Analysts: Belluzzo would face uphill battle

The Wall Street Journal today reported that Belluzzo will lead Microsoft's online unit. The company declined to comment, but a source confirmed to CNET News.com that Belluzzo had told SGI's board of his negotiations with Microsoft.

Success in the Internet content business has eluded the software giant, which is not accustomed to playing second fiddle in any venture. Microsoft has been trying to find someone to lead its Internet content and commerce efforts since the departure of Pete Higgins in November 1998.

Higgins was head of the company's Interactive Media Group, which was folded into the Consumer and Commerce group following a reorganization in March. The group is now run by Microsoft executives Brad Chase and Jon DeVaan, though the company has been searching for one executive to lead the charge. Chase previously was vice president of Windows marketing; DeVaan served as vice president of desktop applications.

Many say Microsoft has had trouble filling the position because executives have been loath to enter the lion's den in Redmond. Someone running the group is "the tail on the dog--you aren't the head leading the dog," said John Robb, an analyst at research firm Gomez Advisors. "[Belluzzo] is going to have to fend off the many aggressive personalities who will be second-guessing his every move."

In addition, it remains to be seen how the pairing of a hardware executive with two software executives to lead a content group will work as Microsoft competes with America Online for the hearts, minds, and wallets of consumers. Belluzzo ran SGI, a supplier of high-end workstations to companies--which represents a very different customer base from the consumers MSN is trying to attract. Belluzzo, whose resignation from SGI was announced yesterday, also has roots at Hewlett-Packard.

Some analysts said Microsoft's online unit needs a leader who understands media and technology and has a strong grip on consumer retailing over the Internet. Other industry experts said that it's not so much where the person is coming from but whether he or she can move at Internet speed, changing direction on a dime if necessary.

"It really is more about whether this executive understands what it means to grow a company very quickly in terms of acquiring consumers," said Abhishek Gami, an Internet analyst at investment bank William Blair. "Does he know anything about consumers and their mindset?"

Meanwhile, competition in the consumer online world continues to rage, with America Online shoring up its European efforts and moving into other media. Microsoft, for its part, has been looking to other means to gain ground, such as offering low-cost Internet access through a deal with Costco.

Still, although SGI has been buffeted over the past few years by an onslaught of increasingly powerful chips from Intel that can do the same job at a lower price, analysts stressed that SGI's anemic financial performance and Belluzzo's abrupt departure after an 18-month tenure are not necessarily a measure of Belluzzo's potential. SGI is in the midst of a reorganization to try to return to profitability.

"It is much too hard to turn around a company struggling to survive with insufficient resources," Gomez analyst Robb said.

Analysts also said Microsoft's online unit is a tough place to run, given Microsoft's insistence on using it as a testing ground for its software. They cited the company's insistence that Hotmail, its free Web-based email service, use Windows NT software, which has led to several major crashes.

"He'll be under the microscope," Robb said. "It's a tough culture [at Microsoft] if you don't perform quickly."

Analysts agreed that Belluzzo filling a void on the Microsoft online leadership team may be the first step toward the company issuing a tracking stock for its Internet holdings, which would allow the online unit to ramp up with acquisitions in its effort to challenge AOL's dominance in online services. Microsoft executives have said the company is reviewing such a plan but have not given a time frame.

"Having Belluzzo join Microsoft leads me to infer that it is a step in the direction of issuing a tracking stock," said Phil Leigh, an analyst at investment bank Raymond James. "I would presume they will be out there making acquisitions with the currency from their tracking stock. The more critical mass they can get, the more powerful they can be."