Microsoft Xbox Chief Out as Division Stumbles

Microsoft is shaking up its entertainment and devices division, the group responsible for many of its most familiar consumer devices.

Robbie Bach
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Robbie Bach

Robbie Bach, a 22-year veteran of the company and president of the unit since its inception five years ago, will retire this fall. And J Allard, who was the powering force behind the Xbox video game console and Zune media player (and, until recently, was the driving force behind the company’s plans to make a PC tablet computer), will also depart the company.

CEO Steve Ballmer, in a memo to staff, thanked Bach for “the incalculable contributions he has made to Microsoft over the years,” adding “he will be greatly missed when he retires this fall.”

Allard, whose creative vision has been likened by outsiders to that of Steve Jobs, will remain an advisor to the company “looking at design and UI, and providing a cross-company perspective on these and similar topics,” said Ballmer.

The move comes as Microsoft prepares to make some of its biggest moves in years in the consumer electronics space. Project Natal, a motion control sensor for the Xbox 360 that will have implications far beyond gaming, is set to launch later this year. The company also plans to roll out Windows Mobile 7, a complete rethinking of its mobile operating system, in an effort to regain ground in that growing space. Apple has stolen considerable ground from Microsoft in the mobile space with the launch of the iPhone. Google’s Android operating system is quickly gaining market share as well.

Allard’s departure has been rumored for a few weeks, since Ballmer canceled work on “Courier,” a tablet PC Microsoft had been developing to compete with the iPad. Allard, who had helmed that project, has been on sabbatical from the company work was halted.

Bach, though, was once considered a possible successor to Ballmer as CEO — and few were expecting his departure from the company. In a statement, he expressed a wish to spend more time with family and to undertake nonprofit work. His role will not immediately be filled.

His two lieutenants — Don Mattrick, who heads the Xbox unit (formally known as Microsoft’s interactive entertainment business) and Andy Lees, head of the division’s mobile arm — will report directly to Ballmer effective July 1.

The entertainment and devices division recorded $1.67 billion in sales during the first calendar quarter, making up roughly 11 percent of Microsoft's revenue. Over the past few years, it has had a mixed bag of successes and failures.

The Xbox initially lost billions, but has since become a solid force in the video game industry. This generation, it has outsold Sony’s PlayStation 3 and generates a regular profit.

The mobile unit, though, has underperformed significantly, steadily losing market share in recent years — which could have been the impetus for the shakeup. Apple’s market share is more than twice that of smartphones that use the Windows operating system. And Google’s Android recently surpassed Windows among mobile phone users as well. (Microsoft hopes to regain market share with Windows Mobile 7, which will become available later this year.)

The Zune media player, meanwhile, has achieved critical acclaim, but has failed to make a dent in the iPhone’s dominance of the portable media field.

Hardware is a risky business, though — and some analysts wonder if Tuesday’s shakeup is a signal that Microsoft may be stepping back from the field.

“It seems like a strategy shift,” says Billy Pidgeon, senior analyst with M2 Research. “I see a turn away from hardware and toward software with this. Maybe that’s a good idea — because you bleed in the hardware business. Failures are big there.”