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Friday, June 04, 2004 - Page updated at 12:00 A.M.
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Microsoft CEO moves to oversee lagging division

By Kim Peterson
Seattle Times technology reporter

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Microsoft Chief Executive Steve Ballmer is moving to directly oversee the unit that makes software for small and midsize businesses, a division that had one of the worst performances within the company last quarter.

The division, the Microsoft Business Solutions Group, will also lay off 100 research and support positions in North Dakota, Ohio and Denmark, executives said. Microsoft will then add the same number of jobs, mostly in sales and marketing, to the unit, which has about 2,000 employees.

Executives said Ballmer's involvement does not signal the unit is struggling or needs extra help.

Ballmer has been known to focus on specific divisions from time to time. At one point, he even moved his office to Microsoft's RedWest campus to delve into the company's Internet efforts.

Ballmer's latest move shows that Microsoft is more committed to making software for smaller businesses.

"In no way does this mean retrenchment," said Orlando Ayala, a senior vice president overseeing the sales force for small and midsize businesses. Ayala's workload will now include the role of chief operating officer of the Business Solutions team.

Microsoft also said Doug Burgum, a senior vice president responsible for the unit, will report directly to Ballmer, and Ayala will report to Burgum. Previously, Burgum and Ayala reported to Jeff Raikes, a group vice president.

Microsoft began to ramp up its small-business unit in 2001 when it bought Great Plains Software, a Fargo, N.D. company, for $1.1 billion. A year later, it paid $1.3 billion for Danish company Navision, which made accounting and customer-relationship software.

Since then, it has been integrating the two acquisitions and developing its strategy in the market, which is so fragmented that no one company commands a strong lead.

"There's a lot of opportunities for vendors to go in there and capitalize on the dynamics that exist," said Helen Chan, an analyst who follows the small-business market for The Yankee Group.

Microsoft has a considerable brand name in the market, mainly because of the success of its Office products, but is still a relatively new entrant in the business-applications arena, she said.
 
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The market is growing faster than the overall information-technology industry in terms of spending, said Ray Boggs, a small-business analyst with IDC. In 2001 and 2002, total technology spending declined 5.5 percent and 5.9 percent, respectively, from the year before, he said, and in 2003 it rose just 0.7 percent.

In the small and midsize business market, he said, spending was flat in 2001 but rose 1.8 percent in 2002 and 4.1 percent in 2003.

Boggs said the announcement shows the kind of expectations Microsoft has for the business.

"What they're basically saying is, 'We've been shining this growth lamp on small business, and it's really been showing results. Let's take it to the next step and have these folks come and sit at the grownups table,' " he said.

Business Solutions is not a moneymaker, and sales of its accounting, e-commerce and other software are minuscule compared with those of Windows or Office products. For the first three months of this year, the unit reported $153 million in revenue — just a 4 percent increase from a year earlier. It had a net loss of $65 million, compared with a $92 million net loss in the year-ago period.

In April, Microsoft lowered its revenue forecast for the division for the quarter ending June 30. Sales should be about $180 million, $25 million less than previously forecast, because of lowered sales expectations in the United States, Chief Financial Officer John Connors said at the time.

"Our focus is to improve this business unit's performance over a multiyear period," he said.

Burgum said the division met its expectations for the quarter but was being compared with very high performances by some of Microsoft's other business groups.

"We have very high aspirations for this business," Burgum said. "We still continue to outgrow the competition, but that doesn't mean it's matching our aspirations."

The new sales-and-marketing jobs will include more experienced people in the technical and sales side, Ayala said. Microsoft will also spend more money on its retail-management-system business, which replaces the traditional cash register and credit-card machine setup at stores.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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