Who Runs Microsoft Now?

Allchin and Microsoft Chairman Bill Gates, who retires on June 30, 2008, are among the last of a generation of Microsoft executives. They represent an era and a software developer culture that is in transition--or is going to have to be, because of changes at the top.

Microsoft's evolving management structure puts sales and marketing people at the top of the Microsoft organizational pyramid. Several reorganizations pushed aside or put to pasture many high-level, hard-core technology managers and replaced them with sales and marketing folks. Before September 2005, product people had more direct contact with Microsoft CEO Steve Ballmer than they do today.

Microsoft is organized into three broad divisions that are subdivided into five P/L groups: Business, Client, Entertainment & Devices, Online Services and Server & Tools. The three larger groups and their presidents are Platform Products & Services, Kevin Johnson; Business, Jeff Raikes; and Entertainment & Devices, Robbie Bach. These three leaders, along with Chief Operating Officer Kevin Turner, are better known for business development and marketing than for technology.

I don't suggest that there are no technologists at Microsoft. There are plenty. Although many of the best ones work out of Microsoft Research, many very talented geeks work elsewhere. The notable high-level executive exception would be incoming software architect Ray Ozzie. What's changing--and has been for about 18 months--is the influence of technical leaders and their access to Ballmer.

"Ray Ozzie isn't Bill Gates, either in vision or influence, so there's a technical vacuum at the top," said Paul DeGroot, lead analyst with market researcher Directions on Microsoft. "By default, the power has shifted to Ballmer and Turner, both of whom are on the marketing side."

Down to Business, Not Technology
Out of the 20 active top executives, seven are true technical leaders: J Allard, vice president of Design and Development for Entertainment & Devices Division; Gates; Ozzie; Rick Rashid, senior vice president of Research; Eric Rudder, senior vice president for Technical Strategy; Steven Sinofsky, senior vice president of Windows and Windows Live Engineering; and David Vaskevitch, senior vice president and chief technical officer for Business Platform.

A second tier with past technical expertise, but more recently dedicated to business development and marketing leadership: Bob Muglia, senior vice president of Server and Tools Business; Craig Mundie, chief research and strategy officer; and Raikes.

The current and upcoming upper echelon represents the consolidation of Microsoft under Ballmer as chief executive. As CEO, he refocused Microsoft on customer satisfaction, which was the right thing to do for a graying company bulging in the middle from the growing number of Office and Windows customers. Selling to existing customers requires more tact than when people are buying for the first time.

Making customers happy is good. Making them happy to buy the next, new product is better. The Office 2007 and Windows Vista launches and supporting marketing efforts are very much about reselling to existing customers. I've closely watched the marketing efforts, which are bigger and splashier than ever. The huge supporting marketing efforts will be a real test of the newer leadership.

Click here to read a Microsoft Watch post on the Steve Ballmer era.

The challenge will be creating a voice, an identity for the new products. Apple has the best kind of identity, the persona of CEO Steve Jobs and also his magical ability to sell aspiration around technology products. I wouldn't rank Jobs as a technical leader. But he clearly understands how to communicate technology benefits to real people.

I saw some of that Jobs-like understanding in Mike Sievert's Windows Vista presentation during Monday's launch festivities. Sievert, who is corporate vice president for Windows Client Marketing, used his own family's everyday activities to demonstrate Windows Vista benefits. Jobs may be the better salesman, but Sievert is the best I've ever seen from Microsoft. Jobs makes explaining technology benefits look easy, but it surely isn't.

New product marketing reflects some of the organizational changes and increasing emphasis on the business of making money. Office and Windows are cash machines that will run out if not sustained in a mature market where most potential buyers have the products. Microsoft talks technology to partners and enterprise customers, but the real emphasis is on business return.

Hence, Microsoft's move to more product versions, what DeGroot described as "badge engineering," an auto manufacturing term for the subtle differences between models. As Microsoft creates more SKUs across products, like Office, Visual Studio and Windows, the strategy is more one of creating artificial differentiation. DeGroot said the approach shifts "the mix to higher-priced offerings," while allowing Microsoft to claim there have been no price increases.

Corporate Cultural Clash?
The question: Is a sales and marketing culture going to resonate or conflict with the company that Gates built? From private conversations with Microsoft employees closer to product development, I've heard a fair bit of grumbling about swelling middle management and a priority of hiring more MBAs or sales people than technical staff. Recent Microsoft SEC filings do show sales and marketing staff increases among many product groups.

Cultural clash is maybe inevitable, but its broad impact is still in the early stages.

"A few years ago, the company moved to business divisions that each had their own CFOs [chief financial officers]," DeGroot said. "These guys' metrics are very clearly business and sales metrics rather than technical metrics. I think they've played a very significant role in shifting some of the power in business groups to marketing and sales efforts that are designed to improve contribution margin."

As the marketing culture filters through Microsoft, some positive changes are increasingly apparent. At one time, product development and marketing groups worked more independently of one another until close to software's release. The approach often led to marketing disconnections.

One place where marketing and product development are meeting: the blogosphere. Microsoft's 3,000-plus bloggers are increasingly effective at communicating the company's message and reaching customers, which is important for reselling to existing users.

There also is the issue of meeting the needs of changing audience. In the 1980s and most of the 1990s, Microsoft's business was geeks selling to geeks. But as technology reaches more people, so must the marketing change.

Microsoft is in process of transformation led by its sales and marketing leadership. My question for Microsoft Watch readers: Do you think that is in the best interest of customers and partners? Wall Street seems to like the change, so much so that during last week's earnings call a financial analyst encouraged Microsoft to raise the price on Office.