February 20, 1996
Microsoft to Announce Reorganization
To Prepare for Next Interactive Wave
By JOHN MARKOFF
AN FRANCISCO -- The Microsoft Corp. plans to announce a company-wide reorganization on Tuesday to strengthen its focus in both the interactive computing market and its traditional operating systems business.
The moves are aimed, in part, at placing Microsoft in a position to dominate the next wave of the computer business that will be based on interactive technologies, now primarily on the Internet, just as it dominates personal computer software. Interactive technology is an expanding market in which Microsoft is perceived in the industry to be trailing the Netscape CommunicationsCorp.
The reorganization will not involve layoffs, according to several people familiar with it.
The changes, which were first spelled out internally at Microsoft on Thursday, will create a new Interactive Media Division that will concentrate both on the growing Internet market and the next generation of the digital video disk market that is now on the horizon.
The new division will combine the MSN on-line network, games, children's products and its information businesses.
Less is known about changes that will be made in the company's operating systems and software applications businesses. It was also unknown what charges, if any, Microsoft might take against its earnings to account for the restructuring.
The new division is the first evidence of the company's commitment to build businesses that are directed toward the commercialization of the Internet. On Dec. 7, William H. Gates III, Microsoft's chairman, said every effort at the company would now be directed at the Internet.
Microsoft has been grappling recently to change its corporate business strategy to meet the challenge of the Internet, which is a rapidly growing market that it does not dominate.
A number of the company's competitors have said that the rise of the Internet is the principal threat to Microsoft because the network has the effect of leveling the playing field by permitting software developers to develop applications that are not dependent on Microsoft's Windows 95 operating system.
Microsoft has also had some disappointments in its consumer business. A person familiar with the financial side of the company said that while products like the Encarta encyclopedia and Bookshelf have done well, its highly promoted "Bob" control system for new users has done poorly so far.
An internal memorandum that was circulated by Microsoft two group vice presidents, Pete Higgins and Nathan Myhrvold, said: "We will create the Interactive Media Division -- consisting of MSN, Games, Kids and Information business. The new division will focus on creating and marketing great worldwide interactive entertainment and information products."
Patty Stonesifer, senior vice president in charge of Microsoft's consumer business, will continue to manage the new division.
The MSN network, which the memo said now has more than 850,000 subscribers and has grown at a 40 percent rate during the first half of the company's current fiscal year, will be part of the new division as well as the Strategic Partnerships group run by Peter Neupert, a Microsoft vice president for strategic partnerships who managed Microsoft's agreement with the NBC network to develop and market multimedia products.
At the same time, a number of product areas will be moved out of Ms. Stonesifer's new division, including its consumer productivity division, which includes products like Microsoft Works and Publisher. Those products are being merged into the company's existing Desktop Applications Division, which traditionally has been responsible for the company's business application software.
The MSN Systems Group, run by Anthony Bay, is being moved to the company's operating systems division, known as the Platforms Group inside the company. This will separate the company's network software technology from the content side of the business where the company has begun acquiring "stars" like Michael Kinsley, the political analyst.
A Microsoft executive said the new division would focus on markets that were broader than the Internet. These include the next generation of CD-ROM technology, including digital video disks.
The first digital video disk products, based on a standard that has been defined by the world's largest consumer electronics and computer makers, will begin to reach the market later this year. The Microsoft executive said sales of these products would begin to surge around Christmas of 1998. The products will offer consumers more multimedia features, including interactive full-motion video, that will probably not be matched by the Internet at that time.
Copyright 1996 The New York Times Company