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Jul. 24, 2008 at 9:01am Eastern by Greg Sterling
Yahoo Acquisition Architect Johnson Departs Microsoft
Kevin Johnson, who was arguably the primary architect of the now apparently failed Yahoo acquisition, is leaving Microsoft to run Juniper Networks. Simultaneously, the company is reorganizing the division that Johnson ran ("Platform Services") into two: Windows and Windows Live + Online Services. Here's the official Microsoft announcement from yesterday.
The company announced no immediate replacement for Johnson. Instead, the existing group heads under Johnson will now report directly to CEO Steve Ballmer.
Online Services Business (the group that includes search) breaks down into consumer facing and advertiser facing groups run by Satya Nadella and Brian McAndrews, respectively. One question raised by long-time Microsoft watcher Mary-Jo Foley is why didn't McAndrews immediately get the nod for the top Online Services position? It's likely that Nadella and McAndrews will be competing for the job internally.
Online Business Services saw fiscal Q4 revenues of $838 million, a gain vs $677 million a year ago. But it also reported an increased operating income loss.
As the Wall Street Journal reported yesterday, the separation of Windows (the OS) from Windows Live and Online Business Services is a reversal of a three-year old decision by Steve Ballmer to unify the businesses to embrace the "software as services" model and the move toward internet-hosted applications (i.e., "cloud computing"). Microsoft's recently announced subscription-based service for Office is consistent with that larger movement -- and so is the Microsoft "mesh" initiative.
AllThingsD published Steve Ballmer's memo following the announcement of Johnson's departure and the accompanying reorganization. Here are some relevant excerpts:
Google: We continue to compete with Google on two fronts—in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas—we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company—and it’s one we’ll continue to fight with persistence and tenacity.
Yahoo: Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’ve been making all along—Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.
Microsoft appears to be at something of a crossroads as a company. It's struggling in a very public way that has not been the case previously. It has tried many different strategies (and tactics) to address Google. So far none of them have "worked" (as defined by search market share numbers), although there appear to have been some gains for Microsoft based on its new "Cashback" search incentive program.
Ballmer's message about the long term is right. And the single greatest thing that Microsoft has going for it is its enormous cash position and balance sheet. The company can afford to subsidize Online Business Services for a long time to come. But it appears to have no clear strategy for the time being to address Google's dominance in search.
There's more discussion on Techmeme.
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By Greg Sterling
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