Channel Applauds Microsoft's Latest Reorg, Cautions Against Splintering

Microsoft

The impending departure of Rick Belluzzo as Microsoft President and COO in May, a major part of the typical spring executive reshuffling at the software giant, signals a return to Microsoft's management roots, with President and CEO Steve Ballmer and Chairman and Chief Software Architect Bill Gates back in total control, observers say.

Yet partners are worried that the creation of seven separate business units--with the managers of each wholly responsible and accountable for their operational and fiscal success--could divide the company into fiefdoms.

Microsoft, for example, announced it would reorganize into seven divisions, including Windows Client, Knowledge Worker, Server and Tools, Business Solutions, CE/Mobility, MSN, and Home and Entertainment.

One solution provider said Microsoft's top executives--namely Ballmer--will have to ensure that the company doesn't become another Digital Equipment, with infighting among the units.

"Giving business-unit managers more responsibility is clearly a positive step for the future of the company. This will remove the blinders, giving not only control, but also the responsibility for the big picture," said Michael Cocanower, president of ITSynergy in Phoenix.

"The danger in this strategy lies in the potential to create islands within the company. If a business unit manager is responsible for every aspect of his business, then integration with other business units and products can fall to the back burner," he said. "One of Microsoft's greatest strengths in the marketplace is the fact that all of its product offerings are integrated so effectively. Making this integration task the focus of [Ballmer and senior management is clearly an important step in my mind."

Others see the delineation--based purely on serving distinct customer segments--as a better way to tackle product design and a better way to define its business-related Windows and .Net initiatives from its consumer efforts. Windows XP Professional, for example, features both business and advanced home-user features, while the company also ships Windows XP Home Edition.

"I'm glad to see the company diversify its structure. Let's hope we will see the [operating system become less burdened by the unnecessary areas of company products that are not needed by many users," said Charles Sterling, a computer consultant in Houston. "I hope it helps get home-user stuff out of business software packaging."

Overall, solution providers said the continued focus on the customer rather than feature glut is a welcome move. Microsoft's development group has been aligning more closely with the company's solutions group to get away from the bells-and-whistles design approach and architect products customers are demanding for specific business needs.

"As far as the top management changes go, anything that helps Microsoft get closer to the customer is a welcome change," said David Boyd, CEO of Hewitt Rand, a Seattle-area white-box maker. "This would be a radical departure, getting the generals to really listen to the civilians, instead of just to the soldiers. If these business-unit people get out to the customers, I applaud the move. The flip side is that Microsoft generally guides the market where they want it to go," he said.

"This change reflects a positive trend we've seen from Microsoft of deepening the focus of their developers and product groups on the specific challenges and requirements of their customers to augment their current product innovation," said John Dandeneau, director of strategic alliances at ePresence.

One observer said the reorganization signals that Microsoft is coming to terms with the fact that the consumer business is very different from the corporate business, and they need separate models and management teams for each.

"Selling to consumers requires a massive customer-facing organization, but Gates and Ballmer believed they could reinvent the consumer business with software--write once, sell gazillions of times--making it work like their other lines of business," said Paul DeGroot, an analyst at Directions on Microsoft, a newsletter in Kirkland, Wash. "In the long run, they might be right. But Microsoft hasn't cracked that barrier yet, and psychologically and culturally, it's a product- and software-oriented animal that works best one or two tiers up from the consumer," he said.

"Belluzzo was brought in to fix that problem, and he couldn't. The reasons have to do with the maturity of the market, the maturity of the technology and the maturity of Microsoft. They don't align very well, and the company finally realized that," DeGroot said.

Others hint that company executives might have another underlying motive: to put a more decentralized face on the company at a crucial time when its product integration strategies are under the the legal spotlight. Microsoft's opponents, for example, are urging the U.S. District Court to dump the existing settlement between the company and government and force Microsoft to dis-integrate its Internet middleware products from Windows. The nine dissenting state attorneys general are also pushing the court to limit Microsoft's ability to integrate its client and server software with planned .Net services including .NetMyServices and corporate .Net services formerly code-named Blizzard.

But while some say the new structure clearly puts a line in the sand between product lines, others say Microsoft executives simply realize they need a more streamlined organization and fiscally independent business units.

"Traditionally, Microsoft had an extremely fluid operation," said Nicholas, Economides, a professor of economics at New York University School of Business. "The present change makes the divisions among product lines more rigid."

Others scoff at the notion that the reorganization is in any way related to the antitrust case and see it as move to emphasize enterprise computing over consumer efforts.

"Microsoft does a major reorg at exactly this time of year every year. Their fiscal year starts in July, so they need this lead time to get next year's teams in place," DeGroot added.

"Microsoft has not had a great year in consumer services. MSN has grown, but at an enormous cost in incentives [and promotions. Hailstorm and .Net Services have been taken back to the drawing board. Interactive TV has been dismal, with poor market reception and technical glitches on Microsoft's end that have all its erstwhile partners pulling out," he said. "These are all Belluzzo's area, so there's a reason to believe that, for whatever reason, the company is moving away from the sector that he was brought in to run."