Microsoft Goes Horizontal

By Stephanie Blanchard, Digital Editor — July 23, 2013

“This company has always had a big vision — to help people realize their full potential,” said Microsoft's CEO Steve Ballmer, in an internal memo from July 11. “In the earliest days, it was by putting a PC on every desk and in every home. We’ve come farther than we could have imagined.”

Seeking to go even further, Microsoft is consolidating its divisions into hardware, software and services and streamlining by function. As one example, the Surface tablet and Xbox game console will fall under the same division, while OS, Apps, Cloud, and Devices are four separate engineering areas. In addition, while previous divisions were responsible for its own finance and marketing among other processes, these will now be centralized.

“Some of these changes will involve putting things together and others will involve repartitioning the work, but in all instances we will be more coherent for our users and developers,” Ballmer said in the memo.

It’s All Business
In an email to Mobile Enterprise, Patrick Moorhead, Founder and Principal Analyst, Moor Insights and Strategy, explained that the reorganization will provide operating consistency across phones, tablets, PCs and even game consoles. “This will provide developers a much more efficient development environment,” he said.

Can Microsoft leverage the enterprise market as part of its realignment? “Microsoft has the enterprise franchise in PCs and servers, but have been struggling in mobility as of late,” Moorhead replied. By having improved operating consistency, this can enable more applications required for tablets and phones.” 

Other analysts are not as optimistic. “I’m skeptical that this type of functional reorganization will change Microsoft’s business results for the better,” said Carl Howe, VP of Research, Yankee Group, in a press release. “What actually happens after one of these massive reorgs is everyone spends three to six months figuring out who they report to and what that person wants, as well as recreating their and their group’s work around their new mission. The problem with these activities is that they focus everyone on internal issues instead of on delivering products and services to customers, and that rarely improves the top or bottom line.”

Microsoft does expect the restructuring process to take at least through the end of 2013, but is certain that it will lead to long-term success.

“I want to be very clear — we know we have to do better, and that’s one reason we made the strategic and organizational changes we made last week,” said Amy Hood, Chief Financial Officer, Microsoft, during the July 18 earnings call. “With over 1.5 billion Windows users around the world, a transition of this magnitude takes time. We are confident we are moving in the right direction.”
Windows Bridge
Revenue declined 5% this quarter for the Windows Division, specifically because of the fall of the x86 PC market — the consumer market that is. According to Microsoft’s earnings call, business PCs actually showed modest growth. Consumer PCs on the other hand, tanked more than 20%. So the reorganization is a necessary response to an increasingly fast moving — and mobile —world.
Still, Howe doesn’t see the reorganization as a way to conquer mobile though. “Microsoft’s business for the past 30 years has been about building out the Wintel PC ecosystem of Office applications on the Windows OS running on Intel processors,” he said. “What’s happening now is that that ecosystem is reaching its end of life and is being replaced by vertically integrated mobile ecosystems controlled by Apple and Google. Putting all software under one roof and services under another isn’t going to help Microsoft bridge the oceans between those massive islands. Until it starts selling all those functional components as one unified experience, Microsoft’s going to have a very rough time in the mobile market.”

On the Surface
“What really matters is what these engineering groups deliver to customers, not how they are organized,” said Rob Helm, Managing VP, Directions on Microsoft, in an interview with Mobile Enterprise.

Shortly before the restructuring announcement, Microsoft released its first 8-inch Windows tablet. Retailing for less than $400, the small-screen device includes Microsoft Office and offers legacy application compatibility. New devices are imperative but so are lower price points. The company has also slashed prices for the Surface RT by a whopping $150 (now retailing for $349.)
The adjustment resulted in a significant loss ($900 million charge) but Microsoft is betting on increasing device adoption by lowering the price tag. The Surface is now available in 29 markets and more than 10,000 retail locations. Additionally, through a new channel expansion program, commercial customers can purchase Surface devices from authorized resellers in the U.S. with more distributors to come onboard globally in the next few months.
Microsoft also noted that Samsung, HTC, Nokia and Huawei are all “delivering new phones at a broader range of price points.” For example, Samsung’s ATIV S Neo and HTC’s 8XT will be available this summer through Sprint. Additionally, Telefonica has announced marketing plans to promote Windows Phone 8.
And now that Microsoft’s own marketing will be centralized, instead of spread out among divisions, someone must be thinking about how to get 8.1 into enterprises, especially with more businesses rolling out tablet apps by the day. Indeed, Microsoft is hoping to get a second look for Windows on that form factor, Helm noted. “8.1 is going to be the vehicle.”

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