MICROSOFT TO REORGANIZE IN LIGHT OF NEW MARKETS.

Byline: John Markoff The New York Times

Microsoft Corp. plans to announce a companywide reorganization Tuesday to strengthen the software publisher's focus in the interactive computing market and its traditional operating systems business.

The moves are aimed at placing Microsoft in a position to dominate the next wave of the computer business that will be based on a variety of interactive technologies. This is an expanding market in which Microsoft is perceived in the industry to be a distant second to Netscape Communications Corp.

The reorganization will not involve layoffs, according to several people familiar with it.

The changes, which were first spelled out internally at Microsoft on Thursday, will create an Interactive Media Division that will focus both on the growing Internet market and the next generation of the digital videodisc market that is now on the horizon.

The new division will combine the company's MSN on-line network, games, children's products and its information businesses.

The first digital videodisc products, based on a standard that has been defined by the world's largest consumer electronics and computer makers, will begin to reach the market later this year. A Microsoft executive said sales of these products would begin to surge around Christmas 1998.

The products will offer consumers more multimedia features, including interactive full-motion video, that will probably not be matched by the Internet at that time.

Microsoft is focusing the new interactive media group on building interactive content for both the Internet and future interactive high speed - or broad-band - environments.

Less is known about changes that will be made in the company's operating systems and software applications businesses.

Microsoft has been grappling recently to change its corporate business strategy to meet the challenge of the Internet, which is a rapidly growing market that it does not dominate.

A number of the company's competitors have said that the rise of the Internet was the principal threat to Microsoft because the network had the effect of leveling the playing field by permitting software developers to develop applications that are not dependent on Microsoft's Windows 95 operating system.

Microsoft has also had some disappointments in its consumer business. A person familiar with the financial side of the company said that while products like the Encarta encyclopedia and Bookshelf have done well, its highly touted Bob control system for new users has performed poorly so far.

An internal memorandum that was circulated by Microsoft two executives, Pete Higgins and Nathan Myhrvold, said: "We will create the Interactive Media Division - consisting of MSN, Games Kids and Information business. The new division will focus on creating and marketing great worldwide interactive entertainment and information products."

Patty Stonesifer, the Microsoft executive who has been in charge of the company's consumer business, will continue to manage the new division.

MSN, which the memo said now has over 850,000 subscribers and has grown at a 40 percent rate during the first half of the company's current fiscal year, will be part of the new division, as well as the Strategic Partnerships group run by Peter Neupert, a Microsoft executive who managed the Microsoft agreement with the NBC network.

At the same time, a number of product areas will be moved out of Stonesifer's new division, including its consumer productivity division, which includes products like Microsoft Works and Publisher.

Those products are being merged into the company's existing Desktop Applications Division.