Microsoft Plans to Reorganize With Web Focus

Microsoft Corp. is reorganizing its corporate structure and giving one of its newest executives broader powers in an effort to better compete against its rivals, including Google Inc. and Yahoo Inc.

The changes announced Tuesday also were designed to respond to criticism that the company had become weighed down by bureaucracy, leading to communication problems and product delays.

Microsoft said it planned to move toward more Internet-based service offerings. Products from competitors, including Web-based consumer e-mail and online updates for business software, are seen by some as a serious, long-term threat to Microsoft and its dominant Windows operating system.

“It’s sort of a response to the whole way computing is evolving,” said Matt Rosoff of Directions on Microsoft, an independent organization that analyzes changes at the software giant.

Under the changes, Ray Ozzie, a highly respected software veteran who came to Microsoft in March when it acquired his company, Groove Networks Inc., will be charged with helping the company coordinate and improve Internet-based service offerings. These include Windows Update, the company’s online tool for issuing security fixes; its MSN consumer online unit, including Web-based e-mail, instant messenger and search technology; and its Xbox Live online video game service.

Ozzie will retain his title of chief technical officer. He is one of three at the company.

Rosoff said the changes came because Microsoft needed to get better at offering online updates and other programs over the Internet to compete against rivals such as Salesforce.com Inc. and IBM Corp.

A long-term concern is that companies such as Google could offer enough Web-based services -- including storing e-mail and searching computer desktops -- that consumers would no longer see a need to buy the Windows operating system, Rosoff said.

Chief Executive Steve Ballmer said Microsoft also hoped to make other improvements, such as making money from Internet advertising and selling products via subscription rather than as stand-alone items.

The company’s reorganization will merge seven business units into three divisions, a step aimed at helping the company become more nimble and giving executives broader power to make decisions without bringing in top leaders.

“There’s a whole set of decisions that might have had to percolate to Bill Gates and I because they crossed the seven ... business groups that are now contained in these three divisions, and I think that ought to lead to crisper, faster actions on certain kinds of decisions we need to make,” Ballmer said.

One of the three new divisions, Microsoft Platform Products and Services, will include the company’s Windows, server and tools as well as MSN online divisions. It will be led by Kevin Johnson, formerly in charge of worldwide sales and marketing, and Jim Allchin.

Allchin, a longtime executive charged with overseeing the company’s flagship Windows operating system, will retire at the end of 2006, after the new version of Windows is released.

The other two units are Microsoft Business Division, which will include its Office products and products for small and mid-size businesses, and Microsoft Entertainment and Devices Division, which will include its Xbox game console, other games and products for mobile phones and hand-held devices.

Microsoft shares Tuesday fell 16 cents to $25.84.