Computer Giant No Longer Content Being a Software Vendor

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YORK, Pa (AdAge.com) -- The sweeping organizational changes announced by Microsoft Corp. earlier this week mean more than just executive changes and renaming and consolidating divisions. It points to a wholesale shift on the computer giant's business empahsis and brand image -- from software product vendor to software services provider.

Tangible products
Until now Microsoft has sold mostly tangible products -- boxes of software and hardware. Product sales will continue to be important -- major versions of Office, Windows, and Xbox are due in 2006 -- but the re-organization signals a clear shift in how the company will provide ongoing services, facilitated by those software and hardware products.

A Microsoft spokesman said it is too early to talk about the impact on branding and advertising. He pointed out that the announcement on Sept. 20 had almost "zero impact" on Microsoft's current marketing system and executive management. He did add, however, that "you might see something down the road, but it's a way off."

Three larger units
At the heart of the deal are three new larger units -- Platform Products and Services; Business; and Entertainment and Devices -- whose chiefs will report directly to CEO Steve Ballmer. The current seven Microsoft divisions (created in a realignment by Mr. Ballmer in 2002) will be divided among the three broader-themed units.

MSN, Microsoft's Internet unit, under the re-organization moves to the products and services area, which includes Windows. Co-Presidents Kevin Johnson and Jim Allchin will run that unit. Each has a background in sales and marketing, signaling a stronger approach to Microsoft's strategy as to how to combat Google, MSN’s major Internet rival. Google has rolled out a number of Internet software products in recent months, which analysts said MSN views as a threat.

Another layer
The idea is to create better working relationships between divisions; theoretically the new division presidents will not only force their subdivisions together, but also communicate with each other at the 30,000-foot level. However, Microsoft is already being questioned about the value of adding another layer to an already process-bound company and system.

"If Microsoft's premise is right, the new structure would better facilitate cross-product integration and improve product development. If Microsoft is wrong, the reorganization could slow down work in progress," Jupiter Research analyst Joe Wilcox wrote.

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Kris Oser contributed to this report.

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