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Microsoft’s Recently Announced Reorganization

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Microsoft’s reorganization is heavily focused on Windows

Earlier in this series, we discussed Microsoft’s (MSFT) improving position in the collaboration space. On March 29, 2018, Satya Nadella, Microsoft’s CEO, announced its reorganization plan in which it split its Windows and Devices Group into two new engineering units.

The first unit, Experiences & Devices, is expected to comprise Windows, Office 365, new technology, and enterprise management. This segment would work under the leadership of Rajesh Jha, executive vice president of Microsoft’s Office Product Group.

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The second unit is Cloud + AI (artificial intelligence), which would be composed of Azure cloud, AI for businesses, and the AI tools available for developers to include in their apps. Scott Guthrie, executive vice president of Microsoft’s Cloud and Enterprise Group, is expected to lead this segment.

Currently, Microsoft’s operations revolve around WDG (Windows and Devices Group), Cloud and Enterprise, Office, Gaming, and AI + Research. The recent reorganization plans affect every segment except Gaming, which largely retains its own identity. Plus, LinkedIn wouldn’t be affected.

Factors that prompted Microsoft’s reorganization

A possible reason behind this reorganization is persistent sluggishness in the PC market, which has affected Microsoft Windows. As the PC market shrank, Microsoft sought ways to boost its Windows 10 OS (operating system). However, its cloud and subscription offerings are consistently growing.

This scenario led Microsoft to consider making Windows part of a recurring subscription business, which the company did through Microsoft 365. Office 365, Enterprise Mobility, Windows 10, and Security for Businesses are bundled together to form Microsoft 365, which is its subscription offering. This trend also explains Microsoft’s product design process that integrates its various offerings—Office software, Surface hardware, and Windows.

In the past, Microsoft bundled its on-premises Office offerings into a cloud offering, Office 365, which is the primary offering in this space. Microsoft expects two-thirds of its business Office customers to use Office 365 by fiscal 2019. Looking at the current changes in the organization, it appears that Microsoft is trying to repeat the success it had with Office 365 by integrating Windows with Microsoft 365.

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