The final two weeks of October are proving tense for Microsoft (NASDAQ: MSFT). The company is ramping up its $500 million advertising campaign to promote their new Windows Phone 7 mobile operating system that will launch alongside new handsets from HTC Corp., Samsung, and LG Electronics. Windows Phone 7 is a make or break launch for Microsoft and the company knows it. “This is a big launch for us—a big, big launch,” said Microsoft CEO Steve Ballmer after the platform was debuted at a press conference earlier this month. Research firm Gartner (NYSE: IT) is predicting that smartphone sales will pass PC sales by 2012, so Microsoft can’t afford another Windows Mobile 6 debacle with their new competitor to Google (NASDAQ: GOOG) and Apple Inc.‘s (NASDAQ: AAPL) respective Android and iOS mobile operating systems. If Windows Phone 7 doesn’t succeed, the company may join Research in Motion (NASDAQ: RIMM) as little more than companies that laid the groundwork for the smartphone boom.
Early buzz is good for Windows Phone 7, but now Microsoft and CEO Steve Ballmer have a new headache. Microsoft’s Chief Software Architect Ray Ozzie, one of the men behind Windows Phone 7’s development and an individual who has filled more and more of the role once filled by Bill Gates at Microsoft, announced that he was leaving Microsoft yesterday. He is just the latest in an exodus of key individuals from Microsoft’s mobile and entertainment divisions. Earlier this year Robbie Bach and J. Allard also stepped down from the company. All three men were involved to varying degrees in the creation of the Xbox, its successor the Xbox 360, the upcoming Kinect, the online gaming network Xbox Live, Windows 7, and Windows Live. According to outside analysts like Dora Vell of Vell Executive Research, all three men chose to leave Microsoft over disputes on what direction Microsoft should pursue in software development. As she describes it, “[They] were not given as much full rein as they needed to win against Apple.”
Following the announcement that Ozzie would be leaving Microsoft, shares of the company dipped -2.7%, falling 69 cents to $25.13. Not enough to make shareholders nervous, of course, but the disappearance of one of Microsoft’s primary developers is sure to make them nervous especially in regards to Windows Phone 7’s fortunes this fall. Gartner analyst David Smith doesn’t believe Ozzie’s departure will have too great an impact, but it does mean that the flight of Microsoft’s developers is becoming a trend. Microsoft Strategy Officer Craig Mundie is expected to take over for Ozzie, but the question now is how long will he hold the position? How long will Don Mattrick, Robbie Bach’s replacement in the Xbox division, stay in his spot. Unless Ballmer can find a way to hold on to his senior staff, Microsoft shareholders will have a lot more to worry about than a 2.7% dip in share price.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
