RealTime IT News

A Nimbler Microsoft?

Microsoft's announcement of a reorganization yesterday came suddenly but was not unexpected. The software giant is facing increasing competition from software and services delivered over the Web, compared to Microsoft's bundling of the same services within its Windows operating system, analysts said.

Under the new structure, the software giant will be organized into three distinct divisions, Platform Products & Services, Business, and Entertainment and Devices, each headed by its own president.

In a move that signals its intent to focus more on Internet-based software and services, the company said Ray Ozzie will expand his role as chief technical officer by assuming responsibility for helping drive its software-based services strategy and execution across all three divisions.

"The reorg is a very logical progression from what Microsoft had before. If you look at the people running the divisions, like Jim Allchin who's been there since 1990, and Robby Bach, they've been in charge right along," Tim Bajarin, president of Creative Strategies told internetnews.com. Bajarin has followed Microsoft since the early 1980s when it had only a few dozen employees. "As presidents, this gives them more authority and helps them deal with the other divisions more accurately because their responsibilities are more delineated."

As part of the announcement, Allchin, becomes co-president of the Platform Products & Services division along with Kevin Johnson. Allchin also announced that he will retire from the company after its next-generation Vista operation system, which he's helped spearhead, ships later in 2006.

Microsoft has been criticized recently for losing employees and some of its luster to relative newcomers in the industry like fast-growing Google. A recent Businessweek article detailed employee resentment at a growing bureaucracy, and cuts in compensation and benefits at Microsoft. All this while profits soar, but the company's stock has languished the past three years making stock options worthless to newer employees.

Bajarin thinks the reorg will address some of the bureaucracy concerns, and said losing employees is nothing new. "They've always lost good people and gained other ones. A lot of the guys that have left recently are passionate about segments of the market like wireless or entertainment and they got offered great opportunities to pursue that elsewhere. But look at all the people Apple's lost for the same reasons. It isn't anything unique to Microsoft."

The eventual departure of the talented software guru Jim Allchin will be a big loss for the company, but he probably has a good year to go before Vista ships giving Microsoft plenty of time to fill the void.

"When I think of Windows NT (the predecessor to Windows XP) I think of Allchin and Dave Cutler, the guys who really drove that project," Randy Dugger, CEO of IT consulting firm Dugger & Associates told internetnews. "Microsoft doesn't play to the investment community per se, they're always thinking eight to 10 years out, so I suspect they are well prepared for Allchin's departure. The thing about Microsoft is, they can get caught off guard, like they did with the Internet, but they react. And when they do it's in a big, significant way."

Microsoft attempted a more modest organizational streamlining of its Business Solutions group in June of last year. In that reorg, Doug Burgum, head of Business Solutions, went from reporting to Jeff Raikes (then vice president of the Productivity and Business Services Group) to reporting directly to CEO Steve Ballmer. Ironically, under the new plan, Burgum goes back to reporting to Raikes, president of the new Business Division. Burgum earlier had been CEO of the accounting software firm Great Plains when Microsoft acquired it in 2001 for $1.1 billion in stock.

On the entertainment and media front, the Entertainment & Devices division will be headed by Robbie Bach who previously served as senior vice president for Home and Entertainment and chief Xbox officer. His responsibilities included Windows games, the Microsoft TV platform, and consumer hardware and software products which continue to fall under the new division.

Giving Bach the title of President and better defined authority is a promising development, according to Mike McGuire, Gartner's research director of media.

"Microsoft's a very large company that needs more focus. If being president gives Bach authority to cut partnership deals quicker without having to go to upper management, that could be a good thing," McGuire told internetnews.com.

"But I think their challenge is to articulate what is really a new space for consumers. They haven't gained traction on the music side even though they're supporting a massive number of devices. They have to make it more compelling."