Microsoft is undergoing another huge reorganization to sell more cloud subscriptions and less software


Satya Nadella talks to troops


Microsoft CEO Satya Nadella talks to the troops

Microsoft is reorganizing its entire sales organization 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 reorg will likely include layoffs, although layoffs have not yet been formally announced, and some do not believe that cuts will be very deep, sources tell Business Insider.

Internally, there are people that 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 an anonymous app called Blind, a popular app used by Microsoft employees.

This reorganization was reported last week by publications including Bloomberg. TechCrunch reported the reorganization will 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 spokesperson.


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

Ultimately, these changes will see the company ramp up its efforts to sell subscription-based cloud services, a fast-growing $15.2 billion run rate business for Microsoft. 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 organization to focus on two groups of customers, GeekWire reported. The first group is comprised of enterprises. The second will include small, medium, and corporate customers, which Microsoft is referring to as "SMC."

The changes don't necessarily reflect disappointing sales of cloud services. Instead, the point of the moves 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, the company believes it has too many sales teams and people involved in selling Azure, Microsoft'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, namely getting companies to actually 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 practice in the enterprise software world, but in the cloud world, companies only pay for the cloud computing services they actually use. If they never use those credits, they won't start paying for the cloud services.

With the reorg 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, the company will be able to sell a more tightly-knit bunch of cloud services that are tailored to customers' specific needs.

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

People inside the company are bracing to hear more details - and maybe the start of layoffs - on July 3.

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


Get the latest Microsoft stock price here.

NOW WATCH: Microsoft is making it possible to play original Xbox games on the Xbox One