Editor’s note: Microsoft CEO Satya Nadella announced a host of executive and organizational changes on Wednesday, and Technology Business Research analyst Ezra Gottheil believes he knows why all the changes were made.

HAMPTON, N.H. – With the merger of Microsoft’s devices and Windows businesses, CEO Satya Nadella ended a situation that made Microsoft the poster child for channel conflict. Microsoft’s Windows PC operating system is a keystone of the company’s business, but the company’s foray into devices has confused and angered Microsoft’s key partners, the OEMs that make and sell PCs, tablets and smartphones.

When then-CEO Steve Ballmer announced Microsoft’s “devices and services” strategy, and the company acquired Nokia despite board reservations and introduced Surface tablets, the devices strategy appeared to be a market-creator for Windows smartphones and Windows tablets. Neither market existed at that time, so there was little conflict. If these products were successful, there would be conflict. To reduce this risk, Microsoft limited Surface sales to Microsoft stores and the Web.

Channel warfare

This soon changed, however. Microsoft decided to sell Surface through online and brick-and-mortar retail channels, and the company invested heavily in marketing. Not only did that put Microsoft in direct conflict with its partners’ tablet efforts, but also the Windows tablet was and is a PC replacement device, almost always coupled with a keyboard. The company sold Surface tablets at large operating loss, competing head-to-head with its most important partners.

The smartphone situation was different. The OEM Windows smartphone business never took off, and without Microsoft’s efforts the platform would have collapsed. The Windows smartphone global market share is negligible and falling, and all Windows smartphone OEMs have much larger Android businesses.

“Productivity and platforms”

When Nadella took over Microsoft’s strategy in early 2014 and refocused Microsoft on “productivity and platforms,” TBR believed the company would reconfigure its devices business to return to the original market-creation approach. The high-end Surface Pro tablets were unique and didn’t directly compete with OEMs’ high-end 2-in-1 offerings. There was some conflict, but Microsoft wasn’t going up against the heart of OEM partners’ batting orders.

The March 2015 announcement of the Surface 3, starting at $499 reignited the conflict, and no doubt once again angered and confused PC OEMs. The OEMs all now produce Chromebooks and most produce Chromeboxes, and while the OEMs prefer the higher margins of Windows PCs, they embrace the benefit of having a second source for operating systems. With the Surface 3 announcement, TBR believes the OEMs started looking at Chrome OS in a more favorable light.

The merger of the devices and Windows OS businesses allows Microsoft to bring them into strategic harmony. It will take a while, especially as the Surface 3 will remain in the market. TBR believes Microsoft will keep Windows smartphone alive, minimizing its losses, to be available for any changes in the smartphone market that are favorable to Microsoft, such as the growth of carrying separate personal and business smartphones. Windows is architected to run, in different configurations, on a wide range of platforms. These platforms include Internet of Things devices, with far less capacity than smartphone, so the cost of maintaining a smartphone version of Windows is low.

A company-wide vision

Most important for Microsoft and the market, however, is the fact that the company’s strategy and operations will be more coordinated and consistent going forward. Microsoft thrived for many years with a sometimes incoherent approach to the market, but there were considerable costs.

TBR believes Microsoft missed opportunities in mobile devices because it did not have a company-wide strategic vision.

As Nadella brings the company together, it will be more able to react as a company to opportunities and threats. Removing the internal conflict between the Windows and devices businesses, and the corresponding conflict with OEM partners, is an important step in this process.