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Will a bigger leadership pool right the ship -- and what will become of current top brass?

All Things D's Kara Swisher is reporting:

According to sources close to the situation, Microsoft CEO Steve Ballmer is likely to unveil his plans to restructure the tech giant to a larger group of senior execs by July 1.

The report is not altogether unexpected.  Microsoft Corp. (MSFT) has been struggling to appease consumers -- be it the embarrassing abandonment of digital rights management (DRM) plans for the Xbox One and the company's struggles to repair the Windows brand's image with Windows 8.1, the successor to a poorly received makeover.

I. Microsoft Shifts Gears

But the change also owes to a deeper shift at Microsoft from a company of discrete software products to a "devices and services" model.  

The latter ("services") part of chief executive Steve Ballmer's vision reflects on a broader industry-wide trend.  While onerous to offline users, increasing connectivity has allowed companies like Adobe System Inc. (ADBE) to transition their software portfolios to subscription services.  Advantages of this approach include the ability to provide licensed customers with universal access, the removal of user troubleshooting, and the ability to quickly deliver updates/improvements/patches.

Steve Ballmer
Microsoft CEO Steve Ballmer [Image Source: Bloomberg]

The former ("devices") is more unique to Microsoft.  Like Apple, Inc. (AAPL) or Google Inc. (GOOG), Microsoft has found that its software experience has granted it the vision to design products that in some ways are more appealing than those of primarily hardware firms like Dell, Inc. (DELL) or Hewlett-Packard Comp. (HPQ).

While the Surface tablet-laptop convertible has fallen short of its sales expectations, it was also perceived -- in spite of its flaws -- as a stylish and utilitarian embodiment of the potential of Windows 8.  Emboldened by that success Microsoft is reportedly considering a similar approach in the smartphone market.  

Microsoft's efforts are a hybrid of Apple and Google's.  Unlike Google, it does not contract third party OEMs for its branded products; but unlike Apple it does not lock out third-party designs.  Like Google, the Microsoft-branded devices seek to illustrate the company's vision for hardware-software integration for a specific operating system release, while like Apple they're designed to raise the bar on quality over baser OEM fodder.

With that in mind, the shift is also motivated -- to an extent -- by the desire for self-preservation.  Some shareholders have called for Mr. Ballmer to step down due to Microsoft's recent stumbles and low share prices.  But Mr. Ballmer still has some leverage -- he's served as CEO for almost a decade and a half and has the blessing of Chairman Bill Gates who founded the company.  Bill Gates chose to anoint Mr. Ballmer as the company's new leader, and that makes displacing him difficult -- to say the least.

With a shakeup, Mr. Ballmer can use that leverage to hang onto his top position, showing investors he's willing to change the formula when the fit is poor.

II. Some Top Executives May be Booted

Microsoft today is full of young faces.  The company lost Robbie Bach and J Allard -- two veterans from the fruitful 90s -- due largely to the company's unwillingness to productize the Courier, a slick tablet design that Microsoft hatched pre-iPad in 2009.  After Apple's iPad became a massive hit, J Allard and Mr. Bach reportedly left in disgust.

The man who killed Courier -- Steven Sinofsky -- was also booted from the ship last year, ultimately, vindicating Mr. Allard and Mr. Bach's vision.  The decision to expand Microsoft's executive ranks would likely have displeased Mr. Sinofsky greatly as he spent much of his career at Microsoft trying to cut down on excess management, which he viewed as unhealthy redundancy.

Other prominent Microsofters to leave include Nathan Myhrvold, who now heads "patent troll" Intellectual Ventures; former Business Division President Jeff Raikes, who left to serve as CEO at Bill Gates' charitable foundation; former Windows co-president Kevin Johnson who became CEO of Juniper Networks Inc. (JNPR); and of course long-time CEO Bill Gates.

Steven Sinofksy
Windows President Steven Sinofsky was the company's most prominent executive ousting to date. [Image Source: ExtremeTech]

A source says the upcoming changes are designed to shake up the ranks of Microsoft's young guns and restore the kind of management that propelled the company to success in the 1990s.  Comments the source to All Things D, "It feels like it is going to be titanic — that Steve is doing this change for his legacy.  And it’s the first time in a long time that it feels like that there will be some major shifts, including some departures."

Among those who the sources say may be either promoted -- or on the flip side kicked off the ship -- include Satya Nadella, president of Microsoft’s Servers and Tools division; Tony Bates, president of its Skype communications unit; and Don Mattrick, president of its Interactive Entertainment division (which includes the Xbox business); Qi Lu, president of Microsoft’s Online Services unit; and CVP Terry Myerson, who runs the company’s Windows Phone division.

Microsoft presidents
Microsoft's (left to right): Satya Nadella (Servers and Tools), Tony Bates (Skype), Don Mattrick (Interactive Entertainment) will likely see their roles shift.

The big question is whether the changes -- ranging from the creation of new positions to firings to shuffling -- will be announced before, after, or at Microsoft's annual BUILD Conference for developers, which runs this week from June 26 to 28.

Source: All Things D

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RE: is it just me?
By arazok on 6/24/2013 12:10:57 PM , Rating: 2
I think they will.

MS has a history of missing trends and losing out in the initial stages of new markets. But once they identify it, they eventually manage to come up with a competitive product and slowly eat their way into dominance.

The consumer revolution in smart phones/tablets was sudden and moved quickly, but the level of innovation is tapering off. MS should have little trouble winning back consumers, it will just take them a few years to do it. Windows 8 flopped, but give them a release or two and they’ll fix all the stuff that people don’t like about it and it will come back.

RE: is it just me?
By melgross on 6/24/2013 12:38:00 PM , Rating: 1
It's different now, though. In the past, Windows seemed to be everything. Mac OS had dropped to 2.8% marketshare in the US, and Linux was stuck at 1%. Today, OS X is at 13%, or higher, though Linux is still stuck at 1%.

But the major change is in tablets and smartphones. Like it or not, that's totally shaking up the computer industry. Microsoft has been a no show there, and its late entry is going to be very hobbling. They will never get the 90%, or higher, that they had with desktops, and that completely changes the game. It means that they will never again have the ability to dictate "standards". They now have to follow.

That means they won't have companies, governments and consumers lining up to automatically upgrade to a new Microsoft product. They will actually, for the first time, need to prove to them that that upgrade is in their best interests, which will be more difficult to prove.

Good luck!

RE: is it just me?
By arazok on 6/24/2013 1:04:33 PM , Rating: 2

13% sounds good compared to 1%, but it’s still a pathetic number.

I agree, the change is with tablets and phones. However, it’s just like I said. MS was late to the game with a good offering, but it’s here now with Windows 8. Say what you will with Win 8 on the desktop, but it’s great on a tablet and phone. I have both and l think they’re fantastic – and it’s only the first version on these devices.

MS is still playing catch up. They got the software out, but the manufacturers have been painfully slow to come up with the hardware for it - particularly touch enabled. In a year we’ll see a lot of laptops, convertibles, and tablets at good prices, as well as more variety in phone hardware. I think you’ll see sales improving drastically at that point. They took a hit, changed course, and now they’re getting back up to speed.

If Phone 8 hits 10% market share, it will have hit that critical mass needed for people to take notice. I think in 5 years time, you’ll see Android and Win8 eating the carcass of Apple’s limited phone offerings. Apples model of owning the hardware and software didn’t work for 25 years, and then suddenly it did. I think that’s a fluke, and it’s going to end quickly.

RE: is it just me?
By retrospooty on 6/24/2013 1:35:45 PM , Rating: 3
"Today, OS X is at 13%, or higher"

On what planet is that? Its beet at 7% for like 2 years now and isnt growing. The "meteoric rise" was from 4% to 7% from the early 2000's to 2011.

RE: is it just me?
By smilingcrow on 6/24/2013 4:21:30 PM , Rating: 2
People often confuse market share in a particular country with total worldwide market share.

RE: is it just me?
By retrospooty on 6/24/2013 5:49:46 PM , Rating: 2
LOL... Yes, and even further, they take only one good quarter at that.

RE: is it just me?
By zephyrprime on 6/24/2013 4:02:50 PM , Rating: 2
Microsoft of a no show? They have been making smart phones for more than 10 years. They have been making tablets for nearly 10 years as well. The problem is, they haven't been giving those nascent markets enough attention and their vision just wasn't good enough. Also, their reliance on third party oems resulted in products that weren't good enough.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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