Will Microsoft Reorganization Scare Yahoo?

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By Saul Hansell

If there was apprehension at Yahoo already about the prospect of a takeover by Microsoft, the fear will no doubt increase as those in Sunnyvale study the details of Microsoft’s reorganization announced Thursday.

There is a consensus at Yahoo that many of Microsoft’s ills can be traced to near paralysis that stemmed from its complex matrixed organization, excessive bureaucracy, and war between competing internal units.

Microsoft has long thrived with a bifurcated organizationâ€half the company devoted to engineering, the other half to sales and marketing. This worked well enough in a software world where the engineers would hand a gold master CD of a program every year or two to the sales side which would take it to market.

The Internet, where product cycles are months, sometimes weeks, generally requires much more tight coordination between functions.

Microsoft is positioning many of its online sites as Internet extensions of its software products. That led to the renaming, for example, of its Hotmail service, once the market leader, as “Windows Live Hotmail,” a brand that resonates with few outside of Redmond.

Microsoft looked like it was trying to overcome some of these problems and create more accountability two years ago when it hired Steve Berkowitz, the former head of Ask Jeeves, to be the senior vice president of what it called the online services group. But Mr. Berkowitz never had control of the engineering teams for the products he was charged with running, which created friction within Microsoft, according to Internet company executives.

Mr. Berkowitz will leave Microsoft this summer after a short transition.

The online business will now be split between four executives, who all work for Kevin Johnson, a former I.B.M sales executive. Three of those four make up a group charged with the overall strategy and marketing for Microsoft’s Internet services.

Marketing and product management for Microsoft’s online operations will be handled by Bill Veghte, who also performs that role for Windows Vista and its successors. (His unit is called the online services & windows business group.)

Satya Nadella, a longtime engineer, now will run what is called the search, portals and advertising group. Mostly, this will look after the engineering for Microsoft’s Web search, advertising systems and related systems. Awkwardly, he will also have responsibility for the programming of the MSN portal, which is run by Joanne Bradford.

Mr. Nadella doesn’t even control all the technology related to the Internet operations. Steven Sinofsky, runs engineering for both user interface of Windows and the Windows Live services like e-mail and instant messaging. Mr. Sinofsky, however, is not part of the three-person group overseeing online strategy.

The third member of the Microsoft online triumvirate is Brian McAndrews, the former chief executive of aQuantive, the advertising company Microsoft bought last year. His area is dubbed the advertiser and publisher solutions group, includes both engineering and marketing for the company’s advertising systems.

A Microsoft spokesman said its too early to say whether this structure is what the company will use if it succeeds in buying Yahoo.

For Microsoft to get its $45 billion worth out of Yahoo and create a real challenge to Google, it will need to have a much more nimble structure, with clear lines of responsibility, and an unambiguous mandate to win online without any regard for the effect on the Windows franchise.

It should be a “bottom-up” approach, not “top-down.”

Why doesn’t Microsoft understand this?

†Posted by Dropout

Hey Dropout, why do you think your smarter than the largest software company n the world?

They are too big to be quick, and as soon as they find their strengths and mitigate their weaknesses, they will continue to be the leader in the software market. When you have 50 billion in cash under you, you have to trying really hard to fail to even have a remote chance of it. Think abut it….what are their liabilities? If they weren’t sued to chapter 11 with all the security flaws then what could possibly hurth them? (besides buying yahoo, a declining monster)

†Posted by marc

It would be interesting to learn more about this “bifurcation” mentioned, and how this might contrast with cultures in other companies. Here’s my take: Google founded by entreprenneurial engineers, relies on engineering to set product direction, with marketing playing a sideline role. Microsoft engineers more inward looking, perhaps cloistered, with little inspiration to do more than jazz up their resumes. Rely on marketing for product direction.

†Posted by on.the.other.hand

I don’t think that there’s any single, simple answer like “top-down” or “bottom-up” that is going to resolve the “problems” within Microsoft. In fact, the Yahoo! adquisition isn’t going to help them either… nor is it going to help Yahoo! much.

My feeling is that, unlike Google, Microsoft has few interesting ideas about the future of the Internet. Apparently they have too much invested in Operating System as a concept to be able to contemplate a world without OSs (variations of a thin-client). Even assuming that PCs continue to be important, Microsoft can’t really rework the OS (as Apple did with OSX) due to backwards-compatability.

And what does Yahoo! have? It’s a place people look at currently and a known name, but what is the quality product they are providing? In search they are copying Google. In mail and storage they are copying Google. There are a few interesting bits of Yahoo! like Answers, but nothing that makes you say, “the future of the Internet is here.”

Microsoft and Yahoo!, either together or separately, are desperately in need of inspiration. And business inspiration, like its artistic brother, doesn’t arrive when you need it, and most of the time it doesn’t arrive at all.

They can organize and reorganize and merge and adquire from January to January, but all of this is relatively uninteresting if they don’t get some vision, and fast.

Daniel www.DVDs4theSAT.com The best SAT Prep is now on video

†Posted by Daniel Rosenstark

This article pretty much captures the most significant boat anchor MSFT has faced and will continue to face in terms of making the next quantum leap forward. Having worked there , the org structure is halcious and for all the good Ballmer has brought - he is THE reason they will never get a cooperative environment in Redmond. They will be well advised that if they get Yahoo - keep that brand name, bury anything MSN and combine the best/brightest mgmt to run the thing. Oly faux pas I detected in the article - Satya Nadella has not been an Engineer since the dawn of time and the is the WRONG guy to run search/ads - but he is a Ballmer favorite. Sad commentary.

†Posted by Bob Rocklin

The ONLY thing ms understands is money. That is their number one priority. People only matter if they bring in money. I feel very sorry for the people who are stuck working for ms. I hope they get free sometime. Go work for Yahoo.

†Posted by dave

Wow - just deciphering the organization boxes makes the head hurt. That does not bode well for aligning and execution. Ideally they should split up the company.

†Posted by Marl Balou

Because developers are not to be trusted.

†Posted by Stephen

Ever notice that a company will reach a certain size then stagnate from paralysis? Should we even be suprised? If the people who come up with these organizational structures were designing humans, we’d have legs protruding from our livers! What a mess! Microsoft, and many large companies, would do better if they focused less on satiating the egos of executives (”I really need to have ‘Senior V.P.’ and ‘Worlwide’ somewhere in My Title”, “I really need a budget of $10,000,000 and no loss of head-count.”, “I want to manage all of Europe plus North Africa. Did I mention I am fluent in Swahili?”) and more on doing what makes sense for the company. That means getting rid of lop-sided-ness. Get rid of redundancy. Get rid of people who hold meetings all day but actually produce nothing. Get rid of people who purposely impede the work of others for their own self-advancement (this is a *huge* issue). Actually “organize” your organization in such a way so as to prevent the executives from kicking each other as they compete. [Metaphorically speaking, if you put 10 horses in a race, and 2 are actually the fastest of the lot, the other 8 will kick those 2 faster horses to “remain competitive” if you let them.] Make the hierarchy flat so it is clear who is doing what. Seek precise delineations of boundaries of responsibility, and force merit-based competition. Create an environment that is intolerably toxic to charlatans and spin-masters. And when ego and irrationality get in the way, do not hesitate to use the F word.

†Posted by J. C. Jones

I could save Microsoft billions of dollars right now. Microsoft, don’t buy Yahoo. There is such a thing as a company culture, and sometimes what looks like a solution is really a suspension, e.g. Daimler(Gentlemen) and Chrysler(Thugs), and IBM(Intelligent Gentlemen) and Lotus Software(Geniuses) have found out that there are some mixes that don’t work. If you give me just 1 billions dollars, you will have saved yourself 47 billion, and that’s not counting the Maalox. If you buy Yahoo, you will crush a fine company.

†Posted by Robert Barry

“An unambiguous mandate to win online without any regard for the effect on the Windows franchise.”

This will never happen. As long as Windows and Windows Live are parts of the same company, regardless of how the organization is structured, the fact that they report to the same CEO prevents the statement above from happening. Additionally, the current strategy of software + services means Microsoft is betting on exactly the opposite of the statement above.

†Posted by Anonymous

Nothing could possibly happen to knock Microsoft off its pedestal. It knows it can use its monopoly powers to sell third-rate software because there are essentially no alternatives available, and the world of computing is simply too big to change out from under them to any significant degree. When you’re that big, you don’t have to be nimble and being top-heavy is no danger.

Oh, did I say Microsoft? I meant IBM in the 1980s.

†Posted by David

There is nothing too trivial at MS or Google for the NYT to devote massive coverage to it. This is an example. It’s the equivalent of Us or People covering Britney and Lindsay. It would be great if you could focus a little coverage on a few other companies and business developments.

†Posted by Zack

Just like Microsoft to blame marketing for Vista’s failures. Bet MS, Management surrounds itself ONLY with those who kiss-up. When I read reviews of Vista, it was the best operating system in the UNIVERSE, perfect, the cats meow, nothing better, worth Twice the price and so on. Yes men, don’t report problems. When it comes to software MS wants to be everything to everybody, their is the problem. As for Yahoo, it’s value is shown everyday in the stock price, $31.00 a share is high. The company directors at Yahoo use yahoo as a piggy bank, don’t take my word, look up the insider trading on yahoo it’s self. As an example at one time Yahoo competed with Ebay as a premier auction site, and they found a way to screw that up.

†Posted by Rey Gonzalez

I worked years ago for an “engineering-driven” small and successful company, but then it was “acquired” by a bigger company and the whole thing changed in just a few months. The new division was redefined in mission and objectives. The acquiring company, a “marketing-and-accounting” driven one, focused too much on money and wishful plans to the point that they lost completely the customer’s perspective. In a few months, a good number of customers had canceled their service contracts and lay-offs started, which continued month after month until about three years later, the whole division closed down after a monumental failure. The acquiring company had, and still has, deep pockets, but it was incapable of saving that division.

†Posted by Mark Real

I agree with Daniel Rosenstark (4). Vision is something that, by virtue of its definition, cannot simply be ‘purchased’.

†Posted by mistervernon

I don’t think there is a top down or bottom up approach that can be had with this. Plain and simple you need vision of what direction you want to do and then the capability to do it both items that Microsoft has a ton of the only problem to me seems like their inability to realize that point and utilize their prowess in an effective and efficient manner. Google is engineered in such a way I would think as most of what they have done speaks volumes to that fact. In any case they have the money sitting by gaining interest but the money they are sitting on is old. If they don’t come out firing on all cylinders they will be overtaken by the next guy who has the funding and the right team in place to capture the market.

†Posted by Sideways

Ah, glad to see the kids in Redmond are rearranging the deck chairs on the Titanic (software company). I do believe that glint of white in the distance might just be an iceberg…

I’ve worked in too many software/tech companies where the salespeople overpromised clients/customers and then left it up to the people who actually deliver the products/services to pick-up the slack. Even with the most heculean efforts in such circumstances, underdelivery still happens, resulting in dissatisfied customers and bad word of mouth–not to mention low morale. Of course, senior management and sales want to get those sales booked because it drives their personal compensation (especially if its a public company). Suffice it to say, it’s a screwed-up, selfish approach, and I’ve seen it time and again. Product development should be market-driven and should involve all elements of a company: engineers, marketing/sales, project managers, product managers, customer service, etc. The problem with the technology market is that the product development cycles are out of synch (longer) with the dynamics of the market (rapidly moving target). Without greater standardization (and MSFT loves Balkanization because then customers are hostage to its products, “standards,” etc.), then this disconnect will persist.

With just a couple minutes thought, it’s not too hard to conclude that MSFT should break-up (or be broken-up with the hammer of Justice (Dept)) into smaller, more-focused companies. MSFT can’t/doesn’t innovate and has simply been the world’s best (and luckiest) licensor of OS software. Having a monopoly in one product sector/market doesn’t translate into strength/leadership in other markets as MSFT has repeatedly demonstrated. Adding YHOO will not solve MSFT’s underperformance in web-related endeavors. It will simply muddy the waters and result in a culture clash of immense proportions (Steve Ballmer is not a warm and fuzzy guy). It’ll be fun to watch. I’m personally rooting for the iceberg.

†Posted by George W. Hayduke

How do I sign up Adcenter without punching Credit Card number & collecting first $5 ?

People worry about hackers easy break in, privacy, Ad spy sites, and security problems. This is why is MS Adcenter never successful in Ad sign up. People choose Google Adsense over Microsoft Adcenter. I think microsoft should kill that CC# sign up in Adcenter. They should built their own Ad security & PPC patent rather than using Yahoo overture and pay $ 5 for Yahoo.

I’m waiting for Microsoft Adcenter to drop first CC# sign up & $5 dollar charges. I want better ads for my startup!!!

†Posted by Jim

I don’t understand how this will help with the acquisition of Yahoo. On a technology basis, the two are not compatible. Yahoo is a open source / Linux enterprise. Microsoft is not. If they try to put Windows servers underneath Yahoo, it will not be as stable or perform as well. Plus, the Yahoo administrators and technical staff will move to other companies that run the hardware and software they are trained to manage. Yahoo will need to work hard to keep their technical staff on-board as the recruiters from Google, Amazon, Ebay, and others start calling. The best and the brightest are the first to go. After these people leave, what left? 45 billion of “Goodwill” on the books?

Or, will Microsoft admit early-on that they are willing to become an open-source / Linux player and abandon Windows in order to prevent the loss of Yahoo staff?

†Posted by dunegoon

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