March 23, 2006 1:18 PM PST

Microsoft memo: Realigning the Windows unit

On Tuesday, Microsoft acknowledged another delay in the long-running saga of Windows Vista. On Thursday, it announced a reorganization to better align its Windows unit and MSN operations with its Live strategy. In this memo, a high-ranking executive addresses Redmond's rank and file.

From: Kevin Johnson
Sent: Thursday, March 23, 2006 10:01 AM
To: Platforms & Services Division
Cc: Executive Staff
Subject: Aligning PSD for Growth and Agility

Since taking on my new role last September, I've spent quite a bit of time focused on how best to position the Platforms and Services Division (PSD) for the future. I want to share with you some of that thinking and some new changes we are undertaking today.

We continue to see a strong wave of innovation from Microsoft making its way to market. PSD is a big part of this wave. The recent launches from our Server and Tools business, including SQL Server 2005, Visual Studio 2005, BizTalk 2006 and Windows Server R2, have been well received by customers and partners, and the team is now focused on Longhorn Server. The Windows client team continues to drive forward on Windows Vista with the latest CTP that was released in February. The MSN division continues to deliver new innovation such as Live Mail, Live Messenger, our constantly improving search offerings and many other Windows Live offerings. MSN itself has enabled new channels and content and continues to expand. All of these product and service releases are evidence of a strong wave of innovation and momentum in the market.

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Over the last few months, I've made it a priority to listen to what's on people's minds. I have had the opportunity to conduct more than one hundred 1:1's and have met with over 2,000 of you at all-hands meetings and roundtables. Not surprisingly some common themes have emerged. Your questions, concerns and feedback, taken together with the dialogue within our leadership team pointed to the need to address three key questions for our division:

• What are the next steps for advancing our vision of software + services?
• Are there growth opportunities upon which we should be more focused?
• How can we be more agile?

As our current product pipeline hits the market, it's a good time to lay the foundation for the future of PSD. I have been working with Jim Allchin and other PSD leaders to establish an organization that positions us for the future. This has been a very collaborative process and we have considered many options. The PSD organization changes we are announcing today are driven by the following objectives which are rooted in the input I've received from so many of you:

1. Software + Services: Position for the next wave of innovation relative to our vision for Windows Live. Ray Ozzie and I continue to work closely to advance the Live vision announced last November. End-to-end scenarios that enable seamless experiences across client, server, and services are critical for all customers, and Windows Vista + Windows Live begins to address this vision. Utilizing services as a distribution vehicle for user experiences enables us to embrace the concept of software + service and deliver innovation to market faster. Doing this requires us to think about the Windows Live platform as a key to the value proposition we deliver to developers. These changes provide clear connections with Ray and his team to help shape the Live platform, Live experiences and the marketing that supports Windows Live.

2. Growth: Focus on the key growth opportunities ahead of us, specifically online advertising, emerging markets, and enterprise computing infrastructure. Our Server & Tools business has shown strong growth over the last few years, and has great opportunities to continue that momentum. Windows Client has growth opportunities in premium offerings, new solutions for emerging markets, and in reducing unlicensed PCs. Certainly the upcoming launch of Windows Vista will spark a new wave of growth across our broader industry and partner ecosystem. Analysts predict the online advertising industry will grow to $35B+ by 2008 which creates opportunity for our MSN and Windows Live businesses.

CONTINUED: The leadership team…
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