Business Insider

Microsoft is undergoing a huge reorganisation to sell more cloud subscriptions and less software

Job cuts are expected but haven’t been formally announced

PUBLISHED : Tuesday, 04 July, 2017, 11:13am
UPDATED : Tuesday, 04 July, 2017, 11:17am

By Matt Weinberger and Julie Bort

Microsoft is reorganising its entire sales organisation to better focus on its fast-growing cloud-computing business, according to an internal memo sent to employees on Monday morning.

Most people believe this reorganisation is likely to include layoffs — although none have been formally announced — and some do not believe cuts will be very deep, sources tell Business Insider.

Internally, there are people who think this change, even if it involves layoffs, could be a step in the right direction, as Microsoft increasingly tries to refocus its efforts on selling cloud services rather than software licenses, according to chatter on Blind, an anonymous app popular with Microsoft employees.

This reorganisation was reported last week by outlets including Bloomberg. TechCrunch reported that the reorganisation would involve thousands of job cuts. But GeekWire reported that the memo didn’t include any mention of layoffs.

“Microsoft is implementing changes to better serve our customers and partners,” said a company representative.

Microsoft representatives declined to comment about job losses related to the reorganisation.

Ultimately, these changes most likely will see the company ramp up its efforts to sell subscription-based cloud services, a fast-growing business for Microsoft with a US$15.2 billion run rate. While its traditional buy-once software business is still huge, sales have been declining as the cloud business erodes its growth.

Microsoft is streamlining its sales organisation to focus on two groups of customers, GeekWire reported. The first is enterprises, and the second, which Microsoft is referring to as SMC, will include small, medium, and corporate customers.

The changes don’t necessarily reflect disappointing sales of cloud services. Instead, the point is to reduce the costs involved in selling those services. Cloud revenue per employee is lower than the company would like, some people close to the matter said.

Additionally, Microsoft believes it has too many sales teams and people involved in selling Azure, the company’s competitor to Amazon Web Services. As a result, for each sale, there are lots of people and teams laying claim to commissions and credit.

We’ve also heard that Microsoft CEO Satya Nadella is still working on improving the most important metric of cloud computing: getting companies to use Azure instead of just adding a limited number of dollars of Azure credits to their overall enterprise agreement contracts.

That try-before-you-buy model is common in the enterprise software world. But in the cloud world, companies pay for only the cloud-computing services they use. If they never use those credits, they don’t pay for the services.

With the reorganisation, the enterprise sales teams will focus on selling Microsoft software and services to six industries: education, government, retail, health, manufacturing, and financial services. According to the memo, Microsoft believes that by focusing its sales efforts on industries rather than on products, it will be able to sell a more tightly knit bunch of cloud services tailored to customers’ specific needs.

The memo also says this reorganisation will result in the creation of new teams and the shuffling around of existing ones. Microsoft promised its employees that more details would be forthcoming on what these changes mean for their day-to-day work.

People inside the company are bracing to hear more details — and maybe the start of layoffs — on Monday.

Microsoft’s fiscal year ends on June 30, and it traditionally announces reorganisations and layoffs at the start of July.

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Read the original article at Business Insider