Culture

Microsoft takes direct control of WebTV businesses

The software giant has effectively taken much of WebTV's operations away from its co-founders for the first time since the subsidiary was purchased three years ago, sources say.

MOUNTAIN VIEW, Calif.--A high-level reorganization has left Microsoft headquarters directly in charge of WebTV's most promising businesses, a move that sources say effectively takes much of the company's operations away from its co-founders for the first time since the subsidiary was purchased three years ago.

Microsoft confirmed today that Jon DeVaan, senior vice president of the software giant's interactive television group, will personally manage WebTV's "platform" operation, also known as Microsoft TV. That operation has become increasingly important to Microsoft as it has intensified efforts to move into the nascent interactive TV market, while WebTV's original services have waned by comparison.

The assertion of control from Microsoft's headquarters in Redmond, Wash., is a clear departure from previous years, when WebTV operated with relative--and rare--independence from its parent company. Even after Microsoft bought the company in 1997, WebTV co-founder Steve Perlman continued to lead the subsidiary until he was succeeded by Bruce Leak, another co-founder, last year.

Although Microsoft played down the management shift, it is taking place at a critical juncture for the company's growing interactive television initiative. The changes follow some high-profile delays in Microsoft TV products and is occurring as WebTV faces new competition from America Online.

Under the changes, which have not been announced, DeVaan will become acting general manager of Microsoft TV. He will assume responsibilities previously held by the third WebTV co-founder, Phil Goldman, until a permanent successor is found. WebTV spokesman Tim McDowd said Goldman will work on interactive TV business development in the Microsoft.Net initiative.

Leak will remain president of the WebTV Networks service, which provides Internet access through TV sets. But the shift effectively removes Microsoft TV from his direct oversight, leaving Leak to oversee a service that has a history of customer complaints and limited growth.

"Jon DeVaan will be acting general manager of the Microsoft TV group," McDowd said, adding that the company is forming a "TV Leadership Team" made up of DeVaan, Goldman and Leak.

Sources say the shakeup, which caught many off guard among the rank and file at WebTV, is a result of product delays in the Microsoft TV group and was ordered as part of a company-wide reorganization announced last week.

Goldman may have been blamed for the delays because "most of the responsibility for that rests in Mountain View, not Redmond," said Richard Doherty, president of The Envisioneering Group consultancy, referring to the Microsoft campus here; WebTV moved to Redmond in December along with other interactive TV operations. "People do not get promoted for that type of performance."

Microsoft spokesman Ed Grachzyk denied that the management changes were related to any product delays, but sources say executives were particularly frustrated with the postponements of interactive TV set-top boxes for cable systems operated by AT&T, which were originally scheduled for testing in two cities last year.

In addition, Microsoft is expected to miss its deadline next month for the introduction of interactive software in Europe. The delay of digital set-top boxes for United Pan-Europe Communications, watched closely by U.S. markets, could bode ill for anticipated sales this holiday season.

The move reflects the company's evolving strategies for Microsoft TV, which makes a package of server software for interactive television. Since the $425 million purchase of WebTV, interactive television has joined wireless and mobile technologies as a key opportunity for growth of the Windows operating system, which has a limited future in a saturated desktop computer market.

The management changes are taking place as Microsoft faces growing competition in the business of bringing interactive television to the masses. AOLTV, originally scheduled to debut this summer, is expected to offer Internet service and other interactive features through TV set-top boxes in direct competition to WebTV.

Although WebTV executives dismiss any significant threat from the AOL venture, the TV set-top service has seen its share of problems. WebTV subscriber growth has stagnated as it continues to receive complaints from customers.

WebTV's less-than-stellar performance in its core business may have contributed to Microsoft's concerns over its ambitions in interactive television, particularly with partners as important as AT&T. Microsoft sent a clear signal about its hopes in this arena with its $5 billion investment in AT&T last year, but the communications conglomerate has kept its software options open: Even AOL said it was discussing a partnership with AT&T as recently as March.

AT&T has been a major partner of Microsoft in this market since announcing two years ago that it would provide its cable customers with TV set-top boxes using Windows CE software--the interactive TV operating system that eventually was named Microsoft TV. But trials of the software have been postponed repeatedly.

Sources say Microsoft has continually added features and written more software code, pushing back the system's introduction. However, these sources say the process has also been delayed by hardware manufacturers and even AT&T itself.