[Editor’s Note: We’re excited to welcome Mary Jo Foley as a GeekWire contributor. Mary Jo has been one of the sharpest watchers of Microsoft for many years, currently as Editor in Chief at Directions on Microsoft, an IT planning and advisory service. She’ll be offering her take for GeekWire periodically on the latest developments in Redmond, starting with this piece.]
Reorgs are a way of life at Microsoft. But their pace over the past few months has many wondering what’s going on in Redmond — especially when combined with the company’s stock price having its worst quarter in years.
Over the past few months, Microsoft has made a significant number of organizational changes:
- In February, Microsoft announced plans for Xbox chief Phil Spencer to hand over the gaming reins to Asha Sharma.
- The company reorganized its US sales team the same month.
- In March, Experience and Devices CEO Rajesh Jha announced plans to retire, replaced by a handful of handpicked executives.
- Microsoft is said to have recently begun restructuring its HR organization.
- And its cloud teams and vendors are allegedly spending big and hiring snowballs.
Is this just Microsoft’s standard end-of-year housekeeping, or is there something different? A blip to pass, or the new AI-centric reality of the Satya Nadella era?
It’s a mix of both, I’d argue.
The current wave of churn can, at least in part, be attributed to Microsoft’s business calendar. Its fourth quarter ends on June 30 and the new fiscal year will begin on July 1. Microsoft often restructures and lays off in the months leading up to this. as a way to reset for the coming year.
The company is also taking steps to reduce bureaucracy and flatten its corporate structure, as are many tech companies, in the hope that it will improve.
Last year, Chief Financial Officer Amy Hood announced that Microsoft was “expanding our capabilities by reducing layers with fewer executives.” With moves like replacing 35-year Executive Vice President Jha with a gang of four, rather than just another uber-boss, Microsoft is following through on those promises.
It’s not all normal stuff at play, though.
Thanks to AI, the way companies prioritize and pursue their strategies is different. Microsoft is not immune to the market controversy surrounding capex overspending on AI when the ROI remains in question. Its no-longer-exclusive partnership with OpenAI has people inside and outside the company worried, too, as does the fact that 45 percent of Azure’s unfilled after last quarter was created by OpenAI.
Investor pressure on the company to keep its Azure business growing at a time of acknowledged energy challenges also cannot be ruled out as contributing to the current outbreak. As a result, Microsoft’s travel budgets, spending on new hires, and investments in unproven areas are all in the nomination phase.
Almost nothing (except towels, perhaps) is immune to scrutiny in order to free up more dollars to pay for AI and cloud infrastructure.
But those reasons alone may not be enough to explain why Microsoft looks like the best of the Magnificent Seven technology leaders right now.
Microsoft continues to struggle in the consumer space, and not just with the Xbox. Most of the company’s revenue has been and continues to be from sales to commercial customers. That consumer weakness is especially evident when it comes to AI.
Microsoft recently revealed that only three percent of its Microsoft 365 customers pay for Microsoft 365 Copilot. But its Copilot consumer acceptance rate is pretty poor, and far lower than OpenAI’s ChatGPT and Google Gemini’s rates.
The decision earlier this month to remove AI chief Mustafa Suleyman from his consumer AI duties for the product and a more research role is Microsoft’s latest attempt to adjust its consumer bets.
Suleyman’s reassignment came later than expected (and hoped), given the start and stop with Microsoft’s consumer AI efforts. Mico, looking for the ghostly Clippy, seems confused. Microsoft’s push to make voice one of the main ways users interact with AI on their PCs, when people don’t talk to PCs like they do phones, seems to be falling flat.
Meanwhile, the Windows organization is trying to right the ship by backing some of its more overzealous AI programs. Instead of trying to force AI into Notepad and Photos, executives said they will instead focus on other top consumer requests, from customizing the taskbar, to adding the ability to pause updates at will.
Microsoft shows no signs of giving up on the consumer space. Maybe the new blood will find new ways to use the company’s business strategies to increase its share of consumers? If not, there is always the next reorg. …
