All change in Redmond as Microsoft does a reboot

Microsoft has announced a sweeping reorganisation of the company into three new divisions, a shift that will lead to the retirement of long-time Windows development chief Jim Allchin.

The plan calls for a reorganisation of Microsoft into three large divisions led by individual presidents, each reporting to Steve Ballmer, Microsoft's chief executive.

• Jeff Raikes will head up the company's Business division, which will house Microsoft's Information Worker group (which includes its Office product line), and its Business Solutions packaged applications group.
• Kevin Johnson and Jim Allchin will be co-presidents of the Platform Products and Services division, which will comprise Windows Client, Server and Tools and the MSN division. Microsoft said Allchin will hold that new position until he retires, once the company ships Windows Vista at the end of next year.
• Robbie Bach will be president of the Entertainment and Devices division, which will oversee games and mobile device development.

The huge reorganisation is designed to streamline the company's decision-making process and improve product development, Ballmer said in a statement.

In the past few months, some insiders and former employees have said Microsoft has become too bureaucratic and process-driven to compete with nimbler competitors such as Google.

The restructuring will help Microsoft jump on opportunities that arise, said Israel Hernandez, an analyst at Lehman Brothers.

Hernandez said: "There's not a reason they can't dominate a lot of these emerging markets themselves."

The massive change indicates a deliberate shift within Microsoft to emphasise hosted software services. By bringing its MSN group into its main product unit, Microsoft intends to accelerate a move to hosted software-based services, Ballmer said in a statement.

He said: "Our MSN organisation has great expertise in innovating quickly and delivering software-based services at scale. The platform groups have great expertise in creating a software platform and user experience that touches millions of people."

Ray Ozzie, who joined the company as one of its three chief technical officers earlier this year, following Microsoft's acquisition of Groove Networks, will expand his responsibilities to drive the software-based services strategy.

Ballmer said: "Under Ray's technical leadership and weaving together both software and software-based services, I see incredible opportunity to better address the changing needs of our customers' digital lifestyles and the new world of work."

The reorganisation has been in planning stages since August, when Microsoft hired Kevin Turner, a former Wal-Mart Stores executive, to take over as chief operating officer, according to sources.

At the time, Microsoft said Johnson, who was serving as sales chief, would move to an unspecified new role once Turner joined Microsoft this month.

Early reaction to the restructuring was generally positive. Michael Gartenberg, an analyst at Jupiter Research, said: "The alignment makes very good sense, given what people are doing now and what their strengths are."

According to Gartenberg it is too early to say whether the move marks a dramatic shift in Microsoft's overall strategy: "We know who the players are - now we have to find out what their game plans are."

Another analyst questioned the effect the change would have on the linked development of Office and Windows. Referring to a possible split between the Windows operating system division and the Office division, due to the federal government's antitrust lawsuit, Gartner analyst Michael Silver said: "It looks like they did, to some extent, what the Department of Justice couldn't.

"I could see where this could make it harder for Windows and Office groups to work together, and they do need to."

The promotion of Ozzie, who will report directly to chairman Bill Gates, underscores just how important services have become to the company. Rob Helm, director of research at Directions on Microsoft, said: "Microsoft sees software as a service as a part-answer to the maturing software market."

Ozzie's background means he is suited to the task, said Jamie Friedman, an analyst at Fulcrum Global Partners. "Ray Ozzie is a valuable technology resource, and his role now will be more delineated," Friedman said. "It's a better use of Ray and his skill set and training."

Another significant aspect of the new order is the promotion of Eric Rudder, who is seen by some observers as a possible future Redmond leader.

Rudder will take on a new role, focusing on the company's overall technical strategy. He'll report directly to Gates. Rudder, who heads Microsoft's Server and Tools division, will move into his new post following the shipment of new versions of Microsoft's Visual Studio development tools and SQL Server database later this year.

With the realignment, the new Platform Products and Services division, which includes Windows, will cover roughly 60 per cent of Microsoft's revenue.

The Business division is expected to be the source of roughly 28 per cent of the company's revenue, while the Entertainment and Devices Division will make up roughly 10 per cent of the company's business.

Shares of Microsoft were virtually flat at $25.86 per share in later afternoon trading on Tuesday.

CNET News.com's Joris Evers and Dawn Kawamoto contributed to this report

Mike Ricciuti writes for CNET News.com