Foley on Microsoft

Microsoft's Latest Reorganization

Getting to the bottom of Kevin Johnson's departure.

• By Mary Jo Foley
• 09/01/2008

Which came first: Microsoft President Kevin Johnson's decision to leave the company, or Microsoft's decision to split its Platforms and Services team along its natural fault lines? Microsoft is being tight-lipped, as is Johnson, who cashed his chips in for a new and lucrative job as CEO of Juniper Networks. Johnson is getting $800,000 in salary, a $5 million signing bonus and a little over 1.4 million shares of Juniper stock.

Was this a simple tit-for-tat retaliation, where Juniper stole a top Microsoft exec on the heels of former Chief Operating Officer Steven Elop's defection to Microsoft at the start of 2008? If I had to make an educated guess as to all the political machinations that came to a head just before the Microsoft Financial Analyst Meeting in July, I'd bet Johnson wasn't encouraged to stick around.

When Platforms and Services were one, Microsoft had a $15-billion-plus business under a single president -- at that time, Johnson. That was a lot of responsibility for anyone, especially for someone so focused on the online-advertising side of the equation. From a strategy standpoint, maintaining Platforms and Services as a single entity made little sense, except for the ever-tighter integration between Windows and Windows Live. The priorities of the MSN and search teams are quite different from those of the Windows team.

Some believe Johnson was the scapegoat for the failed Microsoft-Yahoo! merger. Others claim that Johnson's hopes of becoming Microsoft's next CEO were dashed when it finally became clear that Steve Ballmer planned to hold onto his current title for another decade. That is, unless Ballmer gets booted by the Microsoft board, led by his joined-at-the-hip chum Bill Gates -- an unlikely occurrence.

Here's my guess as to what really happened this summer and what it means for Microsoft. As part of the routine Yahoo!-related scrutiny, Ballmer decided that Microsoft's Platforms and Services division, the unit previously in charge of Windows, Windows Live, MSN and Microsoft's other online services-related properties, was just too big and unwieldy. If Microsoft ended up buying Yahoo!, or even just Yahoo!'s search business, it would have been the perfect time to cut the "Services" out of "Platforms and Services" and combine it with Yahoo!'s assets to form a new Microsoft Services division.

Though the merger never happened, Ballmer and other Microsoft managers came to the realization that their obsessive focus on online advertising meant that Platforms -- more specifically Windows -- was getting a short shrift. In the consumer-retail market, incredibly, Windows is actually losing market share to Apple, thanks to the infamous iPod and iPhone halo effect. "Holy Toledo, Ballmerman! We need to put some serious marketing and strategy muscle behind Windows," said CFO Chris Liddell to the chief caped crusader.

Johnson, an exec many considered a Ballmer clone given his sales pedigree, was hoping he'd be appointed to MicroHoo!, even though former aQuantive CEO and current Microsoft Senior VP Brian McAndrews was the odds-on favorite to fill that role. Once Microsoft lost interest in buying Yahoo!, Johnson tried to jockey to head up Platforms.

But Johnson isn't a tech guy, and the Windows unit was top-heavy with Windows guys who weren't going to let Johnson come in to run their show. Faced with certain mutiny by Steven Sinofsky, Jon DeVaan and Bill Veghte if Johnson were to meddle with their Windows baby, Ballmer decided not to appoint a new head of Platforms and keep the position for himself -- at least on paper.

At this point, if you were Johnson, you wouldn't have much wiggle room. Do you stick around and become a figurehead manager, a la Senior VP and CTO David Vaskevitch? Or do you find a new job, and fast, as it's crystal clear that you're not on track to become the next CEO of Microsoft any time soon?

My take is that this latest corporate shuffle had nothing to do with Bill Gates' retiring from Microsoft or Chief Software Architect Ray Ozzie supposedly taking a more active role at the company. It was just one of Microsoft's regular "move the chess pieces around" reorgs. If you have a different take on what happened and what it means for the empire in the coming weeks, months and years, I'm all ears.