Microsoft announced a major reorganization this week. the crux of the reorg seems to be that the MSN and Windows divisions are being unified, and as part of this Jim Allchin is retiring. A new “Platform Products and Services Division” is the result. It will be led by Kevin Johnson once Allchin retires.

There will also be a “Business Division” led by Jeff Raikes. This includes the Office line of products and it’s “Business Solutions and packaged applications group”.Robbie Bach wil head the third group – “Entertainment and Devices division”.

Many commentators are interpreting the changes as having been motivated by Microsoft’s need to modernize itself to better compete in a Web 2.0 world.

There are many good reasons for Microsoft to be concerned about the changing architecture of computing, and particularly the architecture of the network. However many of the commentaries about this fail to nail the essence of the changes and why they are threatening to Microsoft’s franchise. It is our view that Microsoft’s reorg is insufficient as a response to the threat. It is however motivated by at least a partial understanding of what the risks to its future are.

This isn’t the place for a full analysis of the emerging architecture of the network however one thing is clear, the edge of the network (a user, his PC and his publishing) is becoming more significant as a point of innovation whilst the center of the network is having to adjust to meet the needs of the new edge. A great example of this is the emergence of publisher tagging and the efforts of the search engines to take tags into account in providing relevant results. A bottoms up, edge driven, phenomenon is leading to an evolution at the center of the network. For the most part the center is trying to “bolt on” features that address the new edge, rather than reinvent itself around those changes. This can’t be a good long term strategy.

The same process also drives clients, particularly those that publish or consume edge-published content, to change.

One thing is certain, the big centralized internet companies of 1995-2004 need to change in order to stay relevant. Yahoo! seems to be aware of this. Ebay, Amazon, Microsoft and Google all seem slower to understand. Meanwhile there are many new companies helping to fill the gaps and to shape this new eco-system. We profile many of them on TechCrunch.

One such company is Writely. It has developed a lightweight web-based word processor service linked to a simple storage and sharing service. It is a joy to use. Others are are working on a similar services for calendar, contacts, email, spreadsheets and slide publishing and sharing.

Microsoft has not included it’s Office division into its new MSN and Windows organization. One wonders why not! Surely Windows is under threat as a development platform by web API’s but so to is Office as a publishing and sharing platform. Strangely Microsoft is evangelizing a new suite of Office “servers” aimed at providing sharing and storage services to the enterprise at the very time these services are most likely to move out from the data center into the cloud.

Enough here for now, but it would appear that Microsoft’s awareness of current trends is good. However, notwithstanding its embrace of RSS and its unification of its Windows and MSN divisions, it’s response seems less than one would think is needed as a reaction to the threats to Office, and to Windows as a development platform.

There appear to be many opportunities for new companies to develop edge based applications, and center of network services that bind together to enable new gains for users and developers alike. It’s going to be a fun time ahead.