Another Blow To Microsoft's Online Ambitions: Umpteenth Reorg and Kevin Johnson To Juniper

From Silicon Alley Insider, July 23, 2008:

The head of Microsoft's Platforms and Services Business (which includes the online business), Kevin Johnson, is headed to Juniper Networks.

Microsoft is also splitting its online business in half: 

• Windows Live (Internet Explorer, Hotmail, Microsoft Messenger, Spaces) will now live within the Windows division.
• The ad and media assets (aQuantive, ad-serving, search, MSN) will stay in a separate online services division. 

A source close to Microsoft says the changes were driven by two factors:

• Steve Ballmer's desire to split the divisions
• Kevin Johnson's desire to be a CEO.

The bottom line is that Microsoft is once again radically reshaping its online strategy. It is also splitting up online assets that online competitors--namely Google and Yahoo--operate from within the same platform. This will likely make it even more difficult for Microsoft to compete with Google and Yahoo. It also makes it less likely that Microsoft will buy Yahoo outright. (Although buying the company and cutting it in half is presumably still possible).

We suspect the move was driven by a desire to protect the company's crown jewel: Windows. This is supported by Steve Ballmer's memo to Microsoft, which we've excerpted below. It is also an understandable decision: If it works (protecting Windows), it's the right move for Microsoft. Now, however, the online services business is even more of a bastard stepchild within the company: A distracting money pit that has little or no synergy with the rest of Microsoft's business.

Johnson's departure--and the search for a new online business head--also means that Microsoft will now lose more time as it launches a search for a new head of the online business. The new boss will also likely want to weigh in on the division's strategy, and it's likely that his or her vision could conflict with Steve Ballmer's. This could subsequently lead to bureaucratic or political paralysis and/or yet another reorganization.

Microsoft's 13 years of futility in the Internet business are likely to continue. One hopes it can at least fortify its Windows business.

Kara Swisher has the full Steve Ballmer memo. Here's the part about Windows: 

· Windows: The success of Windows is our number one job. With SP1 and the work we’ve done with PC manufacturers and our software ecosystem, we’ve addressed device and application compatibility issues in Windows Vista. Now it’s time to tell our story. In the weeks ahead, we’ll launch a campaign to address any lingering doubts our customers may have about Windows Vista. And later this year, you’ll see a more comprehensive effort to redefine the meaning and value of Windows for our customers.

We also have to drive developers to create rich applications for Windows. With Internet Explorer and Silverlight, we have great tools for creating applications that run everywhere. But we also need to make sure developers have the .NET skills to write unique Windows applications using Windows Presentation Foundation. To keep today’s Windows applications alive, vibrant, and exciting, we need both—applications that run everywhere and rich client applications.

And here's the bit about Microsoft's increasingly isolated online services business:

Software plus services: Some people think software plus services is all about search. But it’s really about changing the way software is written and deployed. The future is about having a platform in the cloud and delivering applications across PCs, phones, TVs, and other devices, at work and in the home. It’s also about driving change in business models through advertising, subscriptions, and online transactions. Software plus services is a huge opportunity for us to deliver new value on the desktop and the server to all of our customers. This year at PDC, you’ll hear more about our cloud platform initiatives and the next versions of our Live and Online technologies. 

· Google: We continue to compete with Google on two fronts—in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas—we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company—and it’s one we’ll continue to fight with persistence and tenacity.

· Yahoo: Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’’ve been making all along—Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.

 

Release:

    REDMOND, Wash. — July 23, 2008 — Microsoft Corp. today announced that the Platforms & Services Division (PSD) will be split into two groups: Windows/Windows Live and Online Services, with both groups reporting directly to CEO Steve Ballmer. Microsoft also announced that PSD President Kevin Johnson will be leaving the company. Johnson will work to ensure a smooth transition.

    “Kevin has built a supremely talented organization and laid the foundation for the future success of Windows and our Online Services Business. This new structure will give us more agility and focus in two very competitive arenas,” Ballmer said. “It has been a pleasure to work with Kevin, and we wish him well in the future.”

    Effective immediately, senior vice presidents Steven Sinofsky, Jon DeVaan and Bill Veghte will report directly to Ballmer to lead Windows/Windows Live. The Windows organization recently announced strong annual sales, with more than 180 million copies of Windows Vista sold globally, and it has driven more than 100 million installs of its Windows Live suite. The organization’s innovation pipeline includes a new version of Windows Internet Explorer, the next version of Windows and the next generation of the Windows Live product suite.

    In the Online Services Business, Microsoft will create a new senior lead position and will conduct a search that will span internal and external candidates. In the meantime, Senior Vice President Satya Nadella will continue to lead Microsoft’s search, MSN and ad platform engineering efforts. Microsoft recently announced a strategy to redefine search through innovations in the user experience and business models. As an example, the company’s cashback search program, announced in May, is already generating strong momentum among online shoppers and advertisers.

    In addition, Senior Vice President Brian McAndrews will continue to lead the Advertiser & Publisher Solutions Group (APS). APS has great momentum, having signed more than 100 new publisher deals in the past year. McAndrews will continue to focus on the display advertising opportunity for Microsoft, driving execution and integration of advertising assets, including recent acquisitions such as Massive Inc., Navic Networks, ScreenTonic SA and YaData Ltd.

    “Our Windows business is firing on all cylinders,” Ballmer said. “We see tremendous opportunity in search and advertising, and we have a clear strategy for investing in success today and growth in the future.”

    “Microsoft is a special place and presents opportunity to so many,” Johnson said. “I have been so fortunate to have experienced 16 amazing years of building Microsoft’s business, learning from great leaders in the company and working with phenomenally talented people.”

    Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.