The reorganization at the top is widely viewed as an effort by Microsoft to rev up its gaming and mobile business segments. Per Microsoft's announcement on Tuesday, Robbie Bach, president of the E&D, and J. Allard, senior vice president of design and development at the E&D, will be leaving Microsoft.
Bach will be retiring but will stay on through the fall to ease the transition. Microsoft didn't announce a replacement for Bach. Allard will switch to an outside advisory role, according to Microsoft.В
Don Mattrick, senior vice president at Microsoft's Interactive Entertainment Business, will stay on in that role. Andy Lees will continue to head the Mobile Communications Business. Both will report directly to Microsoft CEO Steve Ballmer, beginning on July 1.
Microsoft also announced that David Treadwell, corporate vice president of Live Platform Services, will be moving to a new position. Treadwell will lead the core technology organization at Microsoft's Interactive Entertainment Business segment, reporting to Mattrick.
The organizational moves may give Ballmer a firmer hand at the E&D, according to Rob Enderle, analyst at the Enderle Group.
"Steve is going to step in and fix something that's been very wrong at Microsoft for a long time," Enderle said, in a telephone interview. "The Entertainment Division at Microsoft has been a drain on other much more profitable divisions in the company, and with analysts now predicting Apple overtaking Microsoft in valuation (market cap) in the near future, Steve is going to take a very personal interest in the future of its offerings."
The E&D is responsible for products such as Xbox, Zune, and mobile offerings such as Windows Phone 7 and Kin. According to Enderle, Zune is a distant number two to Apple's iPod. The new line of phones is not competing well with offerings from Apple and Google, and Xbox is "in decline," he added.
"This is the division that introduced proprietary hardware into the Microsoft mix, and it has pissed off a lot of OEMs," Enderle said. "Microsoft had built solid relationships with its OEMs over the years, and products such as Xbox went to the core of relationships with Dell and HP that profit from making machines for high-end gaming."
Whether the reorganization will change the offerings from the E&D is yet to be determined, according to Michael Gartenberg, a partner with Altimeter Group.
"Right now, we can't say whether this move will be good, bad or indifferent because we don't know who all the players are and who they will be reporting to," noted Gartenberg, in a telephone interview. "They have put some placeholders in, but until we see who is doing what, it's hard to say."
Both Gartenberg and Enderle agree that change within the division was inevitable, given the competition in the space.
"Microsoft is enduring major competition in the consumer market, and it's imperative for them to stay focused with their mobile efforts as well as other consumer-facing products," Gartenberg noted.
Enderle said the tension the division brought to Microsoft "torqued" company officials to make the move.
"I never felt comfortable with this division because it was basically living off of other divisions and really torpedoing Microsoft's legacy business, which is selling software," Enderle said. "I think, overall, it's going to be a good thing for the company, but it's hard to say. It should have happened six or seven years ago."
Both Bach and Allard had long careers at Microsoft. Bach, a 22-year veteran, led the E&D since its inception in 2005. Allard, who spent 19 years with the company, was the driving force behind products such as Xbox, Zune and Kin.
Microsoft also tucked in a few other executive moves in its announcement. Antoine Leblond, senior vice president in the Office Productivity Applications Group, will serve as senior vice president at the Windows Web Services team. Kurt DelBene, senior vice president in the Office Business Productivity Group, gets additional work overseeing "all of the engineering responsibilities for the Office business," according to Microsoft's announcement.
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