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Thursday, March 22, 2007 - Page updated at 02:01 AM

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Microsoft exec heads new search and ad unit

Seattle Times technology reporter

Microsoft will try a new combination of leadership and organizational structure to lift its Internet search business out of the cellar.

The company on Wednesday named Satya Nadella, an executive in charge of Microsoft's line of business software, to head research and development for a new group combining both Internet search and the advertising platform through which search generates cash.

Nadella, who will take over by April 19, assumes responsibility for a high-profile, high-pressure part of the business where Microsoft has struggled against entrenched competition.

Last month, more than half of the estimated 3.6 billion U.S. Internet searches were done using Google. Yahoo! was second and Microsoft's MSN/Windows Live Search was third with a 9.6 percent share, according to data released earlier this week by Nielsen//NetRatings. What's more, Google expanded its market share by 40 percent in the previous year; Microsoft grew 9 percent.

Charles Di Bona, an analyst with Bernstein & Co., said Microsoft is attempting to reverse that trend.

"They're obviously trying to address it both sort of structurally in the organization and also with people," he said.

Bernstein has frequently questioned Microsoft management on its efforts to expand the search business and turn a profit on advertising sales. Di Bona does not own shares in the company, but Bernstein's parent, AllianceBernstein, does.

Nadella has been with Microsoft since 1992, leading marketing and product development for several business products, including the bCentral online service for small businesses. In September, he replaced Doug Burgum as the head of Microsoft Business Solutions, which develops and sells software under the Dynamics brand aimed at small and midsize businesses to handle business-process management and customer relations. "He's obviously well trusted by top executives," said Matt Rosoff, an analyst at Directions on Microsoft. "Search is a very high-profile business. There's a lot of attention being placed on it."

Nadella's new Search and Ad Platform Group consolidates two previously separate but related groups that were headed by a pair of executives whose departures were disclosed this month.

Blake Irving, corporate vice president in charge of the company's Windows Live Internet services platform, is planning to retire in late summer. His purview included the adCenter platform that Microsoft launched last June to sell advertising across its businesses, now part of Nadella's group. Microsoft has not announced new leadership for several other areas Irving oversees.

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Christopher Payne, the corporate vice president heading the company's Live search group, is rumored to be leaving to start a Seattle company. Microsoft has confirmed his pending departure but offered no other details.

Rosoff said he was surprised that it took the company this long to combine the two groups.

"The adCenter platform is how Microsoft is going to make money from search," he said, adding that search-advertising revenue is the source of Google's growth. "It is the business model for search today."

He said that the two efforts were started at different times and grew up separately within the company.

Nadella's group will have a broad mandate, including consideration of "how and where search and ad-supported offerings fit within and across the entire Microsoft product and services portfolio — whether it's Office Live, Xbox Live, Zune, Windows Media Center, Microsoft.com or other assets," Microsoft said in a statement.

The group will report directly to Platforms and Services Division President Kevin Johnson.

Nadella will be aided by Harry Shum, who was named chief scientist of the Search and Ad Platform Group. He is one of 33 Microsoft "distinguished engineers" and managing director of Microsoft Research Asia.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2007 The Seattle Times Company

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