Steve Berkowitz, the former head of Ask Jeeves, who has been running online services for the past two years, was ousted; he will remain through August to aid the transition. Taking over for Berkowitz are three longtime Microsoft executives, a move that contrasts with bringing in Berkowitz from outside.

Bill Veghte will handle marketing and product management for Windows Live, search and MSN, as well as for Vista. Satya Nadella will run engineering for search, portals and advertising. Brian McAndrews, formerly CEO of aQuantive, which Microsoft bought in May, will be responsible for marketing and engineering for Microsoft's advertising and publishing solutions group.

Prepping for Yahoo?

There was widespread speculation that the shake-up is preparation for the integration of Yahoo, should Microsoft succeed in acquiring the Silicon Valley icon. "They always talk about the acquisition as a done deal, but the fact is it's not a done deal -- and [Yahoo's] talks with News Corp. make it a little more uncertain," noted Greg Sterling, principal analyst with Sterling Market Research. "But notwithstanding that confidence, you can't reorganize the company before the deal is done."

Microsoft top management is "playing both sides," Sterling said. "They're thinking Yahoo is going to be acquired but it also has independent integrity." Although the moves are "not entirely a statement" that Microsoft's strategy hasn't been working, they do "reflect Microsoft's desire to put more emphasis on search and mobile," he added.

With the bid for Yahoo and other acquisitions Microsoft has made, including the purchase last year of aQuantive and this week's purchase of handset maker Danger, "Microsoft is trying to redouble its efforts" on these fronts, Sterling said.

Mobile focus on Danger

Microsoft was largely blindsided by the popularity of Apple's iPhone, which in six months has vaulted past all Windows Mobile devices combined.

Microsoft moved Andy Lees, who had been responsible for server software, including SQL Server and Windows Server, into the mobile group's top spot, replacing Pieter Knook, who is moving to Vodafone.

As corporate vice president for premium mobile offerings, Roz Ho will lead the Danger unit, a sign that Microsoft is getting more hands-on with device design and manufacture, said Rob Helm, an analyst with Directions on Microsoft.

On the Vista front, Michael Sievert, formerly in charge of marketing, is also leaving. The former AT&T executive says he plans to start a new company, although it's not clear whether that was a voluntary choice. Windows consumer marketing will now be headed by Brad Brooks.

Acknowledging the rough welcome Vista has received, Microsoft CEO Steve Ballmer told analysts last week, "We're going to have to invest more than we ever have in consumer excitement. We are going to be doing more to highlight Windows, and that is going to require more investment."