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On 14 February 2001, Microsoft announced the appointment of Rick Belluzzo as president and chief operating officer (COO). He replaces COO Bob Herbold, who is retiring, and takes the title of president from CEO Steve Ballmer. Belluzzo was CEO of SGI and joined Microsoft in September 1999 to oversee consumer and Internet initiatives.
At first glance, perhaps the most striking aspect of this announcement is that Microsoft, a company of fierce loyalties, has elevated an outsider, Belluzzo, to the position beneath Ballmer. Belluzzo therefore becomes Ballmer's potential successor.
However, Gartner believes that this move represents an organizational adjustment in the wake of Microsoft's shift in strategy, .NET (see Gartner FirstTake FT-11-4133, "The .NET According to Microsoft"). Microsoft's new business model and its key .NET initiative mean that Microsoft's organization must change as well. Microsoft has begun a search for revenue outside of its PC-based business, i.e., Windows, applications and other software offerings that support a desktop environment. Instead, it will increasingly emphasize delivering Web services — and consumer offerings (e.g., the Microsoft Network and the Xbox game console). Belluzzo has headed up many of Microsoft's initiatives in these areas since he came to Microsoft. Thus, Gartner believes that his appointment to oversee Microsoft's day-to-day operations will help to ensure that the strategic shift unfolds more smoothly.
At the same time, this announcement represents a tacit admission that the transformation thus far has not gone as well as Microsoft needs and that the company needs ideas from outside the traditional organization. Although Gartner believes that Belluzzo's appointment will help as an organizational change to support this new strategy, Microsoft still faces serious challenges including:
- A languishing stock price
- The U.S. Department of Justice antitrust lawsuit
- Renewed antitrust scrutiny on its Corel and Great Plains deals
- European Commission antitrust investigation
- Slow uptake of Windows 2000
- Low to no growth in its core desktop applications business (over 50 percent of earnings)
- The explosion of non-PC devices
- The threat of Linux on the server
However, the most serious challenge facing Microsoft is a fundamental shift in its core business model — a shift from selling shrink-wrapped software to selling software as a service. Microsoft has responded with .NET. However, enterprises have seen few tangible results from it so far.
Analytical Sources: David Smith, Internet Strategies; Thomas Bittman, NT Strategies; Chris LeTocq, End-User Computing; and Neil MacDonald, Enterprise Network Strategies
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