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Investors want Microsoft to dump Xbox and Bing, and they have a point

The firm handling Microsoft co-founder Paul Allen's share wants Microsoft to ditch Bing, a flop, and Xbox, a massive success. Here's why he may be right.

Two of the top three shareholders at Microsoft are Bill Gates and Steve Ballmer, and the two have a lot of sway. But there's a third, co-founder Paul Allen, and he has his own gravitational pull. Right now, he's pulling for some badly needed focus.

Allen's stake is managed by a company called Vulcan Capital, and its chief investment officer, Paul Ghaffari, wants Microsoft to dispense with Bing and Xbox. Ghaffari made his statements last week at the Financial Times Investment Management Summit in New York last night, and FT has the details (registration required).

Ghaffari said the overwhelming majority of Microsoft’s earnings were generated by selling software and services to business customers and the company should focus on that, not distractions, even a successful one.

"The search business and even Xbox, which has been a very successful product, are detracting from that. We would want them to focus on their best competencies," he said. "My view is there are some parts of that operation they should probably spin out, get rid of, to focus on the enterprise and focus on the cloud."

He added that the Microsoft board has shown a new "receptivity to getting outside views." What that means is anyone's guess, but given that Ballmer is leaving now, long before he wanted to, it sounds like he's got a point.

Ghaffari said that the search for a successor to Ballmer was being handled well and thought that the company should have two CEOs, given its massive size and scope. If Ford Motor Co. CEO Alan Mullaly were to be selected, he argued, then a second CEO who was up on the latest technology should also serve beside him.

That's a bit of an insult to Mullaly. He's an aerospace engineer who built planes. They can't crash routinely and still be considered usable. And if you haven't looked under the hood of a car lately, they have almost as much silicon in them as a computer. So I think the argument that Mullaly would need a technology baby sitter is a bit dubious.

Ghaffari did not comment on the Nokia deal, for which Microsoft is now seeking EU approval (have fun with that). But I would think if he doesn't want a successful business like Xbox he wouldn't want the Nokia handset business, either. However, he did not comment on the deal.

Dumping Bing certainly makes sense. Better to combine it with Yahoo than split the traffic between the two of them. As for Xbox, he does have a point. A lot of people thought Microsoft was insane when it announced it was getting into the console business. No one is laughing anymore, and Xbox is a vital end point for many Microsoft products.

But is it needed in a company that sells business productivity software? No. It could be easily spun out, and perhaps Robbie Bach and J Allard will return to steer the ship. The circumstances around their departure were always a little murky, but some reports have said they clashed with now-departed Windows chief Steve Sinofsky.

Ghaffari is right to call for a streamlining of Microsoft. It's obviously too big and bloated and doesn't need to be all things to all people. The challenge now becomes getting the right person for that job in Ballmer's place, preferably before the Nokia deal closes and they have one more divestiture to handle.

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