• Illustration: Marketing Organization

Marketing at Microsoft is organized into three major groups, including a central organization, product managers that oversee marketing for specific products or business units, and field marketers in charge of outbound marketing in their region. To help Microsoft expand into new markets and overcome challenges such as longer release cycles, these groups are cooperating on new initiatives, such as having marketers partner with engineers throughout the product design phase. To overcome resistance from product groups, marketers will receive more technical training and be encouraged to stick with the same product group for a longer time.

How Marketing Is Organized

Marketing employees at Microsoft are organized into three major groups.

Central Marketing Group (CMG). This group, headed by Senior Vice President Mich Mathews, consists of about 500 employees. It's responsible for evaluating and improving Microsoft's marketing practices across the company, conducting market research, creating advertising and branding campaigns for the company overall, maintaining its relationships with public relations companies, and overseeing outbound communications on nonproduct issues (such as legal matters). The CMG also has input into hiring and training marketing professionals who work in product groups and field sales offices.

Product groups. Approximately 1,500 marketers work within Microsoft's product groups. Most of these are product managers, who oversee marketing for a specific feature, product, or related set of products. Product managers and their associates conduct market research and analysis, set pricing, name products, create advertising campaigns for their specific product or products, and track market performance. Product managers are also responsible for creating go-to-market (GTM) campaigns, which ensure that field sales offices and partners are focused on the same goals during a given time period—for example, promoting a particular solution consisting of multiple products or changing a common customer perception. However, product managers have historically had little input into product or feature design, which has been left instead to program managers (who oversee developers and testers and decide which features are ultimately released with a product version).

Field marketing. About 3,000 marketing employees work in Microsoft's field sales offices. They are responsible mainly for outbound communications in their region, such as setting up customer events and seminars and ensuring that local marketing budgets are spent on activities that match the goals set out by GTM campaigns. Field marketers generally report to the leader of their sales region, but some field marketing personnel have specific responsibility for products in one of Microsoft's seven major business units, such as Windows Client or Information Worker (these seven units are informally called "P&Ls" for "profit and loss," as Microsoft reports its earnings in these categories), and therefore have a dotted-line reporting relationship to the leader of marketing within the appropriate product group.

(For an illustration of how these groups fit into the Microsoft organization, see "Marketing Organization".)

Driving Long-Term Growth

According to David Hamilton, a director in the CMG, Microsoft CEO Steve Ballmer and other top executives have recently concluded that marketing can do more to drive long-term growth.

A shift in Microsoft's fundamental business picture is one reason for the increased emphasis on marketing. Growth in the company's two largest and most profitable businesses—the Windows client OS and Office suite—has tapered off in recent years, forcing Microsoft to focus on emerging economies and "adjacent markets" (e.g., creating new server products that leverage or require Office, which is already well-established), and to enter new markets with entrenched competitors, such as console gaming.

Longer release cycles may also be playing a part. In the 1990s, market buzz and launch events around new products created natural marketing opportunities, but as major releases of key products have stretched out to five years, a year or more can go by without a major product launch. For instance, as of fall 2005, the company was facing a two-year gap between the previous major launch events (Office 2003, Windows Server 2003, and Exchange 2003 in fall 2003) and the next (SQL Server 2005 and Xbox 360 in Nov. 2005). As a result, the company needs to explore new ways to get positive media and customers' attention to ensure that customers do not perceive products as stale and begin to explore new alternatives hitting the market.

Influencing Product Design

In 2004, Microsoft began piloting a program called Value Proposition, in which product managers are directly involved in the early stages of product design. The program gives product designers concrete data about new opportunities and customer habits as early as possible, so they can incorporate this information while designing the next release of the product.

To start the process, product managers conduct two types of studies:

• Market Opportunity Analyses tap research findings from Microsoft's market intelligence team (which consists of about 100 employees in the CMG) and external industry research to identify potential markets and market forecasts for the next five years
• Habits and Practices studies identify customer habits in a broad area—for example, evaluating communication habits and practices to measure how and when employees use e-mail, instant messaging, remote meetings, or face-to-face meetings.

After these studies are completed, product management meets with program managers to suggest specific scenarios that the next release of the product should address. The result of these meetings is a document called a "Value Proposition Vision Document," which is based on a template created by CMG. Program managers are expected to refer to this document during the design process, but they have the final say over feature and product design and may let other considerations, such as ship schedule and budget constraints, override the guidelines set by the document.

The Value Proposition process was first piloted during the development of Visual Studio "Orcas" (the code name for the next version of the product after Visual Studio 2005). It has subsequently been used in Visual Studio "Hawaii" (the version after Orcas), Exchange "13" (which will come out after Exchange "12" is released in late 2006), and some aspects of Office "12" (expected in 2006). According to Hamilton, Microsoft hopes eventually to apply this process to all product development—a process that could take 10 years.

Understanding Customer Perceptions

Also in 2004, Microsoft began a new effort to understand customer perceptions. The CMG conducts customer surveys to identify perceptions about specific products, and then shares these findings with marketing communications staff in the appropriate product groups. Ideally, the marketers will incorporate these findings into advertising and public relations campaigns.

For example, Microsoft noticed that many customers were not deploying Office 2003, including some customers who had already purchased the right to do so. Customer survey results did not suggest a dislike for Office 2003, but many customers thought that their current Office products were good enough. In an effort to change this impression, Microsoft created an advertising campaign for Office 2003 in which it portrayed customers on older versions of Office as dinosaurs.

Sometimes, marketers decide to work with existing customer perceptions rather than trying to change them. For instance, in 2004, Microsoft surveyed consumers about planned features for the next Xbox and discovered two distinct classes of customers. Although many users were interested in digital media and casual gaming features (such as online card games), hardcore gamers reacted negatively to such features, suggesting that they made the product seem more like a toy. In response, the Xbox team decided to conduct two separate marketing campaigns for the Xbox 360 launch—a viral marketing campaign revolving around a fictitious "ourcolony.net" Web site echoed the successful "ilovebees.com" campaign for Halo 2 and appealed to hardcore gamers, while a one-hour MTV special highlighted the console's other features for a more mainstream audience.

The Limits of Marketing

As Microsoft's marketing organization attempts to take a larger role in product design, it may encounter resistance from product groups. In particular, program managers may resent the intrusion of less-technical product managers into their traditional product-planning role and may not respect their opinions. To address this concern, the CMG chose the most technically adept product managers for the Value Proposition pilot programs, has initiated a one-year training program for recruits to get them up to speed on technology, and is exposing more marketers to roles as technical advocates, as a grounding for future engineering partnerships. More generally, Microsoft is encouraging product managers to stick with a particular product for at least two releases, giving them more time to make connections with program managers and to understand how a product works, what customers expect from it, and how development happens.

Organizational changes could also help product managers wield more influence. In the past, product managers have been organized in the same teams as program managers and tended to focus only on their own product. Any disputes between the marketing and development managers for that product would be decided by the executive in charge of the product—usually, a general manager or vice president. Microsoft has now begun to consolidate product management for multiple products under a single vice president, starting with the Information Worker business unit (which includes Office, Project, and SharePoint Portal Server) in late 2002 and following with the Server and Tools business unit (which includes Windows Server, SQL Server, Exchange Server, and most other server applications) in late 2004. This consolidation not only helps these business units establish a more consistent marketing message across their component products but also ensures that product managers will have a vice president representing their point of view in higher-level strategy discussions.

Even as marketing gains more influence, Microsoft must realize its fundamental limitations. For example, while marketing may have correctly identified the "good enough" perception as a problem for Office 2003, the subsequent "dinosaur" marketing campaign drew negative attention in the press and may not have changed these perceptions. In addition, while capturing market data to improve product design is a laudable goal, if development bogs down and schedules slip, developers are more likely to focus on getting their product out the door than on the goals set during the initial planning process.