Sea change in Microsoft's focus may force restructure of leadership

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Microsoft reportedly is headed for a major organizational restructuring as the company continues its march toward becoming a devices-and-services company.

If the latest rumors are any indication, Microsoft will focus on at least three major categories in the coming years: cloud-connected services, online communications, and all things Xbox.

AllThingsD reported on Monday that Microsoft CEO Steve Ballmer is hard at work on a significant reorganization for the company that will boost at least three execs into “more prominent roles.” The reorganization report comes on the heels of the news that Microsoft CIO Tony Scott has left the company.

Ballmer last October famously said in his annual letter to shareholders that Microsoft was transitioning from a traditional software company into a devices-and-services business. “This is a significant shift, both in what we do and how we see ourselves—as a devices-and-services company,” Ballmer wrote. “It impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses.”

Three pillars

The three Microsoft executives supposedly headed for bigger roles in the company include Satya Nadella, president of Microsoft’s Servers and Tools division; Tony Bates, president of Skype; and Don Mattrick, who heads the company’s Interactive Entertainment division.

Satya Nadella, MicrosoftMicrosoft
Satya Nadella

The Servers and Tools division includes a lot of enterprise products such as Windows Azure, the backbone for Microsoft’s online services.

If Microsoft is headed toward becoming a devices-and-services company, then it makes sense to give a more prominent position to the person responsible for making sure most of the company's online services run smoothly.

Microsoft purchased Skype in 2011 for $8.5 billion and has since been hard at work integrating Skype into Office, Windows 8, Windows Phone,, and the upcoming Xbox One. It’s pretty clear that Skype is a big part of Microsoft’s devices-and-services future. But whether Bates would continue to head Skype or would move on to another role is unclear.

Finally, we come to Interactive Entertainment, the division responsible for the Xbox. Microsoft, over time, has turned the Xbox 360 into a living-room device that does more than just play games. It also lets the user stream movies, browse the web and do social networking.

The upcoming Xbox One will employ a similar strategy, adding all the features of the Xbox 360 as well as new features, such as integrating with your cable box to provide an overlay for your digital TV guide.

Microsoft appears to have a good shot at turning the Xbox into the all-encompassing living-room device that company rivals like Apple and Google also are trying to create.

Don Mattrick, MicrosoftMicrosoft

The mythical perfect living-room box hopefully would offer gaming, DVR recording, a digital TV guide, online streaming from services like Amazon and Netflix, as well as integration with your PCs, smartphones, and tablets, and a wealth of TV-centric apps. The Xbox One has almost all of these features, minus the DVR, which may be added at a later date.

While Microsoft appears to be planning for a future where Xbox plays a major role, some analysts are calling for the company to sell off its gaming platform/set-top box. Recently, Nomura Equity Research analyst Rick Sherlund called for Microsoft to sell Xbox and Bing .

Where are the devices?

But in Microsoft’s purported Azure-Skype-Xbox future, where do devices like the Surface come in?

Even though Windows is struggling to gain popularity among users, Microsoft’s Surface is far and above the most popular Windows tablet there is. Microsoft’s Windows 8 and Windows RT tablets made up half of all Windows slate sales during the first three months of the year, according to IDC (full disclosure: PCWorld and IDC are both owned by International Data Group).

Those sales also catapulted Microsoft into fifth place among the top tablet vendors worldwide.

Tony Bates

With that kind of moderate success to build on and a proclaimed “devices-and-services” future, it makes sense to have somebody heading the devices sector of your company.

Perhaps under Ballmer’s final plan, Mattrick and Nadella will head up the devices-and-services divisions, with Bates playing a significant role within the services sector.

Or maybe the three execs will be on equal footing, with a fourth person heading up devices like the Surface.

What about Windows?

The big question, however, is where Windows fits in under all of this. That appears to still be under debate, according to AllThingsD.

Windows is still a key component of Microsoft’s business, and the desktop OS can’t really make the jump to becoming an online service the way Microsoft has done with Office 2013.

Then again, there were rumors about a cloud-based version of Windows for businesses that could make its way to consumers in the coming years. So maybe thinking of Windows as a service isn’t such a far off idea after all.

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