Not to mention thousands more in relocation assistance such as covering the closing costs and paying mortgage interest on a new home near the company's Sunnyvale headquarters. No longer having to report to Microsoft CEO Steve Ballmer? Priceless. (Photo by AP/Elaine Thompson)

Allison's sort-of ex, Digg cofounder Kevin Rose, said he was buying Google. Surely not for Knol, Google's weak attempt at taking on Wikipedia — at launch, its search engine didn't even work. Jackson, come back and help us make sense of this crazy business! (Photo by Jason Calacanis)

It all comes down to Windows — and Windows Live, Microsoft's attempt to extend its monopoly operating system online. The basic strategy of combining the Windows operating system with Microsoft's online-media division, which created Johnson's job, was flawed. The skills involved in coding an operating system and creating websites and selling ads are fundamentally different; mastering them all would be beyond any executive's reach. Johnson was a talented executive, most agree, and his departure is a loss to Microsoft. But succeeding at his job would require focus, and a smaller ambit to his assignments. He needed to have a bigger job; and Microsoft needed someone with a smaller job.

The reorganization following his departure leaves things in a muddle. Windows will still be tied with some online services, under the "Windows Live" rubric; other online operations will be in a separate division. But what goes where? Hotmail, for example, was recently rebranded as a Windows Live product; but it's hard to see Microsoft's online operation giving up such a reliable traffic generator to the Windows group.

In Johnson's wake, expect more infighting, more reorganizations, more mass rebranding campaigns — everything, that is, except the kind of purposeful progress Microsoft desperately needs to compete with Google.

That Facebook would throw this all in Schrage's lap is telling — about both Facebook and Schrage. Schrage, having shrunk his role considerably by following Sandberg from Google to Facebook, is likely desperate for some scrap of increased authority. And Facebook's geeks, getting assailed in the press for their decisions, are eager for someone slicker than they are to take the abuse.

Still, it needs to be said: Facebook's platform is technically immature, and needs a technical manager. Chamath Palihapitiya, whom Schrage is replacing as its head, may be inept at public relations — look at last year's debacle with Facebook's privacy-invading Beacon feature. But that doesn't mean he's bad at running a computing platform.

Schrage may not be a geek, but he'll now need to play the part. This should be fun to watch. And he can take comfort in one precedent: This isn't the first time the owner of an important computing platform has, in desperation, put a gladhanding slickster in charge. Microsoft's Kevin Johnson, who now oversees Windows, previously ran its sales operations. He also negotiated Microsoft's Facebook investment. He would surely approve.

• Former Fox Interactive boss Ross Levinsohn and AOL CEO Jon Miller, now partners at Velocity Interactive, seem to come as a pair. Levinsohn is best known for acquiring MySpace for Fox Interactive and quitting the company after it wouldn't buy Digg. But Levinsohn is also known for bullying entrepreneurs — once, so badly that renowned angel investor Ron Conway reportedly "flew off the handle" at him. In some quarters and in Jason Calacanis's heart, Miller gets credit turning around AOL. But like any exec, Miller has his detractors at AOL and they came out of the woodwork when he was fired last year. One described him as
  

  An executive over 4 years that put more incompetent people in high-places (e.g., McKinley) while firing (Govern) and letting reams of talented folks (e.g., Kotay, list-o-long) leave that were passionate and—at least—somewhat competent, and were actually trying to foster some core innovation and synergy.

• OpenTable’s CEO Jeff Jordan is on Yahoo shareholders and board members' wishlist, just like he was on Facebook founder Mark Zuckerberg's list to become COO of that company before it settled on Sheryl Sandberg. An eBay veteran, Jordan was thought to be in line for Meg Whitman's job until he took over as OpenTable's CEO in 2007. His reputation as a "product Nazi" led Valleywag to endorse him for Yahoo's top job way back in November 2006.
• Tim Armstrong heads up Google's ad sales force and the unit is perhaps respectably profitable enough for Yahoo shareholders and board members to include him on their list. We wonder, however, if the board knows about Armstrong's involvement with sketchy search engine spam company Associated Content.
• Why wouldn't Yahoo's board and shareholders want Microsoft’s Kevin Johnson for the company's top job? Ever since Microsoft CEO Steve Ballmer announced a bid to acquire the company on February 1, no one's given more thought to running Yahoo. Johnson's even written several memos on the topic — showing great ability to include exclamation marks after the company's name while still respecting the need for capital letters.

Because we could not come to an agreement on price by the end of April and given our concerns about Yahoo's business performance, we elected to withdraw our bid and pursue better options for Microsoft.

Johnson's whole note, courtesy of Beyond Binary, below.

From: Kevin Johnson



Sent: Friday, June 13, 2008 2:20 PM



Subject: Update on our Yahoo discussions



I wanted to take an opportunity to provide my thoughts and perspective on the conclusion of our discussions with Yahoo, and its announcement of a commercial agreement with Google.



As I shared in my mail on May 18 (see attached), we have better options than a full combination with Yahoo at the price it suggested, and we have moved forward on our strategy to grow our online business.



Let me share a little background with you. When we made our original proposal on February 1st to combine with Yahoo, we offered a 62 percent premium that was based on a desire to reach an agreement in short order. The faster we could reach an agreement, the sooner we could begin the regulatory process and create value through this combination.



In a March 10th meeting in Palo Alto, we explained to Yahoo management the importance of reaching an agreement by the end of April in order to have an opportunity to complete the regulatory process by the end of this calendar year. Because we could not come to an agreement on price by the end of April and given our concerns about Yahoo's business performance, we elected to withdraw our bid and pursue better options for Microsoft.



During the last few weeks, we spent a considerable amount of time with Yahoo discussing an alternative proposal around search. Specifically, this search proposal had three components:

• Microsoft would have invested $8 billion in Yahoo at $35/share;
  
  
  
• Microsoft would have purchased Yahoo's search assets for $1 billion, and assumed the operations and R&D expense while returning data back to Yahoo for use in their advertising business; and
  
  
  
• Microsoft and Yahoo would have entered into a long-term search partnership, where Microsoft would have provided favorable economics to Yahoo search, including a three-year guarantee of higher monetization than Yahoo's Panama paid search system currently provides.
  
  
  
  This partnership would have created a stronger competitor to Google, providing greater choice and innovation for advertisers, publishers and consumers. This approach could have been implemented quickly and would have simplified the integration process for both parties. It would have also established the basis for a long-term Internet partnership between Yahoo and Microsoft.
  
  
  
  We believe this proposal would have created compelling value for Yahoo and its shareholders in at least three ways:
  
  
  
• New Transfer of Cash to Yahoo Shareholders. This proposal would have transferred $9 billion from Microsoft to Yahoo, which could have been used by Yahoo to reward their shareholders.
  
  
  
• A More Profitable Ongoing Business. This proposal would have resulted in higher operating income on an annual basis for Yahoo, with our projections more than doubling Yahoo's operating income in the first year of operation, and increasing it by more than $1 billion above its current operating income level.
  
  
  
• A More Compelling Search Offering. The combination of the search platforms would have unlocked new R&D innovation, eliminated redundant engineering efforts and allowed for greater scale in serving our customers.
  
  
  
  Taken together, we believe that our proposal would have created total value for Yahoo's shareholders in excess of $33 per share.
  
  
  
  Unfortunately Yahoo has chosen a different course, and yesterday announced an agreement that would start to consolidate over 90 percent of the paid search advertising market in Google's hands. This will make the market far less competitive. There are many experts who suggest that a host of legal and regulatory problems lie ahead for Google and Yahoo.
  
  
  
  Regardless of Yahoo's decision, we will continue to move forward on our strategy in online services and advertising.
  
  
  
  Since my mail on May 18, we have been making great progress. At our Advance '08 conference, we announced Live Search Cashback and Live Search Farecast, and the initial response to these user experience and business model innovations in search has been very positive. On June 2nd, we also announced a distribution deal with HP, the world's largest PC manufacturer, to install a Live Search-enabled toolbar on all HP consumer PCs planned to ship in the United States and Canada, beginning in January 2009.
  
  
  
  We look forward to sharing more milestones and details on our plans as we head to MGX (the company's annual sales conference) and our Financial Analyst Meeting in July.
  
  
  
  I remain confident in our assets, plans and people to succeed in building our online business. Thanks again for your commitment and focus.
  
  
  
  Regards, Kevin

The idea is that engagement mapping will convince advertisers that the ads consumers saw before they searched actually led to the purchase of their products, not the search ad that took the consumer to the vendor's online store. "We think paid search is getting more credit than it deserves," Johnson told Fortune. He hopes engagement mapping will convince advertisers to spend less on search and more on types of advertising Google doesn't have completely locked up.

This is a misconception of what search advertising is. It's not "brand advertising" meant to convince consumers to purchase a product. It's a way to make sure a product is highly visible when consumers are looking for it, no matter how they decided to look for it. If a series of ads on content sites convinced a consumer to purchase a product, that product's vendor better be the top search ad when that convinced consumer goes searching for it.

The good news? Engagement mapping — an effective way to tell how well a brand advertising campaign is working — won't erode the power of search, but it will take money from less measurable TV, radio and print advertising. The bad news? From the top, Microsoft may be too obsessed with Google to notice.

We are considering a transaction with Yahoo!, not a full acquisition, but we reserve the right to reconsider that alternative. We are not where we want to be. We are better with algorithmic search and we are investing to differentiate in vertical experiences. Hear more Wednesday. Actions we are taking: With search, we are ready to throttle up distribution initiatives. We are building new releases of Windows, Windows Live, Windows Mobile, Internet Explorer, Search and MSN with an eye towards optimizing and unifying. Fix our online branding-Our brands are fragmented and confusing. we need to clarify. In display advertising, we will increase engineering resources. Build on our strengths in Europe. Expand strategic partnerships. Pursue small, targeted acquisitions.

From: Kevin Johnson
Sent: Sunday, May 18, 2008 1:30 PM
To: Platforms & Services Division
Subject: Online Services Strategy Update


We have been executing against the core strategy I first presented at our Financial Analyst Meeting in July 2007 to go after the growing opportunity in online services and advertising. Four pillars have formed the basis of our strategy:

1. Consolidate ad platform and win in display
2. Innovate and disrupt in search
3. Deliver end-to-end user experiences across PC, phone, and Web
4. Reinvent portal and social media experiences

We have many options that support acceleration of our strategy. As announced earlier today, we are also considering new alternatives for a transaction with Yahoo! which do not involve a full acquisition. At this time, we have not made a new bid to acquire all of Yahoo!, but we reserve the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo!, shareholders of Yahoo! or Microsoft, or with other third parties.

Regardless of the outcome of any new discussions, it is important that we continue to move forward to strengthen our online services business. The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like. To that end, we will be accelerating elements of our core strategy, and breaking ground in new areas.

On Tuesday, Brian McAndrews is hosting advance08, our annual advertising conference here in Redmond. Over 400 leaders from across the media, technology and advertising landscape will be here for two days to engage in dialogue on industry trends and opportunities. These leaders are some of our closest partners in the digital transformation of the advertising industry, and they recognize the increasingly important role Microsoft plays in this transformation. We are very excited to have these customers and partners on campus.

Brian's keynote will highlight our unique position in the advertising industry. It's amazing to see how far we've come with the aQuantive acquisition in differentiating our advertising platform. This foundation is paying off, with Q3 advertising revenue growth of nearly 40 percent, a rate that has accelerated over the past two quarters while growth rates at Google, Yahoo and AOL have slowed.

On Wednesday, we will be announcing a major new initiative that our search teams have been driving. We are getting better and better with our core algorithmic search, and at the same time, we are investing to differentiate in vertical experiences and to disrupt the current model. You'll hear more about our plans Wednesday.

advance08 will underscore our commitment to search and online advertising, and you'll continue to see announcements demonstrating our progress in this space. Earlier this week, I spoke to leaders across our online services business about our core strategy, the importance of acceleration and a set of actions we are taking, including:

1. Innovate and disrupt in search-We will disclose some elements of our plans with this week's release of search and sharpen our focus on user experience and business model innovation. The work we have done over the last four years on search has established a solid foundation to build upon.
2. Win targeted distribution-With this release of search, we are now ready to throttle up broader distribution initiatives.
3. Reinvent portal and deliver new experiences across PC, phone and Web-We are building our new releases of Windows 7, Windows Live wave 3, Windows Mobile 7, Internet Explorer 8, Search and MSN with an eye towards optimizing and unifying experiences and scenarios.
4. Fix our online branding-Our brands are fragmented and confusing today, and we recognize a need to clarify and align our online branding . We are now driving forward to address this opportunity.
5. Win in display advertising-We have an advantage in tools, agency assets/relationships and a team laser-focused on capturing the display ad platform opportunity. As we build from a position of strength, we will increase engineering resources to drive even more innovation.
6. Build on our strengths in Europe-As measured by comScore in March, our online business in Europe is doing well. We have over three times the page view volume and nearly seven times the minutes of usage compared to Yahoo!, and 68% reach to internet users throughout Europe. We will double down on our investments in Europe and expand on this strong position.
7. Expand strategic partnerships-In addition to our organic innovation agenda, we will expand strategic partnerships that increase inventory on our display ad platform, enable new paradigms in search and accelerate growth in key geographies.
8. Pursue small, targeted acquisitions-Looking forward, we will focus on small, targeted acquisitions that support our work in search, complement our value in the ad platform and help us grow scale in key geographies. Recent acquisitions including Rapt and YaData are examples of these types of acquisitions.

The PSD leadership team is actively working on the FY09 budget, including resources and investments to support the actions above. Additional elements of our work will be revealed in the coming weeks, leading to our Financial Analyst Meeting in July where I will share more details on our strategy and business/financial outlook.

As we move forward, I want to remind everyone that we are well positioned to compete. We have some of the industry's best assets on our side: technical and business talent, global scale, a culture of self-criticism and tenaciousness, a healthy balance sheet and an unparalleled product portfolio. It's time for us to seize the opportunity.

Thanks again for your continued leadership and focus on our business.

Regards,

Kevin Johnson l President Microsoft Platforms & Services Division

Kevin Johnson, president of Microsoft's Platform and Services Division, which includes Windows and MSN, is the most likely candidate. But like Ballmer, he has a sales background, and he, too, was involved in the failed Yahoo bid. Chief operating officer Kevin Turner is despised within the company, and despite previously being Wal-Mart's CIO, he's not seen as having the right kind of technology background. Ray Ozzie, a respected innovator, has yet to introduce any game-changing new products. Robbie Bach heads up the division that houses the Xbox, one of Microsoft's few hits outside Windows and Office — but he seems too disconnected from Microsoft's core businesses. The rest? A muddle of undistinguished Microsoft lifers and recently imported suits.

Was parked on University Ave right east of University Cafe near Waverly, on a conference call dealing with business for my own startup company. And lo and behold, Steve Ballmer, Kevin Johnson and some other woman walked out of the building on the corner (right @ 3pm). They walked along University Ave toward El Camino Real. I worked at MSFT for 3 years before leaving to do my start up so I know it was certainly then. Lots of silence on the Yahoo deal, and perhaps they were on Facebook business unrelated... but who knows.

Online advertising is an $80B industry by 2010. Yahoo! and Microsoft creates an alternative to [Google]. Yahoo! has issued a press release rejecting our proposal. We have a full and fair proposal on the table. We expect this transaction will close in the 2nd half of 2008.

Q: Benefits?
A: Media companies desire competition. Expanded R&D would drive innovation. Scale economics deliver value.

Q: Impact on staffing? Any reductions?
A: Some overlap. We have no shortage of opportunities. We need people.

Q: The cultures!?
A: Great engineering can change the world.

Q: Live, MSN, and Yahoo!?
A: The Yahoo! brand is the value. It is premature to make decisions about brands and technologies.

Q: Yahoo!'s technology infrastructure is non-Windows based?
A: In other cases we have prioritized continuity.

Q: Silicon Valley and Redmond?
A: Absolutely.

Q: Interact with Yahoo! employees?
A: No.

Q: Customers and partners?
A: Microsoft and Yahoo! continue to compete.

5:41 a.m.: Johnson is discussing operational "redundancies." Translation: When it comes to layoffs, Yahoo ain't seen nothing yet.
5:42 a.m.: Ray Ozzie, Microsoft's CTO, is giving a high-minded speech about how the Web has "transformed society." Derides search as "10 blue links," says the Web has evolved to "social media." Which would sound less like sour grapes if Microsoft were successful in either field. He ends with reference to "magic of software."
5:45 a.m. Microsoft CFO Chris Liddell says the company hopes to close the deal in the second half of the year. For Yahoos, that means at least 5, up to 11 months of uncertainty. Should be a field day for Valley recruiters.
5:47 a.m. Questions are starting. Why buy Yahoo, since you already bought aQuantive? Answer: Scale.
5:49 a.m. Question: Revenue synergies have been elusive in software deals. Kevin Johnson fields this one. Answer: Revenues are from advertising, not traditional software. "Scale economics" drive yield in both search and display advertising.
5:51 a.m. Ballmer: "We've been losing money. Our plan is not to lose money in the future."
5:53 a.m. Johnson: Advertisers have been giving Microsoft "unsolicited" praise for the offer. They want a No. 2 in the market, he says.
5:55 a.m. Microsoft-Yahoo can be "more efficient" with engineers working on search. Translation: More layoffs!
5:57 a.m. Question: Why not just spend more on R&D? Answer: Time to market.
5:58 a.m. Question: Why not wait until it could be a friendly offer? Answer: "We look forward to the dialogue."
5:59 a.m. Question: What happens to the MSN and Live brands? Johnson: "We love the Yahoo brand." Microsoft will "go through a process" to determine what to keep. Ballmer: "There will be a Windows Live. There will be an Office Live.... Yahoo those are all powerful brands." Sounds like MSN might be dropped.

Here's a pitch an AdECN marketer emailed me a couple of months ago:

I wanted to point out something that is not being discussed much at all (yet) by the media during the current consolidation of the ad exchanges. With the purchase of Right Media and DoubleClick by two of the paid search and display ad giants in the industry, both of these firms will no longer be in a position to offer neutral, independent auction-based exchanges for the buying and selling of interactive ad inventory. Why?

Due to these firms "having a dog in the fight" by owning their own ad networks, it will be virtually impossible for them to not favor their own proprietary ad display outlets when ad inventory is being bought and sold. Worse, it would appear that it will be next to impossible for ad networks using these exchanges to be certain that their interests are being fairly and consistently represented. Also, because these exchanges allow advertisers, ad agencies and publishers to also trade directly on their systems, ad networks are threatened not just by Right Media-Yahoo! and GoogleClick's own ad network activities but by their own customers now being empowered to bypass them.

Highlights:
Steven Sinofsky comes in from Microsoft Office to lead Windows and Windows Live engineering.
The new Windows Live Platform Group forms under Blake Irving, who reports to Johnson.
Yusuf Mehdi (pictured) is leaving Information Services at MSN, but despite rumors of a forced exit, Johnson has Mehdi listed as his new Chief Advertising Strategist.
Will Poole is in charge of "reaching and empowering our next billion customers." No pressure, Will!

After the jump, Johnson's complete reorg list, straight from the memo. Because the official report just isn't enough.

Microsoft Realigns Platforms & Services Division for Greater Growth and Agility [Microsoft]
Earlier: MSN Meltdown: Kevin Johnson shuffles PSD, round one [Valleywag]

Windows and Windows Live Group

Steven Sinofsky is joining PSD to lead engineering for the Windows and Windows Live Group.

Steven has worked in the Office engineering organization for many years, and is a proven leader with a track record of predictable release cycles, strong planning processes, and customer-focused innovation. He has worked on the Office products since 1994, working on all the 32 bit releases of Office. Steven's skills and experience in software engineering and in building engineering disciplines to plan, execute and deliver on large scale development efforts will be a great asset to PSD, and I am thrilled to have him join our team.

The Windows and Windows Live Group brings together engineering teams from MSN and Windows Client that will now jointly focus on customer experiences that make up Windows Live and our client platform offerings. Amir Majidimehr and the Windows Digital Media Division will now report to Chris Jones. Chris continues to own the engineering deliverables for Windows Client to Windows Vista. This new organization also brings together strategic Live technologies such as search, Internet Explorer, Live.com, and Live communications/collaboration in a unified engineering organization that will drive innovation at a very rapid pace.

Live Labs, led by Gary Flake, will foster innovation across all of our Internet technologies, including the Windows Live platform and online business groups, and continue to expedite the transition of research to products and foster the connection to Microsoft Research.

Steven will drive Windows planning and will integrate planning efforts across Windows, Windows Live, COSD, and Server & Tools.

As part of our broader effort to strategically align assets across our three divisions, Robbie Bach and I are taking this opportunity to move Joe Belfiore and the eHome team to the Entertainment & Devices division. By aligning Xbox, MSTV, and Media Center Edition we will provide an even better entertainment experience for our customers and partners.

Steven will immediately begin the transition from his current role in Office to this new assignment and we expect that the transition will run through May. This enables us to do a smooth transition as we make this leadership change.

Steven's direct reports now include: Chris Jones, Christopher Payne, Dane Glasgow, Gary Flake, Mike Conte, Nishant Dani, Steve Liffick, and Colleen Johnson.

Core Operating System Division (COSD)

Brian Valentine continues to lead COSD and will report to me. Brian's mission remains unchanged: Shipping Windows Vista with the highest quality and user experience possible.

COSD will continue to focus on building the industry's leading operating system foundation to power Microsoft platform products.

Since its inception, the COSD "dream" has been to lead our transition to a more layered Windows operating system; one where the core OS and our customer experiences in client, server and embedded are architecturally isolated from each other and where these teams can ship on independent cycles, innovating at a pace appropriate to their business requirements. This "dream" will continue to be a key focus area for COSD and will be a key element in the post-Vista Windows planning efforts.

The Security Technology Unit within COSD has delivered product innovation, managed the engineering process that focuses on security of all products, and led the security outreach and communication process for our customers and partners. Mike Nash has led this team and made a significant contribution in this important area over the last 4 years. Mike will be preparing for his next assignment at Microsoft and will begin a transition process from his current role leading security. Ben Fathi will succeed Mike and over the next two months, Mike will be working closely with Ben to ensure a smooth hand-off. We will announce Mike's next assignment as he completes this transition and his planned sabbatical this summer.

Brian's directs include: Amitabh Srivastava, Darren Muir, Mike Nash, Jawad Khaki, Ben Fathi, Lori Brownell, Chuck Chan, Deb Weissman, Marshall Brumer, Alex Simons, and Susan Boyd.

Windows Live Platform Group

Blake Irving will lead a newly formed organization called the Windows Live Platform Group, reporting to me. This group's mission is to build and operate the most efficient, global Internet-scale services platform with the broadest and most profitable advertiser and developer ecosystem. To execute fully against the mission, Blake's new team unites a number of MSN teams that have been building platform services and operational capabilities for our online offerings.

This new organization recognizes that a "platform", in the services context, includes not only the software engineering functions, but also the service operations organization critical for "operating a platform" 24 hours a day, 7 days a week. The Windows Live Platform group will be a center for operational and engineering excellence and will include datacenter and technical operations, advertising platform, storage and payments infrastructure, backend communications and collaboration platform, business and customer intelligence, security and safety, identity, VoIP, mobile, global development, and supportability capabilities. The new organization will support application services built across the company, including Windows Live, Office Live, Xbox Live, and other Microsoft applications. Providing a scalable platform at the highest efficiency and utmost quality, in tight partnership with the Windows and Windows Live Group are key elements of this group's mission.

Blake's new organization will also have a tight connection to Ray Ozzie and his team for strategic direction and collaboration on v.Next of our Windows Live platform, our future effort to seamlessly deliver new software and services platforms to our customers (including end users, developers, and IT Pros). Having a tight alignment with Ray's team will position us to better deliver on this broad vision in the future.

Blake's direct reports now include: Arnold Blinn, Brian Arbogast, Debra Chrapaty, Craig Unger, Gerard Zytnicki, Leslie Osborn, Ryan Hamlin, Tarek Najm, and Janice McKeever.

Online Business Group

David Cole will lead this group in an interim capacity until a successor is named. This group will include MSN.com, MSNTV and MSN Internet Access programming, advertising sales, business development, and marketing for Live Platforms, MSN and Windows Live. This team's mission is to deliver world-class go to market leadership, that wins customers to our services and builds a world leading advertising business. The responsibility for the monetization of our Live Platform, MSN and Windows Live assets is owned by this team, and includes end-to-end management of the online P&L.

Yusuf Mehdi is taking on a new assignment as Chief Advertising Strategist reporting directly to me. Yusuf will play a key role working with the leadership team and me to shape our strategy for the growing online advertising market. He will ensure that we are connected across groups and collaborating with other Live offerings across Microsoft, and be a key spokesperson for the company in the online advertising industry.

In support of these efforts, Martin Taylor is named CVP of Windows Live and MSN Marketing, reporting to David. Martin will run product management and marketing for Windows Live services, MSN.com and our Live Platform, focusing on developing the brand and bringing our new service innovations to customers.

As mentioned last month, David and I are working on naming his successor, and it is our intention to name and have someone onboard before David begins his leave of absence.

David's direct reports include: John Matheny, John Nicol, Michael Rawding, Martin Taylor, Cory Van Arsdale, Alexandra Stewart, and Cheryl Kritsonis. Christa Davies, as the acting Online Business CFO, also reports dotted line to David.

Windows Client Marketing Group

Mike Sievert continues to lead Windows Client Marketing and will now report to me. Mike and his team will continue to manage Windows Client marketing and product management, driving clear and compelling communication of our platform value to all segments of the market. Mike's team will be responsible for stewardship of the Windows brand, supporting all field organizations as they execute in-market, and driving overall performance against revenue and contribution margin targets for Windows Client. In addition, this team will work closely with Windows Live marketing to ensure we communicate the clear value proposition related to Windows Vista and Windows Live.

Mike's direct reports include: Brad Brooks, Brad Goldberg, John B. Williams, John Curran, and Cherlynn Houston. Hoke Horne, Windows Client CFO, will have dotted line reporting to Mike.

Market Expansion Group

Will Poole is moving to a newly created position focused on reaching and empowering our next billion customers. His group will be expanding the opportunities in emerging markets for platforms and services, growing PC use in under-served segments of developed markets, and driving sales of more laptops, tablets, and new form-factors to PC users. Establishing a Market Expansion organization with dedicated marketing and R&D resources focuses accountability on these growth opportunities for our company.

The Market Expansion group has responsibility for emerging segment offerings such as Windows Starter Edition, pre-paid & subscription computing, and shared-access projects, as well as responsibility for coordinating across all R&D organizations on innovative solutions and business models that target emerging markets. Their charter includes working closely with Windows Client Marketing and the SMSG emerging markets marketing and field organization to drive growth and continuing to expand the Windows Genuine Advantage (WGA) initiative to drive reduction in unlicensed PCs. The group will also focus on electronic software and license distribution as a key growth opportunity for Microsoft and the industry. Finally, they will continue driving hardware innovation for Windows, especially focused on "tailored PCs" including innovative form-factors and the platform-level innovation needed to meet the explosive growth of mobile PC users.

Will's direct reports now include: Joe Peterson, Tom Phillips, Craig Fiebig, Bill Mitchell, and Michele Johnson.

Server and Tools Business Group

Bob Muglia continues to lead our Server and Tools Business and there are no organization changes. STB's focus continues to be driving innovation in products and services that empower IT Pros and Developer teams across the IT lifecycle.

Bob's direct reports include: Paul Flessner, Ted Kummert, Bill Laing, Andy Lees, S. Somasegar, Kirill Tatarinov, Robert Wahbe, Roberto Cazzaro, and Heidy Krauer.

Colette Kress , STB CFO, will have dotted line reporting to Bob Muglia.

Developer and Platform Evangelism

Sanjay Parthasarathy continues to lead our Developer and Platform Evangelism group and there are no changes in DPE. DPE continues to lead our evangelism and community efforts to reach developers, IT Pros and partners to help them build great applications and solutions on the Microsoft platform.

Sanjay's direct reports include: Charles Fitzgerald, Vic Gundotra, Dan'l Lewin, Eddie Amos, Rob Bernard, Pat Donka, John deVadoss, Mark Hindsbo, Jean Paoli, Bob Aoki, and Megan Tetley.

Finance

Recently announced PSD CFO Brent Callinicos continues to lead our Finance group and there are no new changes to announce today.

Brent's direct reports include: Anne Gauthier, Cathy Corley, Joe Matz, C.T. Tomlin, Charlie DeJong, Christa Davies, Hoke Horne, Colette Kress, and TBH MSN CFO.

Human Resources

Brian (Skip) Schipper, PSD HR, leads the Human Resources group.

Skip's direct reports include: Debra Bartlett, Jerry Dark, Kalen Holmes, Kathy O'Driscoll, Kristen Roby, Leslie Rosenfeld, Sherry Hill and Tim Dubel.

Now Kevin Johnson, the newest of the Microsoft beast's eight heads, has issued a decree to his entire organization. Johnson's memo to the Platforms and Services Division lays out his plan for MSN, Windows Live, and his other fiefdoms.

A source inside PSD leaked the missive — an introductory memo followed by an outline of the reorg. Johnson's main points:

Windows Vista + Windows Live = the future.
Windows Live — oh, and you too, MSN — will enjoy a growing online advertising industry.
"Our software + service approach and the expertise we have built in MSN can support innovation agility as we enable the Live era." In other words, "Thanks for training the next generation. Don't let the door hit you..."
Jim Allchin is still Johnson's co-president. He'll run the "dining with bloggers" department.

After the jump, the first part of Johnson's memo.

Earlier: MSN Meltdown: Senior VP David Cole forced out, Yusuf Mehdi is next [Valleywag]
And: MSN Meltdown: Michael Rawding quits [Valleywag]

Since taking on my new role last September, I've spent quite a bit of time focused on how best to position the Platforms and Services Division (PSD) for the future. I want to share with you some of that thinking and some new changes we are undertaking today.

We continue to see a strong wave of innovation from Microsoft making its way to market. PSD is a big part of this wave. The recent launches from our Server and Tools business, including SQL Server 2005, Visual Studio 2005, BizTalk 2006 and Windows Server R2, have been well received by customers and partners, and the team is now focused on Longhorn Server. The Windows client team continues to drive forward on Windows Vista with the latest CTP that was released in February. The MSN division continues to deliver new innovation such as Live Mail, Live Messenger, our constantly improving search offerings and many other Windows Live offerings. MSN itself has enabled new channels and content and continues to expand. All of these product and service releases are evidence of a strong wave of innovation and momentum in the market.

Over the last few months, I've made it a priority to listen to what's on people's minds. I have had the opportunity to conduct more than one hundred 1:1's and have met with over 2,000 of you at all-hands meetings and roundtables. Not surprisingly some common themes have emerged. Your questions, concerns and feedback, taken together with the dialogue within our leadership team pointed to the need to address three key questions for our division:

* What are the next steps for advancing our vision of software + services?
* Are there growth opportunities upon which we should be more focused?
* How can we be more agile?

As our current product pipeline hits the market, it's a good time to lay the foundation for the future of PSD. I have been working with Jim Allchin and other PSD leaders to establish an organization that positions us for the future. This has been a very collaborative process and we have considered many options. The PSD organization changes we are announcing today are driven by the following objectives which are rooted in the input I've received from so many of you:

1. Software + Services: Position for the next wave of innovation relative to our vision for Windows Live. Ray Ozzie and I continue to work closely to advance the Live vision announced last November. End-to-end scenarios that enable seamless experiences across client, server, and services are critical for all customers, and Windows Vista + Windows Live begins to address this vision. Utilizing services as a distribution vehicle for user experiences enables us to embrace the concept of software + service and deliver innovation to market faster. Doing this requires us to think about the Windows Live platform as a key to the value proposition we deliver to developers. These changes provide clear connections with Ray and his team to help shape the Live platform, Live experiences and the marketing that supports Windows Live.

2. Growth: Focus on the key growth opportunities ahead of us, specifically online advertising, emerging markets, and enterprise computing infrastructure. Our Server & Tools business has shown strong growth over the last few years, and has great opportunities to continue that momentum. Windows Client has growth opportunities in premium offerings, new solutions for emerging markets, and in reducing unlicensed PCs. Certainly the upcoming launch of Windows Vista will spark a new wave of growth across our broader industry and partner ecosystem. Analysts predict the online advertising industry will grow to $35B+ by 2008 which creates opportunity for our MSN and Windows Live businesses.

3. Agility: Lay the foundation for accelerating our pace of innovation, including focusing on ways to improve clarity of decision making, drive greater accountability, and reduce layers in the organization so we can move faster. It also means utilizing existing expertise within the division to embrace services — and rapid release cycles that services can enable — to all aspects of our business. Our software + service approach and the expertise we have built in MSN can support innovation agility as we enable the Live era.

As part of the next step of Jim's transition, we discussed when it was appropriate to move his direct reports to me, and decided that this organization change was the right time. Jim's overall partnership role with me in running PSD will not be changing.

The PSD leadership team I've put in place to align against these key objectives includes:

Steven Sinofsky , SVP Engineering, Windows and Windows Live Group
Brian Valentine , SVP COSD
Blake Irving , CVP, Windows Live Platform Group
David Cole , SVP, Online Business Group
Yusuf Mehdi, SVP, Chief Advertising Strategist
Mike Sievert , CVP Windows Client Marketing
Will Poole , SVP Market Expansion Group
Bob Muglia , SVP Server and Tools Business Group
Sanjay Parthasarathy , CVP Developer and Platform Evangelism
Brent Callinicos , CFO and CVP Finance Group
Rick Thompson, CVP supporting a special assignment
Darryn Dieken , Technical Assistant
Brian "Skip" Schipper, GM Human Resources
Mary Snapp , CVP and Deputy General Counsel, Legal and Corporate Affairs

I know change is never easy but I truly appreciate the focus that people throughout PSD have on innovation and the wave of products and services our team is delivering to the marketplace is impressive. These changes are intended to help us increase our agility, embrace the concept of software + services, and position us for an exciting future together.

Let's continue to impress customers and partners with our innovation, and drive satisfaction to levels we've never achieved before. Let's also stay focused on our priorities as we make this transition and align our organization for the future.

For those of you who will be on campus in Redmond on Friday, March 24, I hope you can join me in person, in B33/McKinley Room, from 10:00 11:00am. The meeting will start promptly at 10:00 a.m., so please plan on arriving a few minutes early to ensure you get a seat.

I hope everyone else will watch the webcast, which will be streamed live on the intranet and archived there for later viewing.

Whether you attend in person or via the Net, y ou can submit your questions to [redacted]@microsoft.com before the meeting begins.

Thank you for your contribution and your continued focus on innovation and our customers.

Kevin

Last year, Microsoft exec Kevin Johnson was promoted to co-president, with MSN as one of his fiefdoms. Johnson asked about Cole and heard he wasn't too hot. Now he's ushered him out. But Johnson gave Cole time to gather his wits and spin his "leave of absence" as a "personal decision." From Cole's internal memo to MSN:

Did Kevin or Steve ask me to leave? No. Both Kevin and Steve made it clear they prefer that I stay in a leadership role in MSN. My Leave of Absence is a personal decision I made on my own.

In other words, "You don't have to go home, but you can't stay here."

Cole, far left, on stage with Bill Gates at a presentation of Windows Live this November. The end is near. [Source]

More analysis and the full memo after the jump.

Reading the memo is a bit sad, thanks to the obvious pains Cole takes to put a brave face on all this.

Have I lost confidence in MSN's ability to win? Ha! Not even close. While our progress in the market doesn't completely show it yet, I feel strongly that our strategy, our investments, and our leadership is on track to get us to a winning market position.

Maybe he really believes it, or maybe even he knows that the future is Live. Someone ought to hold Cole and say "It's okay, David. You tried." After all, no one wants to head up a dying web brand.

Incidentally, there's one big question now. Who will Johnson pick to replace Cole? With Windows Live set to take over Microsoft's online presence, no one wants to get left holding the hot potato.

One exec doesn't have to worry. Yusuf Mehdi, in charge of Information Services under Cole, is expected to soon take his own Johnson-forced "sabbatical."

Mehdi presents MSN 8.0 in 2002. Is Bill already planning MSN's doom? [Source]

Below, the memo:

From: David Cole
Sent: Friday, February 17, 2006 9:02 AM
To: MSN & Personal Services (WW FTE's Only)
Cc: Executive Staff
Subject: David Cole

I want to let you know about a personal decision I ve made to take some time off.

To begin, I want to stress how strongly I believe in what we are doing here in MSN, and what the company is doing overall. These are exciting times for Microsoft and the MSN team. I m thrilled about our Windows Live strategy and progress, and how we are investing in MSN.com. The progress we are making across the business is truly amazing and I am so very proud of all that our team has accomplished. We are competing hard in what I believe is the most exciting segment in the technology industry. We re investing heavily to win, we've got a strong set of leaders, we've got the right strategy, and the company is backing us to win while transforming itself to become a leading software services provider to all customers. And I want to point out explicitly that I believe in our alignment with the Windows team under Kevin's leadership of PSD.

But after nearly 20 years at Microsoft, including 6+ years in the MSN division, I have decided to take some down time. I won't be going anywhere right away and I m committed to continue leading the division to help Kevin develop a solid transition plan. I expect to stay on through April, at which point I'll take a 1-year Leave of Absence. During my remaining time on the job, I'll make sure our strategy is clear, that we are invested at levels to win, that we are off to a good start on FY07 planning, and that there is a good leadership transition.

Obviously, this is not a decision I am making lightly. I love to work, interact with smart people, and have an impact. But during the past 18 months, I've been contemplating what to do with the second half of my career and I've been so busy that I still don't have the answer. Taking this leave will give me the time needed to recharge and figure out what is next for me. My initial plan is to spend more time with my family (whether they like it or not), catch up on personal projects, recreate a lot more in the outdoors, and do other recharging-type activities. I also will take time to explore the breadth of what the world has to offer and decide on the type of work I want to commit myself to for the next 10, 15, or 20 years.

As I think back over the past 20 years, I can still vividly remember my first job in Product Support in 1986 when I was answering phone calls from customers. That was an incredible starting point for me as I learned from the customer point of view. From there, I had the opportunity to participate and lead aspects of some world-changing projects like Windows 3.0, Windows 3.1, Windows 95, Internet Explorer, Windows CE, and now MSN and Windows Live. Throughout that time, I've had the privilege of working with an incredible number of smart and talented people. It's been a complete thrill ride that s allowed me to continually pursue my passion. The support I've gotten from all across the company — at all levels — has been astounding.

I m sure there will be some speculation about why I m taking a break now I have a great job at an amazingly exciting time in the company s history. And since I know this might not make immediate sense to some, I want to directly address a few of the obvious speculations head on:

Did Kevin or Steve ask me to leave? No. Both Kevin and Steve made it clear they prefer that I stay in a leadership role in MSN. My Leave of Absence is a personal decision I made on my own.

Do I not like being part of PSD or Kevin's org? Quite the opposite is true. I can take some credit for helping get the MSN organization aligned more closely with the Windows organization to execute on our Windows Live strategy. Kevin is a tremendous leader and I have great respect for him. We re poised for success and if this were a different point in my career, I would absolutely be staying.

Have I lost confidence in MSN's ability to win? Ha! Not even close. While our progress in the market doesn't completely show it yet, I feel strongly that our strategy, our investments, and our leadership is on track to get us to a winning market position. It's a matter of timing and execution. I definitely would not be taking a break if I thought things were headed in the wrong direction — that s not my style. I m choosing to take a break precisely because we are headed in the right direction with great momentum.

There is never a good time for a transition like this to happen. But I feel that the division is in really good shape from a strategy, leadership, and investment level point of view. We just need to go get it done, and that is happening across the division at all levels. I will be working closely with Kevin to figure out the transition plan for new leadership and until that plan is announced, you can count on me through April as you always have.

To close, I want to thank all of you for your ideas, your support and your hard work in MSN. We ve made incredible progress and I want to encourage you to keep innovating, growing the business, and satisfying customers. There is an exciting future ahead with Windows Live and MSN, and I know I will hear and read great things about this group as the year unfolds.

Keep up the great work!

David

Comments, rebuttals, analysis, and educated predictions are, as always, welcome. E-mail tips@valleywag.com.

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