Beyond Binary

In the wake of additional layoffs on Tuesday, Microsoft is scaling back--but not totally eliminating--several products. After cutting 1,400 jobs in January, Microsoft said on Tuesday that it is cutting more than 3,000 more jobs.

Among those products affected are Microsoft's ResponsePoint phone system, its .Net Micro Framework, and its MSN Direct Service.

Microsoft said it will continue to sell and support the initial version of ResponsePoint, which is aimed at small businesses.

"We will also continue to promote the product online and spotlight compatible 3rd party services and add-on products," Microsoft said in a statement. "The team is evaluating the strategy for the next version of the product and will continue to investigate the opportunity in the small business market."

Things are similar for MSN Direct, which offers traffic and other services to devices like in-car map systems.

"While the group was impacted by yesterday's job eliminations, they will continue to maintain the current MSN Direct service and invest in developing a low cost receiver for multiple devices," Microsoft said.

As for the .Net Micro Framework, Microsoft said it will make the project a community source effort.

"Microsoft will continue to support existing customers according to any agreements that we have in place with them, and will honor our lifecycle support pledge," Microsoft said. "Forums continue to be available at MSDN. After moving to the community model, new customers will be supported by the community."

The software maker said it will eliminate the royalties that had been associated with the product. As a result of the shift, Microsoft said the team was affected by job cuts and the remaining workers will shift to the broader .Net Framework team.

Microsoft also confirmed it made deep cuts at Massive, its in-game advertising unit. However, the company said a report Tuesday that three-quarters of staff were cut was an overstatement. Tuesday's cuts affected 28 percent of full-time staff. The cuts also apparently hit hard two Microsoft-produced magazines for developers, but I am still working on getting details on that front.

Also of note, of course, is the fact that after the January cuts it took some time for some of the product decisions to be clear. At the time, Microsoft said it would cut 5,000 jobs over an 18-month-period.

Meanwhile, Microsoft left the door open to further job cuts.

"As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations," Ballmer said in a memo to staff.

The company has also taken other actions including cutting spending on vendors, travel, and contractors, and even canceling its annual picnic.

In the wake of handing out 3,000 layoff notices Tuesday, Microsoft CEO Steve Ballmer sent an e-mail to staff.

Ballmer characterized the cuts as the second phase of the plan announced in January. At the time, Microsoft said it would cut 5,000 jobs over an 18-month-period. With the cuts made in January and those announced on Tuesday, Microsoft has now nearly eliminated all those positions.

Here is the text of Ballmer's e-mail, which was seen by CNET News.

From: Steve Ballmer
Sent: Tuesday, May 05, 2009
To: Microsoft - All Employees
Subject: Update: Realigning Resources and Reducing Costs

In January, in response to the global economic downturn, I announced our plan to adjust the company's cost structure through spending reductions and job eliminations. Today, we are implementing the second phase of this plan.

This is difficult news to share. Because our success at Microsoft has always been the direct result of the talent, hard work, and commitment of our people, eliminating positions is hard.

Today's action includes positions in the United States and in a number of countries around the world. In the U.S., affected employees will be notified directly by their managers today. In other countries, local leadership teams will provide more specific information about the impact to their organizations.

With this announcement, we are mostly but not all done with the planned 5,000 job eliminations by June 2010. We are moving quickly to reach this target in response to consistent feedback from our people and business groups that it's important to make decisions and reduce uncertainty for employees as quickly as possible, and so that organizations can concentrate their efforts and resources on strategic objectives.

As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations.

For those of you directly affected by today's announcement, I want to thank you for your contribution to Microsoft and assure you that we will continue to provide support as we did during the previous job eliminations.

And for everyone across the company, I want to reemphasize how much I appreciate the way you have pulled together to help the company respond to this difficult economic environment. There's no doubt that these are very challenging times. But together, we are making the right choices to ensure that we will continue to deliver great products and position ourselves for strong future growth and profitability.

Thank you for your continued hard work, commitment, and focus.

Steve

Microsoft on Tuesday notified more than 3,000 workers that it was eliminating their jobs.

The software maker said in January that it would cut up to 5,000 jobs over the next 18 months. It made 1,400 cuts at the time. With the second wave of notifications on Tuesday, Microsoft has cut nearly all 5,000 jobs already.

Although it didn't announce further layoffs, the fact that the company has already made nearly all the reductions under the January plan means further job actions will have to come under a new round of cuts. In a memo to Microsoft workers, CEO Steve Ballmer left the door open to further action.

"As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations," Ballmer said in the memo, which was seen by CNET News.

While the positions cut in January were more U.S.-centered, the cuts announced Tuesday were split roughly evenly between U.S. and international workers. The cuts were across the company in terms of job type.

"As part of the plan we announced in January to reduce costs and increase efficiencies, today we are eliminating additional positions across several areas of the company," Microsoft said in a public statement confirming the cuts. "While job eliminations are always difficult, we are taking these necessary actions in response to the global economic downturn."

The company still plans to hire 2,000 to 3,000 workers this year in some growing areas of focus, including its online services business.

Market research firm IDC on Friday said it is cutting 82 workers in the United States, or 5 percent of its worldwide staff "due to the impact of the economic recession."

The Framingham, Mass.-based company said that the cuts include 26 research analysts.

"IDC will continue to have more than 1,000 research analysts worldwide which is more than any other technology market intelligence and advisory company," IDC said in a statement. The firm added that it still has more analysts than it did a year ago, noting that it hired 50 new analysts in the second half of last year.

IDC's move clearly follows cutbacks at many of the technology companies that pay its bills. Other analysis firms have also been cutting staff, including Gartner which said in January that it was cutting 117 workers worldwide.

With the economy in the tank, Microsoft has decided not to let its workers follow.

The software maker has confirmed it has canceled plans to have a bar as part of an expansion of its Redmond campus.

The pub, which had been planned for more than a year, was to be part of a collection of restaurants and stores that were due to open next week as part of the company's new headquarters for its Entertainment and Devices unit. Spokesman Lou Gellos confirmed the company recently decided to pull the plug.

"We had to take another look at this," Gellos said. "We are sensitive to the business environment and that meant not having a pub."

In January, Microsoft made the company's first-ever companywide layoffs and has said it is cutting as many as 5,000 jobs amid the broad economic downturn. The company has also been cutting vendors, travel, and other expenses as it looks to trim costs.

The bar was planned for "The Commons," a central area in the center of the Entertainment and Devices campus. Although the bar won't open, the area will still feature a collection of popular Pacific Northwest eateries as well as various cell phone shops, a salon, and other outlets.

The Commons is surrounded by four buildings for the entertainment unit, one of which is already occupied and another that is due to be filled in the next week or so. By mid-July, Microsoft expects all four buildings to be occupied, Gellos said.

Word that Microsoft kicked the keg came earlier on Friday from a report on Seattle-area tech site TechFlash. The owner of the proposed pub told TechFlash he was stunned by the news, which came via a letter from Microsoft. The bar, which was due to open on Monday, already had been outfitted with its beer taps, and workers had been hired.

This story was updated at 3:45 p.m. PST with an official statement from Microsoft.

Amid a wave of criticism, Microsoft is backtracking on a decision to require laid off workers to pay back money that the software maker said was in excess of its planned severance, CNET News has learned.

News.com Poll

Severance about-face
Why did Microsoft reverse itself?

To save face.
It wasn't that much money.
Company wanted to do the right thing.

View results

Over the weekend, Microsoft confirmed it had overpaid severance to some workers and underpaid others. At the time, the company did not say how much money was involved, but sent the workers who were overpaid a letter saying they would be required to pay back the money in excess of the severance they were due.

On Monday, Microsoft human resources chief Lisa Brummel said the company was reversing course.

"I thought it didn't make sense for us to continue on the path we were on," she told CNET News. Twenty-five workers were overpaid and about 20 underpaid, Microsoft said.

Brummel said she has spoken or left messages to most of those affected.

Brummel said those overpaid received, on average, about $4,000 or $5,000 in extra pay.

"I have called now 22 out of the 25 impacted employees, only because I haven't had time to get to the three but I will after we hang up," Brummel said.

In general, Brummel said it makes sense for companies to recover money if it makes an accounting error, but she acknowledged the situation was an extraordinary one. Brummel said the company actually overpaid her at one point during her long tenure.

"It actually happened to me and I wrote the company a check," she said. "It may have happened to others."

Later on Monday Microsoft issued the following statement about the matter:

Last week, 25 former Microsoft employees were informed that they were overpaid as a part of their severance payments from the company. This was a mistake on our part. We should have handled this situation in a more thoughtful manner. We are reaching out to those impacted to relay that we will not seek any payment from those individuals.

Microsoft also said that the company is immediately reimbursing the underpaid employees.

Microsoft has quietly reorganized its Zune team, splitting up the hardware and software teams, CNET News has learned.

The software and services portion of the Zune team--the bulk of its staff--will be added to the portfolio of Enrique Rodriguez, the vice president who currently runs Microsoft's Mediaroom and Media Center TV businesses. The hardware team, meanwhile, will now report to Tom Gibbons, who also leads the hardware design efforts within Microsoft's Windows Mobile unit.

"We're just being very pragmatic and even more so in a world in which not even Microsoft can afford to over-invest," Rodriguez told CNET News.

The move was made on January 22, as Microsoft made its first-ever companywide layoffs--layoffs which also hit the Zune team, although Microsoft won't say how many people were cut. It also follows a holiday quarter in which Zune sales dropped by more than half from a year earlier.

In an hour-long interview on Thursday, Rodriguez said the move was not made in response to recent Zune sales, but rather as the company looks to create a more unified entertainment business and gears up to expand the Zune service to be available on more than just Microsoft's own devices.

"The goal is to make non-gaming entertainment a first-class citizen within Microsoft's business," he said. That means building better software and gaining scale "a little further out than just in Redmond."

"The other thing we are trying to do, like any other business, is to make some money," Rodriguez said.

Rodriguez wasn't ready to offer details on when the Zune service would come, say, to Windows Mobile, but he did say to expect products within this calendar year that take the Zune service beyond just Microsoft's own line of digital music players.

"Zune the service needs to transcend Zune the device," Rodriguez said.

Zune, the device, has faced an uphill battle in its effort to offer a rival to Apple's iPod. Although the company has gained some share, it has come largely at the expense of the companies that were on the market with devices using Microsoft's PlaysForSure software, which predated the Zune.

Microsoft has been saying for some time that it would expand to other "tuners" beyond the Zune player and work on that front predates the latest reorganization. Meanwhile, the company says it is not getting out of the Zune hardware business altogether and in fact new Zune hardware models are expected to come out this fall.

"You have to have a hero device," he said. "If you ask me how important is it from a numbers perspective, today it's ultra-important. If I do my job right, part of my job is to make it less important. Part of my job is to make sure the service comes into every device."

"Zune the service needs to transcend Zune the device."

--Enrique Rodriguez, vice president, Microsoft

But that doesn't mean Rodriguez doesn't see a need for Microsoft to keep making the Zune.

"The reality is that will continue to be the one vertical device that we control every...aspect of it all the way to what it says on the box," he said. "So shame on us if it is not the best."

Rodriguez said that a large part of the reorganization was about bringing more heads together to work on a unified entertainment approach, one that is headed toward a more cloud-based approach.

"To write the type of software...it's a complex job, it's a Microsoft scale job," he said. Microsoft won't say how many people work on Zune now or how large the team was prior to the reorganization, however, Rodriguez said by combining teams, Microsoft has more people focused on entertainment broadly.

"The aggregate of people is more today than it was two weeks ago," Rodriguez said. "We're taking what used to be 300 people there, 300 people there, and 300 people there...into being 1,000 people all around the same vision."

Although the economic crisis won't change his focus on global health and U.S. education, Bill Gates said the woes are making his work harder.

In particular, Gates said that beyond the prospect of lower aid budgets, the biggest factor in reducing disease and hunger is actually the underlying growth in the area in question--something that is now stalled globally.

"Economic success has been this phenomenal thing," Gates said. "Whenever that clock is running slower or even briefly goes into a period where it is going back, it is really a very negative thing. It blocks a lot that is important."

Gates' comments came during a conference call with reporters, following the release of a public letter on the foundation's progress.

For 2009, the Gates Foundation is increasing its spending, and Gates said he would encourage other foundations to see if they can do the same amid growing need. That said, he doesn't see his foundation being able to increase its budget next year, if its assets continue to decline.

"Certainly, if the market (in 2009 is) as bad (as it was) in 2008, we would not increase, going into (2010)," Gates said. "We have the same uncertainty that everyone else does."

As for overall priorities, Gates defended the areas his foundation has worked on, such as focusing on diseases that affect the world's poorest populations. He noted that it remains the case that there are opportunities to save a human life for less than $100 a year.

"To me, that's very compelling," Gates said. "That investment should be made. I don't think the economic crisis changes that."

Gates was clear that he has no crystal ball, but he said it will likely take years for the economy to correct itself after years of unsustainably high spending rates, particularly in the United States.

"If you have been on a spending binge, it can take a number of years before those ratios come back in," he said.

Although he said things are different now than in the Great Depression, he also noted that there are many factors putting pressure on the economy, many of which feed on one another.

"If Company A lays people off, that impacts...Company B," Gates said. "We are just seeing impact after impact, as that rolls through the economy."

Gates' own company, Microsoft, announced its first-ever companywide layoffs on Thursday, saying it planned to cut up to 5,000 jobs over the next 18 months, with 1,400 of the job cuts being made last week.

In a video on the foundation's Web site, Gates talked a little about the overlap he has found between his two jobs.

"I didn't know if the foundation would be as magical," Gates said. "Those same key elements are there--the ability to do big breakthroughs--absolutely."

The fallout from Thursday's cost-cutting moves by Microsoft continues. On Friday, Microsoft announced that it is delaying its plans for a massive data center to be built in West Des Moines, Iowa.

It is an abrupt reversal for Microsoft, which announced its plans for Iowa just five months ago as part of its massive push into the data center business. By October, though, the software maker was already detailing plans to cut its data center spending by $300 million. Now Microsoft is looking to cut things even further.

"We are still continuing construction of our facilities in Chicago and Dublin, and are planning to open them as customer demand warrants, Microsoft's Mike Manos and Arne Josefsberg said in a blog posting on Friday. "But given the current economic climate we're going to do the right thing for our business and shareholders and revisit our plans on a quarter-by-quarter basis."

Microsoft tried to put its best spin on the move, saying that long-term the cash crunch will help drive customers to turn to Microsoft rather than building out pricey data centers themselves. Josefsberg and Manos also said that Microsoft will find less expensive ways to have the capacity it needs to run Windows Live Hotmail, Windows Live Messenger, and all of Microsoft's other online services.

"We've been preparing for lean times for a while," the pair said. "This recession is the ideal backdrop to implement small changes that target big needs. Frugality drives innovation, and limited resources are just another forcing function to develop creative solutions to infrastructure needs. For our industry, this means more reasons to identify the small tweaks to products or operational approaches that can unlock big opportunities."