Microsoft Responds to Market, Revamps Structure

Microsoft on Tuesday announced the new structure of the organization, in a bid to address it's midlife crisis which its investors say has lead to a big, less profitable company not able to respond swiftly to the changing market. The plan calls for a reorganization of Microsoft into three large divisions led by individual presidents, each reporting to Steve Ballmer, Microsoft's chief executive.

Among the newly formed groups, the Platform Products & Services Division will include Windows Client and the MSN portal and will seek to deliver more services over the Internet. The Business Division will focus on software and software-based services, while the Entertainment & Devices Division will emphasize the Redmond-based company's push into entertainment products and services.

“These changes are designed to align our business groups in a way that will enhance decision-making and speed of execution, as well as help us continue to deliver the types of products and services our customers want most," said Microsoft CEO Steve Ballmer in a statement.

Kevin Johnson and Jim Allchin will be copresidents of the Platform Products and Services division, which will comprise Windows Server and Tools, Client, and MSN divisions. Microsoft said Allchin will hold that new position until he retires, after the company ships Windows Vista at the end of next year.

Jeff Raikes will run the new Business division, which includes Office, and Microsoft's nascent business software group, which develops applications for small and medium-sized business. The new Entertainment and Devices division will be run by Robbie Bach and will include the company's Xbox videogame, mobile phones and other consumer initiatives.

Stuart Williams, analyst at Technology Business Research (TBR), projects third-quarter revenue for the three divisions to break out as follows: Platform Products and Services, $6.5 billion; Business, $3.1 billion; and Entertainment and Devices, $774 million.

The reorganization followed on the heels of reports of severe criticism by some Microsoft employees of its internal operations. The discontent has led to defections, with 100 former employees now working for rival Google Inc., and dozens of others finding jobs elsewhere, according to a recent cover story in BusinessWeek magazine.

"It's pretty clear Microsoft is seeing some heat from this emerging market of software on demand," said Israel Hernandez, an analyst with Lehman Brothers. "Microsoft has not put people and processes in place to pursue that."

At Microsoft's financial analysts meeting in July, and at a partner conference last month, Ballmer outlined the company's growing investment in managed services, such as running a company's desktop PCs.

And last week at Microsoft's Professional Developers Conference, Chairman Bill Gates provided more insight into the company's thinking with services.

Long term, Gates said, the company intends to add more features to its MSN Web properties, such as Hotmail, and introduce hosted options for its server-based products, such as its Exchange e-mail program. By blurring the line between servers and services, Microsoft will offer businesses and consumers better hosted options, he said.