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Microsoft's Gates to Step Back

Posted on: Friday, 16 June 2006, 06:00 CDT

By Byron Acohido and Michelle Kessler

SEATTLE -- Microsoft Chairman Bill Gates announced Thursday that he will let loose the reins of the company he co-founded as a college dropout and shaped into a behemoth, to focus on philanthropy.

The big question: As Gates' influence wanes, will Microsoft be better equipped to compete in a changing tech arena?

Gates, 50, who was also Microsoft's chief software architect, will give up day-to-day duties in July 2008, retaining the title of chairman.

That will leave Microsoft CEO Steve Ballmer and Chief Technical Officers Ray Ozzie and Craig Mundie to carry out a transition the software giant is struggling to make from lumbering supplier of desktop computer software to nimble competitor in a rapidly changing tech market.

Gates insisted that the change announced Thursday "is not a retirement." He plans to spend most of his time working for his charity, the Bill & Melinda Gates Foundation.

Gates says he plans to have a relationship with Microsoft for many years. "I don't see a time in the foreseeable future in which I won't be the chairman of this company," he said.

"This was a hard decision for me," said Gates, who founded the world's largest software company with childhood friend Paul Allen. "I'm very lucky to have two passions that I feel are so important and so challenging. As I prepare for this change, I firmly believe the road ahead for Microsoft is as bright as ever."

Ozzie will immediately assume Gates' title as chief software architect and begin working with Gates on overseeing all software technical design.

Mundie will immediately take the new title of chief research and strategy officer and will work with Gates in those areas. Mundie also will partner with general counsel Brad Smith to guide intellectual property and technology policy efforts.

"Bill and I are confident we've got a great team that can step up to fill his shoes and drive Microsoft innovation forward without missing a beat," Ballmer said. The news, released after the stock market closed, sent Microsoft shares down less than 1% in after-hours trading. It wasn't a complete surprise to analysts and investors who follow the company closely.

Gates gave up the CEO role to Harvard classmate and longtime confidant Ballmer in January 2000. Last year, he signaled a desire to further reduce his role by recruiting Ozzie, a renowned right-brain thinker, to infuse a fresh perspective. "The stage has been set for an orderly transition, and a two-year timeline assures there won't be a radical departure," says analyst Michael Gartenberg, of JupiterResearch. "And as my grandfather was fond of saying, 'Cemeteries are full of people who couldn't be replaced.'"

Ushering in Vista

Gates' primary job has been to usher in Windows Vista, the latest upgrade to the operating system used on nine of 10 desktop PCs. Vista, due early next year, has been beset by delays and feature downgrades just as the company is struggling to drum up reasons for corporations to ante up for upgrades of Windows and its signature Microsoft Office software suite.

"This might be the last generation of classic Microsoft products," says Charles King, principal analyst at Pund-IT Research. "Microsoft in five years is going to be a very different company than the one today."

The leadership will come from a different mold.

Gates and Allen started Microsoft in 1975 as college dropouts. Gates took Microsoft public in 1986 and was chairman and CEO until 2000, the year he and his wife formed the Bill & Melinda Gates Foundation, whose assets now total $29.1 billion.

Vista and Office 12 may be the last classic Windows upgrades, feature-laden software that requires a lot of computer memory and processing power. But technology has shifted to harnessing the power of corporate networks and leveraging the Internet. Software and digital entertainment delivered over the Web signal the future course of technology.

Microsoft has hustled to catch up and is branching into those arenas, but its profits continue to revolve around Windows and Office. Meanwhile, it has faced ugly antitrust lawsuits in the USA and Europe.

Also, its expansion into new markets has forced the company "to engage in a four-front war," says software analyst Stuart Williams at Technology Business Research. It must fight Sony in video games, Google and Yahoo on the Internet, Oracle and SAP in business software and the free Linux operating system in servers.

Still, Gates said, Microsoft is on the right track -- and that the leadership change will have little impact on the company's success.

"The world has had a tendency to focus a disproportionate amount of attention on me," he said. But in reality, Microsoft's success is based on hundreds of people, he said. "We are ready for members of our current team to step into an expanded role," he said.

When Gates steps down in 2008, Vista and Office 12 will have been on the market for a year.

The new team

Ozzie, 50, worked on the first electronic spreadsheet, VisiCalc, in the early 1980s. In 1983, he joined Lotus Development -- Microsoft's archrival then -- to develop Lotus Notes and other business software.

He later founded Groove Networks, where he developed Groove Virtual Office. Microsoft acquired Groove in April 2005 and named Ozzie chief technical officer. Gates once called Ozzie one of the five best software programmers alive.

"Ozzie gets the power of networks and the power of the Internet," says RedMonk analyst Stephen O'Grady.

Mundie, 56, joined Microsoft in 1992 to create and run its Consumer Platforms Division, responsible for non-personal computer software. Mundie also started Microsoft's digital TV efforts. His current responsibilities include global technology policy and a variety of technical and business incubation efforts.

Ozzie and Mundie will continue to report to Gates. At an unspecified time during the two-year transition, they will shift to reporting to Ballmer.

"Losing a person of (Gates') talent is a big deal, of course," Ballmer said. "But it's a chance for other people to assume even more responsibility."

Gates is legendary for his "ability to motivate employees at the lowest level of the company," says software analyst Al Gillen with researcher IDC. "Clearly, it's going to be a loss for the company not to have him filling that role."

But Ballmer, Ozzie and Mundie are "fantastically strong executives," Gillen says.

Gates said he's been mulling the role change for several weeks, and talking about it with his wife, Melinda. But he avoided bringing up the subject with Ballmer, his longtime business associate. Gates, laughing, said he repeatedly told his wife the subject "wasn't easy to bring up today. Maybe it will be easy to bring up tomorrow." Gates said he didn't make a final decision until Tuesday. Wednesday night, he told key executives at a dinner at Ballmer's house. Thursday morning, about 100 key Microsoft employees were notified.

Gates said he's not sure how he will handle the transition. "I don't know what it's going to feel like, not coming in every day and working 10 hours," he said.

Ballmer said Gates "is now headed, in my opinion, to become the greatest philanthropist of all time."

Two of Gates' contemporaries have made similar moves. Longtime Sun Microsystems CEO Scott McNealy stepped down from the post earlier this year, though he remains chairman. And Ted Waitt, co-founder of PC-maker Gateway, retired in 2005. Both said they wanted more time for other projects.

It's not surprising that Gates does too, says tech analyst Roger Kay with Endpoint Technologies Associates. The role change "was a long time coming," he says. "At 50, (Gates) is still young, but not that young. It's time to do something else."

Kessler reported from San Francisco

Contributing: Kevin Maney in McLean, Va.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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