There’s been lots of talk over the future direction of Microsoft over the last week, with shortlists of CEO candidates being drawn up and rumors that whoever takes over might decide to drop some of its less-profitable business, including the Xbox console and its search engine Bing.

Last Friday, the big story was a report from Bloomberg which outlined what it called “considerations” by Stephen Elop, one of the shortlisted CEO candidates, to focus on Office as one of the main money spinners for Microsoft, in line with his plans to “sharpen the company’s focus”.

From Bloomberg:

“Besides emphasizing Office, Elop would be prepared to sell or shut down major businesses to sharpen the company’s focus, the people said. He would consider ending Microsoft’s costly effort to take on Google with its Bing search engine, and would also consider selling healthy businesses such as the Xbox game console if he determined they weren’t critical to the company’s strategy, the people said.”

Meanwhile, Nomura analyst Rick Sherlund, who thinks that Ford CEO Alan Mulally is “likely” to get the Microsoft CEO job, also says that the company should dump Bing and Xbox.

According to Business Insider:

“So what’s the plan for Mulally when he takes over Microsoft? In Sherlund’s mind, it’s time to dump two major anchors — Bing and Xbox. Combined, he thinks Bing and Xbox are losing $3-$4 billion a year, which is a $0.30-$0.40 drag on EPS. He thinks Microsoft should give away or sell Bing, and spin out or sell Xbox.”

If Microsoft really was to drop either one, or both, of Bing and Xbox, that would come as a major shock for a company that has previously never even hinted at such a possibility. Current CEO Steve Ballmer has been steadfast in the “One Microsoft” policy that he introduced earlier this year, and Bing especially seems to be central to that – powering search capabilities across all of Microsoft’s key products, most especially in the newly updated Windows 8.1.

But then again, if Microsoft’s board of directors was frustrated enough to oust Ballmer in the first place, why would they stick with his policies? If the new CEO isn’t given a free rein to do whatever he pleases, why even bother bringing in a new face at all?

Bye bye Bing?

It would be a ruthless move to axe Bing, especially now that its been integrated across all of Microsoft’s major products – a strategy that looks like it might just be about to pay off. Only last week, Bing rolled out its new “Bing Hero Ads” product, essentially landing pages for advertisers that are promoted within the Bing Smart Search feature on Windows 8.1, delivering a more immersive experience for those who search for brands.

Bing is headed in the right direction, but for now it does remain a money pit – one that costs the company in excess of a billion dollars each year. Moreover, Bing isn’t just ‘Bing the search engine’, it has a lot more value than just its bottom line, because of the way data-driven services have become so tightly integrated with modern operating systems. Google Now is probably the best example of this, due to the way it accrues data from so many different sources including user’s personal data, and public data like traffic, sports results and so on, to proactively find useful and relevant information. Siri does a similar job for Apple, although for now it remains far less integrated.

Such services are becoming increasing important for today’s operating system, especially in mobile, and while Bing isn’t anywhere near as extensive as Google Now or Siri, it is heading that way. We now have Windows 8.1 with its heavily integrated search feature powered by Bing, which provides meaningful search results customized for users. Aside from this, Bing also powers Window’s News and Weather apps, while Windows Phone comes with all kinds of localized search capabilities, again due to Bing.

Microsoft has always said that it wants to build Bing into all of its “device and services,” and so scrapping these plans would represent a significant U-turn. But what is Microsoft was to make an arrangement with a company like Yahoo for instance? Yahoo’s Marissa Mayer has made it clear that she’s not happy with its current search alliance with Microsoft, so perhaps she would be willing to take over the day-to-day running of Bing, and just give Microsoft access to the platform? Highly speculative of course, but where there’s smoke there’s almost always some fire…

The end of the Xbox?

As for the Xbox, dumping this would also seem unthinkable – although the case for doing so is perhaps a little bit stronger than the one for ditching Bing. Microsoft’s stated goal is to take over the living room with its Xbox brand, yet it hasn’t done a great job of it so far – with the division losing roughly $2 billion a year, according to Sherlund. Various opinion polls show the Sony PS4 is likely to outsell its rival, and of course there are plenty of free alternatives (social networks) around these days.

The Xbox is a money drain, but does that justify selling it? Again probably not, because of the value it gives Microsoft elsewhere.The Xbox is by far and away Microsoft’s most loved brand – far stronger than Windows for example, which has been the target of user resentment ever since Windows 8 made it a nightmare (for some) to use, and for its crashes and proneness to viruses and other nasties. In contrast, the Xbox is seen in a far more positive light, and if Microsoft uses that wisely then then brand could strengthen and promote other services, like Xbox Music. If Microsoft is serious about becoming a Devices and Services company, the Xbox is integral to that as well, as its the company’s first device/service pairing that actually works.

The Xbox also gives Microsoft wiggle room in the world of Smart TVs and Set-top boxes. This niche isn’t all that big at the moment, but what if Apple’s long-rumored TV was to finally become a reality, selling millions of units each year and driving millions more app sales? Microsoft would need an easy way to dive into that market, and the Xbox would be the most logical way of doing so – without the Xbox, Microsoft could once again find itself missing out on a key growth market, just as it did with tablets and smartphones.

That’s not to say that Smart TVs will definitely take over the world, but the point is that the Xbox just helps Microsoft to look better if nothing else, and it has the potential to become a real money-spinner in the future. The question that Microsoft’s next CEO will have to ask himself is, does this brand strength justify keeping the Xbox around, even if it’s losing money now?