Among the main challenges Microsoft faces are the weak position of Windows in smartphones and tablets, where it lags far behind Android and iOS, and the increased competition against Office from rivals like Google that offer less expensive, cloud-hosted alternatives.
Microsoft has responded to those threats with Windows 8 and Windows Phone 8, and with Office 365, a suite that includes cloud-delivered versions of its productivity apps like Word, Excel and PowerPoint, and Web-hosted versions of its server products like SharePoint, Lync and Exchange.
However, Windows 8 and its version for ARM devices, Windows RT, launched in October, weren't well-received, prompting Microsoft to prep an update called Windows 8.1 that will be released this year. Meanwhile, Office 365 continues to battle Google Apps and other competing communication and collaboration suites. For example, Microsoft spent US$1.2 billion a year ago to buy Yammer and boost SharePoint's enterprise social networking capabilities.
The four new engineering teams are the Operating Systems Engineering Group, led by Terry Myerson; the Devices and Studios Engineering Group, led by Julie Larson-Green; the Applications and Services Engineering Group, led by Qi Lu; and the Cloud and Enterprise Engineering Group, led by Satya Nadella.
"We'll pull together into fewer core engineering groups, and we'll pull together all the other functions and disciplines under leaders that work for me directly," Ballmer said.
The Operating Systems Engineering Group will focus on Windows development for gaming consoles, mobile devices, PCs and back-end server systems, including OS cloud services. With this realignment, Microsoft is seeking a unified, common Windows presence and experience across those devices and systems, which it doesn't have today and which enterprise customers especially could find compelling.
"It's important and a positive move to integrate all operating system development into a single team," Gillen said.
At the Devices and Studios Engineering Group, Larson-Green, until now one of the two Windows OS chiefs, will focus on all hardware development and their supply chain strategy. This group will also be in charge of "studios experiences" including games, music, video and other entertainment. Microsoft seems interested in boosting its efforts to build its own hardware, building on its experience developing the Xbox console and the Surface tablets, thus mimicking to an extent Apple's successful model.
The Applications and Services Engineering Group will be in charge of applications and services technologies in productivity, communication, search and other information categories. It will be interesting to see how the realignment works in this group, since the Office stack and the consumer online services had traditionally belonged to separate groups.
However, with Office 365, those lines are blurring, in particular with the recent decision to mesh Skype, which is primarily a consumer IM and VoIP service, with its enterprise equivalent, Lync. In the press conference, Qi Lu said that whether it's Bing, Office or Skype, Microsoft applications are all about helping people complete tasks and get work done.
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