off important parts of Microsoft's ecosystem would make it much more difficult for Microsoft to compete. That harms, not helps, the company.

Preston Gralla is a Computerworld.com contributing editor and the author of more than 35 books, including How the Internet Works (Que, 2006).

Read more about mobile/wireless in Computerworld's Mobile/Wireless Topic Center.

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