News

Reading the Tea Leaves

• By Scott Bekker
• 11/01/2005

Microsoft plays musical chairs with top executives every few years. The financial community enjoys a front-row seat for the realignment performances, while Microsoft employees are an important secondary audience. Microsoft normally doesn't tailor realignment messages to customers. But the major reorganization of Sept. 20 is more than pixels in a Visio diagram, it will directly impact product ship dates and development direction.

Ch-Ch-Ch-Ch-Changes
CEO Steve Ballmer named four presidents to run three divisions, consolidating the seven existing divisions. Jim Allchin and Kevin Johnson serve as co-presidents of the Microsoft Platform Products and Services Division until Allchin retires at the end of 2006, after Windows Vista ships. Then it's Johnson's show. Jeff Raikes is president of the Microsoft Business Division, and Robbie Bach is president of the Microsoft Entertainment & Devices Division. The four executives will report to Ballmer.

Based on revenues for Microsoft's fiscal 2005, Platform Products and Services is the largest of the new divisions. It combines the $12 billion Client Division, the $9.9 billion Server & Tools Division and the $2.2 billion MSN Division for a total of $24.3 billion in revenues. That's more than 60 percent of Microsoft's 2005 total revenues. David Cole, senior vice president of MSN, continues in his role. Eric Rudder, who ran the fast growing Server & Tools Division, assumes a new role reporting to chief software architect Gates. Rudder will transition after the Nov. 7 launch of the Visual Studio 2005 and SQL Server 2005 products.

Jeff Raikes currently runs the Information Worker Business that includes Microsoft Office, and now adds the Microsoft Business Solutions division to his responsibilities. Doug Burgum, the senior vice president who ran Microsoft Business Solutions, now reports to Raikes. In 2005, Information Worker brought in $11 billion in revenues, while MBS revenues were $803 million.

Bach's new division combines the $337 million Mobile and Embedded Division and the $3.2 billion Home and Entertainment Division.

Ray Ozzie, who joined as a chief technical officer reporting to Gates when Microsoft bought Groove Networks, will expand his role. Ozzie now helps drive software-based services strategy and execution across all three divisions.

"These changes are designed to align our business groups in a way that will enhance decision-making and speed of execution," Ballmer said in a statement.

Services Could Get Real
Microsoft has talked about services for years. Past efforts like .NET My Services and Hailstorm come to mind. A couple of new twists could make services real this time. High-speed network access is becoming more ubiquitous, making hosted services more practical. Microsoft assigned Ray Ozzie, one of the more creative thinkers in the technology industry, to the services issue.

The departure of a key employee is as important as Ozzie's arrival, in the view of Gartner analyst David Mitchell Smith. "The coming departure of Jim Allchin—who was critical to the company's refocus on Windows (not the Internet) as a platform during the excitement of the first Internet revolution—is another sign of Microsoft's upcoming focus on software as a service and the Internet platform," Smith noted in a Gartner research note.

"While it is certainly possible that Allchin is now supportive of such a change, Gartner has long believed that Microsoft would not shift its central focus away from Windows as long as Allchin remained in charge. We believe the realignment and upcoming focus on software as a service and the Internet platform are not coincidental with Allchin's departure," Smith continued.

If Gartner's analysis is correct, real progress on services may have to wait until after Allchin steps aside, once Windows Vista ships.

Cracking the Whip on New Products
The product ship cycle remains an area of concern for Microsoft, with major releases of both SQL Server and the client Windows OS taking five years to emerge. Ballmer hopes that the management shakeup will give presidents more independence to speed innovation, but the realignment could have the opposite effect.

Jupiter Research analyst Joe Wilcox worries that absorbing MSN into the Platform Products & Services division could stifle progress in the MSN business unit. "My concern: That MSN will actually slow down its rapid-fire development, which in the past put it ahead of Windows with technologies like desktop search. I would caution Jim Allchin and Kevin Johnson about absorbing MSN into Windows development and thus killing off the innovation," Wilcox wrote in his blog.

There are also doubts that the "strategy tax" that transcends product groups will be overcome by the new structure. Mini-Microsoft is an anonymously-run virtual watercooler of a blog where many employees talk about issues at the company. One poster asked, "Exactly what new freedom do you think these guys will have? Do you think...Jeff [Raikes] will be free to pursue Office on Linux? Bet that's a decision for Bill, Steve, or the combined [Senior Leadership Team]."

New Blood in the Chief Software Architect's Office
End users can expect results from the changing of the guard in the chief software architect's office, where Eric Rudder, a onetime technical assistant to Bill Gates, will return to working with Gates in a role that Wilcox describes as a "junior" chief software architect. The young executive, fingered by The New York Times this year as one of the most likely successors to Gates, will focus on some of the company's key advanced development efforts and overall technical strategy. Meanwhile, Gates dropped a hint in a reorganization-related interview with the Seattle Post-Intelligencer that he may relinquish the chief software architect role without leaving the company.

Asked when he might retire, Gates said, "Eventually I won't view myself as young enough to have the chief software architect's role, but in terms of my professional work, Microsoft is where I'm going to be. Eventually, hopefully, somebody's in the hot seat, and I'm coaching the guy in the hot seat."

Over the nexst year, the malaise now surrounding Microsoft should dissipate as Windows Vista and Office 12 set product adoption records that seem to be the birthright of new Microsoft editions. The question is, how will this reorganization impact the company—and its customers—in the rejuvenated post-Vista period?