Reports this week that Microsoft CEO Steve Ballmer is close to finalizing a giant reorganization — reshaping the company’s divisions and internal reporting structures — might seem like odd timing. It’s practically summer, after all. But actually, it makes perfect sense. Microsoft’s new fiscal year begins in July, and the company would need to get any new structure in place before then to make a clean transition.
This reorg has been in the works for months. When it’s formally announced, it will be positioned as part of Ballmer’s attempt to make Microsoft a “devices and services” company.
But as with many things, the real behind-the-scenes intrigue will involve money and power.
First, the money. When the news is announced, watch closely to see whether the changes affect Microsoft’s financial reporting structure, and particularly the level of insight that the company gives investors.
Microsoft’s shift to selling computer hardware is causing a fundamental change in its underlying business, as evidenced by the company’s first quarter earnings report. Revenue in Windows held steady at $4.6 billion despite a 14 percent plunge in PC shipments, which gave investors reason to be optimistic. However, a big part of the boost in revenue was due to sales of Surface tablets — and hardware translates into much lower profit margins than software.
Which is one reason why the Windows division’s operating profit actually dropped 20 percent for the quarter.
In its upcoming fiscal year, Microsoft will be launching new devices including the Xbox One. The company hasn’t yet announced pricing, but hardware traditionally loses money out of the gate, and given the Xbox One’s specs, it’s likely to follow the pattern.
With the reorganization, it may be possible for Microsoft to group products and structure the new divisions in a way that makes it less obvious, from the outside, how some individual product lines and business are actually doing.
Microsoft has a new finance chief, Amy Hood, who replaced Peter Klein after he decided to leave the company.
Second, the power. Microsoft’s choices about its new divisions and leaders will say a lot about its future direction, or at least Ballmer’s priorities as he looks to shape that future.
All Things D first reported the news of the impending reorg earlier this week, quoting people close to the situation saying that the changes could translate into bigger roles for Satya Nadella, president of the Servers and Tools division; Tony Bates, president of Skype division; and Don Mattrick, president of the Interactive Entertainment division, which includes Xbox.
Where’s Windows? They weren’t among the executives named in the initial press reports, but another key in assessing the reorg will be how Windows and its leaders — Julie Larson-Green on the engineering side and Tami Reller in marketing/finance — fit into the overall company. Both Larson-Green and Reller report to Ballmer, who decided not to name a new president of the Windows division following the departure of Windows chief Steven Sinofsky last year.
Overall, we’ll be watching closely to see if the companywide reorg gives Ballmer a more direct role in shaping products.
Is Microsoft’s next CEO likely to emerge from this process? Not necessarily. When he last spoke publicly about the issue, in 2008, Ballmer said he didn’t plan to retire until 2017 or 2018, which means there’s at least four years left in his tenure, if he’s able to stay the course. That’s a lot of time in the tech industry, and if there’s some actual succession planning going on here, it’s not entirely clear.
Microsoft isn’t commenting publicly yet, but it wouldn’t be a surprise if the announcement came very soon. All Things D’s report on the impending reorg earlier this week was followed by confirmations from Bloomberg and The New York Times.
