Microsoft shakeup shows Windows Phone 7 is in deep trouble

Robbie Bach, president of the Entertainment and Devices division, will retire later this year after 22 years at Microsoft. He won't be replaced. Instead, the heads of the mobile communications business and the interactive entertainment business - both parts of the division - will report directly to Ballmer starting July 1. The division is responsible for Microsoft consumer products including Windows Phone 7, Xbox, Zune and Project Natal, the company's newest gaming offering.

When Bach retires, he won't be replaced. Instead, senior vice president Andy Lees, the head of the mobile communications business will report directly to Steve Ballmer. So will Senior vice president Don Mattrick, who is in charge of the Interactive Entertainment Business.

The timing of Bach's retirement shows that Microsoft knows that when it comes to mobile, it's in very serious trouble, with Android surging, while Windows mobile sinks. The NPD Group recently released a survey showing that in the first quarter of 2010, Windows Mobile was in fourth place when it comes to units shipped, well behind RIM, Android, and Apple. RIM had 36% of the market, Android 28%, Apple 21%, and Windows Mobile hovering around 10%.

The timing of such a high-level departure is unusual, indicating that leaders may not have been happy with the division's performance, said Matt Rosoff, an analyst with Directions on Microsoft. "I would have thought that if Microsoft was going to shake up the division, it would have at least given the current product lineup a chance to succeed or fail," he said. Windows Phone 7 and the Kin phones have only just launched and Natal is slated to come out later this year. "It's possible that senior leadership was not happy with some of the performance in that area, particularly mobile," he said.

As if that wasn't bad enough, Microsoft's recent release of a new phone, the Kin, was widely derided as being poorly designed, feature-poor, and carrying an overpriced data plan for its target market. Windows Phone 7 won't be out until the 2010 holiday season, and by that time Microsoft's mobile marketing share will have dipped even further, with Android and Apple becoming even more entrenched. The fact that the shakeup comes now rather than waiting to see what happens with Windows Phone 7 is significant, and shows Microsoft realizes it has to act fast.

While Windows Phone 7 is a step in the right direction, the Windows Mobile platform has been steadily losing market share even as the rest of the smartphone industry booms. Kin has not been enthusiastically received. In addition, Microsoft's mobile efforts aren't keeping pace with other new trends. "HP's purchase of Palm sort of signals a shift in the market," Rosoff noted. That deal was an indication that HP would rather buy a mobile OS and repurpose it for a slate computer rather than use Windows, he said. Also, Android is being fit onto slate computers. As a result, Microsoft may now want to leverage its mobile platform for slate computers before those mobile OSes cut into Windows sales, he said.

Of course, recognizing a problem is one thing; solving it is another. Unless Ballmer can figure out a way to get Windows Phone 7 out the door more quickly, Microsoft will remain in trouble when it comes to mobile for the foreseeable future.

The retirement of Robbie Bach, president of Microsoft Entertainment and Devices division is a sign that Microsoft knows what the rest of the world has known for some time: Microsoft is falling further behind in mobile, and isn't coming back any time soon.

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