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February 21, 1996

Microsoft Regroups to Answer
Explosive Growth of the Internet

SAN FRANCISCO, Feb. 20 -- Acknowledging that the Internet and other technology trends are shifting the focus of the software market that the Microsoft Corporation has long dominated, the company on Tuesday announced a series of organizational changes intended to redirect its product development efforts.

The moves come in addition to the company's creation of a new Interactive Media Division, which was announced in an internal memo last week and disclosed in a news report on Tuesday.

Today, the company said it would combine its four main software-development divisions -- Business Systems, Consumer Systems, Personal Systems and Developer Systems -- which had been organized around Microsoft's longstanding customer groupings, into three new divisions that will each deal with a specific industry segment.

The new organizations are the Desktop and Business Systems Division, the Internet Platform and Tools Divisions and the Consumer Platforms Division.

The company said that the changes would require no job cuts or financial write-downs, and so would have no immediate impact on the company's finanical results. Still, analysts said the reorganization indicates that Microsoft understands that its current business are being fundamentally challenged by the rise of the Internet and that the company is intent upon remaking itself into a new kind of company.

The shift is in sharp contrast to the behavior of the International Business Machines Corporation during the rise of the personal computer industry, analysts said, when for almost a decade I.B.M., as the world's dominant computer maker, largely attempted to ignore the impact of desktop computing on its business.

"It's pretty clear that Bill Gates is convinced that the Internet is the most important thing since the PC," said Richard Shaffer, editor of the Technologic Computerletter, an industry publication. "Unlike some other companies that have dominated their markets Microsoft is not waiting for some other company to come a long and do it to them."

Microsoft executives expressed a similar view. "Microsoft was the beneficiary of the shift to the personal computer," said Paul Maritz, group vice president in charge of the newly consolidated divisions, "and now we have the communications revolution, and we can either benefit tremendously or ignore it at our peril."

The speed at which Internet technology is changing has required that the company move much more quickly in developing and distributing software for the emerging Internet markets, Mr. Maritz said. or example, within the space of 12 months Microsoft intends to ship three successive versions of its Explorer software for browsing the Internet's World Wide Web. That is far more quickly than the company has typically updated its applications and operating systems for desktop computers, but it is an urgency driven by Microsoft's effort to catch up with the Netscape Communications Corporation -- the runaway leader in Web-browser software.

The new Internet Platform and Tools Division will be led by Brad Silverberg, a Microsoft senior vice president, and will focus on client software programs like Internet browsers, software development tools and products for network computers known as servers.

Jim Allchin, also a senior vice president, will head the new Desktop and Business Systems Division. He will have responsibility for the company's Windows 95 and Windows NT operating system software products, which continue to be the company's main revenue producers.

The Consumer Platforms Division will be headed by Craig Mundie, senior vice president, and will focus on non-PC consumer devices and integrated software systems for public network companies that are working on interactive television projects.

The company said that Roger Heinen, the senior vice president who had led the company's Developer Division would retire for personal reasons. Before coming to Microsoft in February of 1993, Mr. Heinen was in charge of Apple Computer's software division.

Last Thursday, in a separate move, Microsoft announced in an internal memo that it would reorganize its applications-software business and create a new Interactive Media Division that will consist of the Microsoft Network, games and children's software.

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