Microsoft aligns itself for a hosted future

...technology strategist for Caris & Co, agreed the reorganisation makes sense for the software maker.

"Microsoft ties everything together," Stahlman said. "Having these crosslinks in their technology makes sense for them to map it out in their management structure."

But another analyst questioned the effect the change would have on the linked development of Office and Windows.

"It looks like they did, to some extent, what the [US] Department of Justice couldn't," said Gartner analyst Michael Silver, referring to a split between the Windows operating system division and the Office division that was a possibility from the US government's antitrust lawsuit. "I could see where this could make it harder for Windows and Office groups to work together, and they do need to."

But Silver doesn't expect smoother operations out of the plan. "We're sceptical that this will change their execution at this point," he said.

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The promotion of Ozzie, who will report directly to chairman Bill Gates, underscores just how important services have become to the company. "Microsoft sees software as a service as a part-answer to the maturing software market," said Rob Helm, director of research at Directions on Microsoft.

Ozzie's background means he is suited to the task, said Jamie Friedman, an analyst at Fulcrum Global Partners. "Ray Ozzie is a valuable technology resource, and his role now will be more delineated," Friedman said. "It's a better use of Ray and his skillset and training."

Another significant aspect of the reorginisation is the promotion of Eric Rudder, who is seen by some observers as a possible future leader of the software giant.

Rudder will take on a new role, focusing on the company's overall technical strategy. He'll report directly to Gates. Rudder, who heads Microsoft's Server and Tools division, will move into his new post following the shipment of new versions of Microsoft's Visual Studio development tools and SQL Server database later this year.

One potential downside to the reorganisation is that morale among Microsoft's rank-and-file could be adversely affected, since Allchin and Rudder, two of the company's top technical experts, will depart key leadership positions, analyst Helm said.

"Microsoft is maturing, and they really need marketing and sales people at the top, but I am not sure employees want to hear [that]," Helm said. Johnson, heir to Allchin's throne as Windows chief, is not a geek, but has a sales background.

With the realignment, the new Platform Products and Services division, which includes Windows, will cover roughly 60 percent of Microsoft's revenue.

The Business division is expected to be the source of roughly 28 percent of the company's revenue, while the Entertainment and Devices Division will make up roughly 10 percent of the company's business.

Shares of Microsoft were virtually flat at $25.86 a share in later afternoon trading on Tuesday.

CNET News.com's Joris Evers and Dawn Kawamoto contributed to this report.