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Microsoft's integration efforts

Microsoft is blurring the lines between its product and media groups.

Microsoft (MSFT) is blurring the lines between its product and media groups.

The software giant appears to be taking this tack as a result of having developed a clearer picture of where its Internet strategy fits in with its operating systems division, analysts said. Other reasons for the move, they noted, may be Microsoft's desires to achieve profitability from its media group, or to one-up the Department of Justice.

Analysts said the realignment may have coincidental timing and may not be a defensive tactic aimed at minimizing the impact of the DOJ continuing antitrust case against the software giant. The DOJ alleges that Microsoft violated a 1995 consent decree that forbids it from requiring computer makers to bundle its Internet Explorer browser with Windows 95.

"This is a really bold move," said George Koo, an analyst at Burnham Securities. "The Justice Department might feel Microsoft is being a bit presumptuous [by integrating its Internet department with its Windows department]."

Microsoft, Koo said, is saying that they need the freedom to integrate, and they are taking steps to do it internally, which is exactly the opposite of what the DOJ is saying.

Microsoft yesterday announced that the group overseeing the development of Internet Explorer has been plucked out of the applications and Internet client group (AICG) and moved under the umbrella of the personal and business systems group (PBSG), which oversees all operating systems development.

The Redmond, Washington-based company also said yesterday that it is realigning certain company divisions and executive positions to better integrate related business units and better refocus its Internet properties and Windows groups.

Further integrating the browser with applications and tools is consistent with everything Microsoft has been saying in DOJ proceedings about the need to make Windows more compatible with the Internet, said David Readerman, an analyst with NationsBanc Montgomery Securities.

Brain Goodstadt, an analyst with the S&P Equity Group, agreed that the reorganization is a natural part of the company's evolution. "The products are fundamentally integrated with each other, and this brings the businesses together, too," he said.

"Everything is coming together into one," Goodstadt added. "That is the point of Windows 98."

He noted that, when the Internet was new, Microsoft launched a division to oversee its Internet initiatives. Now that the Net is maturing, the company is realizing that it wants to link its Internet efforts with those it is making within its operating system division, Goodstadt added.

Another reason for the changes may be to put some pressure on the media group to control expenses and merge the cultures of Redmond east and Redmond west, said Readerman, noting that bringing more programming discipline to the media group will increase the speed at which it moves toward profitability.

Lou Mazzucchelli, an analyst with Gerard Klauer Mattison, agreed that the latest division shuffling at Microsoft may be an attempt to better examine the Internet group's cost structure.

"[Internet Explorer] is free," he said. "Microsoft has a standalone group with a free product, and there is not much profitability in that."

Readerman, for his part, speculated that one of the driving forces behind the executive changes might be a recent announcement that one of Microsoft's top executives is taking an extended leave.

Brad Silverberg, senior vice president of Microsoft's applications and Internet client group, has been on leave since June 1997 and, as of yet, has set no date for his return. His absence may have been a catalyst for the reorganization, said Readerman.

"Silverberg is on sabbatical, and the company has got to move forward," he said.

A Microsoft spokeswoman, however, downplayed the importance of Silverberg's leave and said the changes are not a result of his absence. She said the primary motivation for the realignment was a desire to join compatible business groups, such as the Internet Explorer and Windows groups.

In other reorganization news, Brad Chase, former VP of developer relations and marketing for AICG, was named director of marketing for PBSG. Other changes stemming from the realignment include the formation of the applications and tools group, which is made up of the former AICG group and the BackOffice marketing group.