What Will Microsoft Do Without Stephen Elop?

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In the wake of the resignation of Microsoft Business Division President Stephen Elop, who announced late Thursday that he’ll soon take over the CEO post at mobile phone giant Nokia, Microsoft is facing a choice with potentially far-reaching implications: Who’s going to oversee the critical Office product line?

Fortunately for the Redmond, Wash. software colossus, Microsoft (NASDAQ: MSFT) has a lot of internal leadership talent to choose from, industry observers said.

Of course, though, it’s hardly an ideal situation to see the head of your second-largest cash cow, Office, jump ship unexpectedly.

“I’m sure they [Microsoft’s leadership team] don’t like having to find a new leader for Office and it probably took them somewhat by surprise,” Matt Rosoff, research vice president for corporate news at analysis firm Directions on Microsoft, told InternetNews.com.

However, it’s not necessarily a major setback, he said, adding that “Microsoft will keep executing on the plan that they’ve laid out.”

For Office, that entails new efforts to make sure the burgeoning trend of software as a service and cloud-based apps don’t leave the longtime workplace productivity software suite in the dust.

“There is still a rich team in place who have the vision of Office in the cloud, so it’ll be interesting to see who rises to the top,” Tim Bajarin, president and principal analyst at consultancy Creative Strategies, told InternetNews.com. “Microsoft has lost top talent before.”

In a brief note to Microsoft’s employees, CEO Steve Ballmer cited members of the existing Business Division management team.

“Stephen leaves in place a strong business and technical leadership team, including Chris Capossela, Kurt DelBene, Amy Hood and Kirill Tatarinov, all of whom will report to me for the interim,” Ballmer said.

All four are Microsoft old-timers to one extent or another, and any one of them might be under consideration to replace Elop. Capossela is senior vice president in the Business Division responsible for marketing Office, SharePoint, Exchange, and Office Communications Server, among other products. DelBene is senior vice president of Office engineering, while Hood is the division’s CFO, and Tatarinov is corporate vice president of Microsoft Business Solutions, which includes the Dynamics brand of ERP and CRM products.

“They’ve got a deep bench [so] I’m not convinced that they’re going to feel his departure badly,” Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.

Elop, meanwhile, joined the company in January 2008 after having been COO of Juniper Networks and president of worldwide field operations for Adobe. At the time, hiring him to head up the Business Division came as something of a change for Microsoft’s usual policy of choosing to promote from within. There have been a few notable exceptions to the rule, however — like Ray Ozzie, the father of Lotus Notes, who took over as chief software architect from chairman Bill Gates when he officially retired from Microsoft.

When Microsoft hired Elop, he replaced Jeff Raikes, a 25-year Microsoft veteran who left the company to head up the Bill and Melinda Gates Foundation.

Besides the Business Division, Ballmer already has the Entertainment and Devices Division— the group with responsibility for both game consoles and mobile devices — reporting directly to him after the departure of that division’s president Robbie Bach, which was announced in late May.

Microsoft first launched the Office productivity suite in 1989 and it quickly seized a dominant spot in the markets for individual productivity applications. By offering a bundled package and price, it quickly became much more economical for customers to buy the suite instead of higher-priced, best-of-breed individual products like word processors, spreadsheets, and presentation programs. That legacy formed the core of today’s Office, which has since expanded to include or work alongside with a variety of Microsoft communications and collaboration offerings.

Not surprisingly, it’s also generally thought to be a reliable profit driver. For fiscal 2010, which ended June 30, Microsoft’s Business Division brought in $18.6 billion, down 1 percent from fiscal 2009. But during fourth quarter, when Microsoft delivered Office 2010 and several other key new products, sales were up by 15 percent to $5.25 billion, year over year.

Microsoft does not break out sales of the Office productivity suite from other products in the Business Division, but the vast amount of the division’s revenues still come from the suite, Rosoff said.

The division does have other high-profile products, though, including SharePoint Server, Exchange Server, and Communications Server. SharePoint is, by itself, a billion-dollar business, for example.

A Microsoft spokesperson declined to comment beyond Ballmer’s short missive.

However, Enderle has some advice for Ballmer.

“Elop’s likely not the only high-profile Microsoft executive being fished [by other companies] and the company’s stock hasn’t moved in a long time, so they may need to shore up their executive compensation system,” Enderle said.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.