Sinofsky's Exit Points To Major Microsoft Shakeup

Windows chief's sudden departure comes amid questions about Windows 8 sales and Microsoft's hardware plans.

Paul McDougall, Editor At Large, InformationWeek

November 14, 2012

5 Min Read

Let's get one thing straight. Even if Steven Sinofsky, unlikely as it seems, really did intend all along to quit as head of Microsoft's $18 billion Windows unit less than a month after launching Windows 8, the suddenness of his departure wasn't part of that plan. Something happened, and he jumped -- or was pushed.

The prevailing wisdom is that Sinofsky left, or was let go, because he is not possessed of the collaborative spirit that Microsoft will need going forward to build a truly integrated ecosystem, one in which Windows 8 is the glue that binds PCs, tablets and smartphones and connects them to the cloud.

That may be true, but if it was the only reason behind Sinofsky's hasty exit then the official statement would have been something along the lines of, "Steven Sinofsky has decided to step down from his responsibilities blah blah blah, following a transition period of six months. Microsoft is conducting a search of internal and external candidates blah blah blah."

That's not what we got. Instead, Microsoft on Monday said Sinofsky is gone, EFFECTIVE IMMEDIATELY, and there is no new Windows division head. His responsibilities will be split between two execs. Windows planning head Julie Larson-Green becomes head of Windows software and hardware engineering, while chief marketing officer Tami Reller takes on the additional role as head of Windows business.

Former Windows Phone boss Andy Lees, meanwhile, was named head of corporate development and strategy.

[ Microsoft's mailing address drips with irony. See One Microsoft Way: Smart Road For Developers? ]

Something went down in Redmond, and it went down quick. Otherwise, the company, in deference to customers, shareholders and its own employees, would have announced a more gradual transition atop its most important business unit. The suddenness of the move sent the company's stock down more than 3% Tuesday.

I'm not the only one who believes that this was in no way a planned event.

Former Microsoft engineer Hal Berenson noted this on his blog: "It's pretty clear from what was said, and not said, in the Steve and Steven emails that this wasn't some well planned corporate transition," wrote Berenson.

"It sounded abrupt, like the two of them met earlier in the day with Steven announcing his departure. A friend with experience serving on public company boards of directors was irate over how this was handled, feeling like modern corporate governance practices demanded a more planful transition. I agree, and it is just one more indication that this move was probably an outgrowth of conflict," said Berenson.

So what happened? The only two people who know for sure are Ballmer and Sinofsky. Since they're not saying anything beyond platitudes, here's my take. With the Windows 8 launch out of the way, Ballmer and Sinofsky met, possibly over the weekend, to discuss Sinofsky's future, and it didn't go well. It's possible Sinofsky, age 47, wanted a significantly expanded role at the company going forward, perhaps even a guarantee that he would be named CEO after Ballmer, age 56, eventually steps down, and was dismissed out of hand. And so he quit summarily.

There are signs that Sinofsky's star had waned to the point where he was no longer in consideration for the top job.

Office chief Kurt Delbene, who in the last fiscal year helped spearhead Microsoft's acquisition of Yammer, got 125% of his bonus. Sinofsky oversaw the launch of Windows 8 and Surface, but only got 90% of his bonus -- in part because of a major foul-up that could end up costing Microsoft billions. To fulfill an EU antitrust settlement, the company was to have included a so-called Browser Choice screen on Windows 7. They, um, forgot. The penalties could reach as high as $7.4 billion.

It's also possible Ballmer unveiled a significant shakeup plan to his top lieutenants, who would also include CFO Peter Klein, COO Kevin Turner and interactive entertainment chief Don Mattrick, and Sinofsky didn't like where he fit in. "He may have felt that he was no longer in control of everything," Wells Fargo software analyst Jason Maynard noted, during a phone conversation.

The latter is a strong possibility, as I'm expecting a major restructuring of Microsoft next year. For reasons I spelled out last week, I believe the company will take the full plunge into hardware. Surface and a rumored self-branded Windows Phone are just the first steps. It follows that Microsoft may take a run at Nokia, which would bring Nokia CEO Stephen Elop back to Redmond. (Note that Microsoft issued $2.3 billion in notes last week, possibly to help fund acquisitions.) If such a scenario is in the works, Elop may also have eclipsed Sinofsky as a candidate for Microsoft's top job.

Even if Microsoft does not pull off a major hardware acquisition (Nvidia would be another logical target), I believe it's intent on becoming a seller of integrated systems that combine hardware and software, following the Apple model. That also may have led Ballmer and the board to decide that Sinofsky, a software guy, would not be the next CEO. They could be looking to Mattrick. His group has produced one Xbox-related hit after another, from the Xbox 360, to Kinect, to Halo, to the critically acclaimed, forthcoming Xbox SmartGlass.

There's another possibility behind Sinofsky's sudden departure: That Windows 8 sales out of the gate are a disaster. Ballmer over the weekend said sales of Surface were "starting modestly." Fine, but it may hardly be what the company was expecting after reportedly spending more than $1 billion to promote the new operating system.

Stay tuned on this one.

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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