Departure of key executives clouds Pocket PC debut

The latest version of the company's handheld device will be formally unveiled at an event in New York's Grand Central Station, the company revealed today. The release will kick off an aggressive marketing campaign aimed at making a name for Microsoft in a marketplace dominated by Palm Computing.

"A lot of stuff is banking on this next version--it's do or die," said Diana Hwang, a mobile analyst with International Data Corp. (IDC). "This is now the third go-around."

Preparing for what analysts say is a make-or-break product launch, the Microsoft handheld division also is regrouping. The company today confirmed that several key executives, including Horel Kodesh, vice president of the appliance group, and members of the original Windows CE development team have left for other Microsoft divisions.

"There's obvious pressure from the outside to make this version of CE work--Microsoft really feels that they're behind the eight ball on this one," said Matt Sargent, an analyst with retail market research firm ARS.

Pocket PC is the third iteration of handheld devices based on Microsoft's Windows CE operating system. Originally envisioned as a scaled-down version of desktop Windows, Microsoft has revamped the operating system in response to customer complaints and market apathy.

At the same time, the software company has worked with hardware manufacturing partners Hewlett-Packard, Compaq Computer and Casio to create streamlined devices that can better compete with products such as the Palm V.

Microsoft has admitted that its early attempts at recreating the desktop computing experience on a small device were ill-advised. But the company asserts that the basic premise of offering advanced multimedia performance along with access to office-suite applications was right, if ahead of its time. The company believes that by enhancing the hardware designs and simplifying the software, it is finally poised for success.

"In hindsight, we realize that our software experience was too complex, and it wasn't as easy as it should have been," said Phil Holden, group product manager for the Windows CE mobile group at Microsoft. "From a hardware standpoint, maybe we didn't have as good designs as our competitors."

Microsoft and its assembled manufacturing partners account for about 10 percent of the handheld market, with Palm making up about 70 percent, according to IDC. "The time is ripe for us to make inroads," Holden said. "We understand we're not exactly No. 1."

Unaccustomed to its role as underdog, Microsoft has made major changes with this release. The company has simplified its software so that people don't have to go through as many steps to navigate through applications. It also has included the Windows Media Player, which allows people to play digital music and video files, and Microsoft Reader using ClearType, which makes text easier to read.

Now that the hard work of fixing prior mistakes and enhancing Windows CE is largely finished, it's not surprising that some in the group are looking to new career opportunities, Holden said. Employee moves at the completion of long-term projects are typical, he said.

But analysts question whether the turnover, especially of relatively high-level executives, signals unrest or chaos within the Windows CE group and within Microsoft about the future of the handheld operating system.

"People within the group may realize that it's going to be a hard segment to expand, and there might be unrealistic expectations (for Windows CE) within Microsoft," Sargent said, noting that Pocket PC is by all accounts the strongest version of Windows CE released to date. "I believe Microsoft is committed to Windows CE. I just don't know if they're committed to the same plan every week."

The shakeup may have been inevitable, given the market performance of Windows CE. "The previous members of the team were basically people who were not delivering and people who had not produced well," said Michael Gartenberg, an analyst with Gartner Group. "This is Microsoft culling the ranks little bit to get rid of people who were not bringing successful products to the market."

Heading the top of the list of departures is Harel Kodesh, formerly vice president of productivity appliances. Kodesh has moved on to oversee some of Microsoft's other wireless efforts, Holden said, and has been replaced by Ben Waldman, who used to head up development work for Apple's Macintosh system.

"Ben Waldman is a really smart player at Microsoft," said Gartenberg, asserting that Waldman's experience molding the Windows operating system for Mac users will serve him well in his new position.

"He was very good at understanding that Mac users are not like Windows users," Gartenberg said. "And mobile users are also not Windows users; they have to have software catered to the form factor. Microsoft used to be busy trying to shoehorn Windows into something the size of a postage stamp, which doesn't work."

In addition to Kodesh, Bill Mitchell, formerly director of the mobile electronics product group, and Eric Lange, another architect, have left to "work in the research group looking at future mobile products," Holden confirmed.

Frank Fite, who was part of the original Windows CE development team, has moved to the embedded Windows CE team, which is headed by Jim Allchin, who also oversees embedded Windows NT development. Barry Potter, another key Windows CE executive, has left for the SQL Server Group.

"Change is good," said IDC's Hwang, who noted that a key concern for Microsoft at this point is filling the open positions. "These things happen all the time, wherever you are, at any company. But now they have to fill these holes."