(2 of 3)
Like a kid with a $100 bill in a penny-candy store, Microsoft has been trying too many things at once, critics have long charged. To keep the company focused, Ballmer sliced it into seven supposedly equal and semiautonomous product groups, each with its own CFO. Two of those groups--Windows and Office--account for 62% of revenue and the lion's share of profits. The others deal with mobile devices, business services, entertainment, the Internet (MSN) and server software. Those last two are marginally profitable; the others are optimistic bets on the future. Says Jupiter Research analyst Joe Wilcox: "It's like dealing with two giants and five pygmies." Kevin Johnson, Microsoft's vice president of worldwide sales, who is regarded by many as heir apparent to Ballmer, defends the reorganization: "The value we deliver comes from collaboration between the groups."
Yet even within Microsoft some say the seven-way split is unwieldy. Robert Scoble is the most widely read of a new wave of Microsoft employees who have been allowed to write freely about the company in online journals, or blogs. His blog, Scobleizer, has repeatedly called for the company to voluntarily do what the Justice Department couldn't compel--split into separate, nimbler companies, a.k.a. Baby Bills. (Gates is vehemently opposed to the idea.)
Microsoft appears to be going through a mid-life crisis--buying flashy toys and having prolonged bouts of soul searching. Take this piece of dissent from a rank and filer: "The products are there. The marketing is not. Gates and Ballmer have been our salespeople for so long, but we need more voices out there selling our products." Even the executive suites are not immune to mea culpas. "We need to be more predictable to our customers," says vice president Johnson. "We need to make it easier to do business with us."
Though the company is trying to shed its arrogant, customer-unfriendly image by providing road maps to new software releases, its biggest product of all isn't playing along. The next version of Windows, code-named Longhorn, has been delayed so much that it has acquired the nickname Long Wait. Gates recently warned that we would have to cool our heels until 2006 before we would see it--five years after the release of Windows XP--and even that date isn't certain. "We'll ship it when it's ready," says Neil Charney, director of product management for Windows. One reason for the delay is that Gates' "trustworthy computing" plan has pulled programmers off Longhorn to work on fixing Windows XP, patching the kinds of security holes that led to record-breaking viruses like the Blaster worm.
A bigger problem for Microsoft is that fully 65% of Windows users have not yet upgraded to XP. Why should they, when there's another new version taking shape? As Gates is fond of saying, "Our biggest competitor is our installed base." Now the Longhorn team has been told to scale back its ambitious plans for the new operating system in order to make sure it will work with the average PC.