Subscribe to BusinessWeek

With its bid to acquire part or all of Yahoo! (YHOO) looking less likely, Microsoft (MSFT) announced July 23 that one of the top executives who pushed the deal will leave the company. Kevin Johnson, president of Microsoft's Platforms & Services Div., responsible for its Windows franchise and its online operations, is leaving the company. He will become chief executive of Juniper Networks (JNPR).



In addition, Microsoft CEO Steven Ballmer has decided to reorganize the division Johnson ran, splitting Windows from the online business. What's more, Ballmer himself will run the Windows operation, in addition to his chief executive duties. "This new structure will give us more agility and focus in two very competitive arenas," Ballmer said in a statement.



The moves come as both Windows and Microsoft's online operations face significant challenges. While Microsoft has sold more than 180 million copies of Windows Vista, the new operating system has been panned by reviewers and criticized by users. That's created an opening for Apple, which has increased its share of the computer business.



Still Tailing Google

The company's online business faces even bigger hurdles. It continues to lose money while Net kingpin Google (GOOG) consolidates its lead. And Microsoft appears to have failed in its bid to acquire part or all of Yahoo, after its ally in the deal, investor Carl Icahn, agreed to withdraw his proxy bid [BusinessWeek.com, 7/21/08] to control the company in exchange for three board seats. At the very least, it delays Microsoft's efforts to woo Yahoo. That means the company will have to grow organically, for now, to catch up to Google, something it so far has been unable to do.



Johnson's departure might be seen as a reaction to the shortcomings of those two businesses. But Johnson has long been a Ballmer confidant, having worked alongside him when the two served in Microsoft's sales organization. What's more, Johnson has always been more comfortable in the world of corporate technology, where Juniper lives, not the consumer world of online services. And Juniper -- a $2.8 billion network products and services supplier -- is a leading tech company, not a bad place to land as chief executive. A Juniper announcement on July 24 said Johnson will start there in September, and current CEO Scott Kriens will continue as chairman and "will remain active in the areas of strategy and leadership development."



It's less clear, though, if Johnson is simply leaving to be a CEO, or if he is bailing on a situation that's growing increasingly daunting and a job that was about to be halved. "You don't know if he's running to something or from something," says Sanford C. Bernstein (AB) analyst Charles Di Bona.



In the new organizational structure, the three top senior vice-presidents in the Windows group -- Steven Sinofsky, Jon DeVaan, and Bill Veghte -- who reported to Johnson will now report to Ballmer. Though it would seem to overwhelm Ballmer, he similarly took over running Microsoft's MSN business in 1998, when he was Microsoft's president. Of course, Windows is much bigger than MSN and the CEO job is larger than his old president gig. That may speak to the challenges he believes the unit faces.



Red Meat for Analysts

As for the online group, Microsoft will create a new top job overseeing it. Senior Vice-President Satya Nadella will continue to run the company's search, MSN, and ad platform engineering groups, while Senior Vice-President Brian McAndrews will lead its Advertiser & Publisher Solutions Group.



The change is something of a reversal for Microsoft, which in 2005 combined the Windows and online businesses in the name of synergy. At the time, Ballmer said, "By bringing together the software experience and the service experience, we will better address the changing needs of our customers' digital lifestyles and the new world of work." But the inability to focus on each operation separately seems to have led Microsoft to backtrack.



The news comes just a day before Microsoft's annual financial analyst meeting. Analysts, already set to grill Microsoft executives on an unexpected boost in spending [BusinessWeek.com, 7/18/08] on its online operations, now have another surprise for which they'll press for answers.