After 14 months in his current position, Microsoft President and Chief Operating Officer (COO) Rick Belluzzo has announced his resignation. The move is a logical endnote to a series of organizational changes that moved many product groups from Belluzzo's control and into other parts of the company. The move also emphasizes the difficulty Microsoft has in filling the number-three position under founder and Chief Software Architect Bill Gates and CEO Steve Ballmer.

Belluzzo's last day as president will be May 1, and he will leave the company in September—exactly three years after he was hired.

Hired to Lead Consumer Services

Belluzzo joined Microsoft in Sept. 1999 after a 19-month stint as the CEO of workstation manufacturer Silicon Graphics and was placed in charge of the Consumer and Commerce Group (CCG), which included Microsoft Network (MSN) and other consumer Web sites and services, interactive TV services and platforms, and hardware, such as mice and keyboards. Soon after his arrival, the CCG grew to include Microsoft's strategy and products for wireless devices and changed its name to the Personal Services and Devices Group.

Belluzzo's stated goal was to combine these disparate businesses into a coherent set of services available from any Internet-connected device. More to the point, Microsoft had spent four years and several billion dollars investing in businesses such as MSN and interactive TV and had attracted a sizable number of users, but was still losing money on them. Belluzzo's charter was to make money from these users, ideally by creating new services for which users would be willing to pay a monthly fee.

During Belluzzo's tenure, Microsoft sold or spun off some nonstrategic consumer businesses (e.g., Expedia, Transpoint) and introduced a gaming console (Xbox) and blueprints for an accompanying gaming network. The company also hatched an ambitious plan to charge users a monthly fee for storing their personal information (such as calendars, contacts, and credit card numbers) and then allowing them to access this information from multiple devices and expose it to friends and other businesses (using .NET My Services, formerly known as HailStorm).

Gained Presidency, Lost Product Groups

Less than two years into his job, in Feb. 2001 Belluzzo was appointed president and COO and given control over the sales division and various operational parts of the company, such as human resources, finances, and investments and acquisitions.

But soon after this appointment, Belluzzo's product groups began moving into other parts of the company: .NET My Services, Hotmail, Passport, MSN Internet Access, and Microsoft's wireless group were transferred into a new Personal Services Division under Bob Muglia in Mar. 2001. By the end of 2001, Microsoft's interactive TV services— WebTV (now named MSN TV) and UltimateTV—and all the MSN Web sites had also moved to the new division, leaving Xbox and the Microsoft TV platform as the only products under Belluzzo's control.

During this period, many of these product groups experienced setbacks. Microsoft had trouble signing up partners for .NET My Services and has had to shift the business plan for them significantly (see "New Strategy Devised for .NET My Services" on page 20 of the Apr. 2002 Update). Microsoft's UltimateTV service and Microsoft TV platform saw limited success (see "TV Division Changes Signal New Realism About Market" on page 18 of the Mar. 2002 Update). And Microsoft's wireless strategy suffered as carriers and handset manufacturers delayed rollouts of its wireless devices and servers.

Belluzzo's former product groups have had some successes as well. Microsoft Network (MSN) replaced Yahoo as the second-most-visited property on the Web, and although it has not rolled out fee-based services to monetize these visitors, revenues from advertising and MSN Internet Access have grown significantly. The Xbox launched nearly on time, and its initial U.S. sales were strong. And no executive could be blamed for the slower-than-expected rollout of broadband Internet access, on which many of Microsoft's consumer fee-based services depend, and the lackluster demand for interactive TV in its current incarnation.

Presidency Difficult to Fill

Belluzzo's departure is the latest example of the difficulty Microsoft has in filling the number-three position in the company. Former Boeing executive Michael Hallman was appointed president in 1990, but left after only two years. Since then, the presidency has been split among three people (from 1992 to 1996), eliminated in favor of a nine-person executive committee (from 1996 to 1998), and occupied briefly by Ballmer (in 1998) before his appointment as CEO (in 1999).

The difficulty could stem from the fact that Microsoft needs a number-three person to oversee day-to-day operations, but that person must accept that he or she has no chance of leading the company until Gates or Ballmer retires. Belluzzo likely decided that he was not happy managing only operations. As he said in an interview with the San Jose Mercury News, "There's nothing that motivates me more than taking a situation and generating results, getting the team working, and introducing new products. That wasn't what this role was becoming."

Microsoft says that it will not replace Belluzzo, but Ballmer will be hard-pressed to oversee all the product, sales, and operations divisions that now report to him. Another Microsoft executive will probably take charge of the operations groups— one possibility is Chief Financial Officer John Connors, who inherited Microsoft's internal IT and worldwide manufacturing operations in Feb. 2001.

In addition to announcing Belluzzo's departure, Microsoft also said that executives in "seven core business areas" will now get profit-and-loss responsibility and control over product strategy. The core business areas named are Windows Client, Servers and Tools, Knowledge Worker, Business Solutions, CE/Mobility, MSN, and Home and Entertainment. However, Ballmer said that this is "not an organizational change" and that the "new approach will not structurally change people's roles." In other words, Microsoft might give some of its existing executives more power, but is not planning to change its reporting structure or shuffle products into different divisions—for now.