Microsoft Reorg to Push Devices, Services

Steve Ballmer at WPC 2010

Microsoft CEO Steve Ballmer

Queue the music and hit the lights: Redmond is on the eve of making a major announcement about its future and a massive Microsoft Corp. reorg that will unify its Windows products and focus on the development and marketing of devices and services.

CEO Steve Ballmer reportedly has been working on a major reorganization to consolidate several products and operating divisions, including the unification of Windows and Windows Phone. If insiders are correct, the Microsoft reorg will result in the realignment with four major divisions: enterprise business, hardware, applications and services.

This would be the first major reorganization at Microsoft since 2008 and would come as the company searches for ways to stimulate its OS business. Depending on which analyst you read, Windows 8 is either keeping pace with previous operating system releases or is floundering so bad that it’s fallen behind Windows Vista.

It’s interesting how Microsoft keeps telegraphing a greater desire to get into hardware. In October 2012, Microsoft released its first tablet, Surface; it’s selling decent numbers but lagging far behind Apple Inc.’s iPad and tablets running Google Inc.’s Android. Microsoft is reportedly loaning Dell Inc. $2 billion to help finance its leveraged buyout. Redmond recently unveiled XBox One, a game console that looks more like a home server and Internet appliance and reportedly held unsuccessful talks to buy Nokia’s handset division.

The other area Microsoft is pushing: services. Over the last few weeks, the company disclosed Windows Azure, its cloud computing service, generates more than $1 billion in revenue. It’s also pushing Office 365, the cloud-based version of its popular productivity suite, to convert traditional license holders into services contracts.

Microsoft Reorg: An Internal Affair

Reports say Ballmer has been working on the reorg with a select group of advisors and senior executives, which makes some division heads nervous about losing their jobs. Ballmer demonstrated earlier this year his willingness to make big decisions by letting go of Windows chief Steven Sinofsky. The smoke signals point to radical changes.

Just how these changes will affect the channel and Microsoft’s partner relationships is unclear. While Microsoft maintains it’s a channel-centric company, its foray into tablets has been anything but channel-friendly. Surface competes directly with OEM partner devices, and Microsoft has yet to make the device available to solution providers for resale.

Change could already be affecting the channel. Hewlett-Packard Co. recently announced a partnership with Google to resell Google Apps, the cloud platform that competes with Microsoft. Google is also working with Acer Inc. and Lenovo on products based on the Chrome OS. While these products are in limited channel distribution, they show how the once rock-solid Microsoft foundation is fractured.

If the Microsoft reorg is announced July 1, it will give solution providers a week before the start of the annual Worldwide Partner Conference in Houston to digest and assess the changes. Microsoft will likely put its best face on the changes in general sessions and keynotes. Behind the scenes though, Microsoft’s operations will be the topic of much discussion between management and strategic partners.