Gates Transition Plan Shows He's Ready For A Change. Is His Company?Gates Transition Plan Shows He's Ready For A Change. Is His Company?

Microsoft will miss Bill Gates. The computer industry may miss its moppy-haired celebrity spokesman even more.

When Microsoft's chairman disclosed last week that he would relinquish his technical leadership role at the company by divvying up his responsibilities between two trusted colleagues--effective immediately--it marked the end of a 30-year stretch in which he's been, more than anyone else, the guru of the PC industry. Gates is unshouldering that responsibility to take on something bigger and more important: devoting all of his energies and most of his wealth to the challenges of global health and education.

Gates, 50, seemed relaxed in a news conference on the company's Redmond, Wash., campus when he revealed plans to "reorder my personal priorities." Gates and CEO Steve Ballmer did their best to portray the months ahead as business as usual. "It's not a retirement," Gates said. In fact, however, he already has one foot out the door. Gates gave up his chief software architect title to CTO Ray Ozzie on the spot, he's taking an unprecedented seven-week vacation this summer, and he expects Ozzie and Craig Mundie--a 14-year company veteran who also gains power in the shake-up--to report to Ballmer within about a year.

Notably, Gates is giving up the reins five years earlier than planned. He didn't admit that last week when asked during the press conference whether his departure is sooner than expected, but that's exactly what's happening. In August 2003, Gates said in a speech in Detroit that he had "a little more than 10 years" left in his career. Do the math: He's cutting out five years early.

Gates, Ballmer, and a few close insiders have been mulling a transition plan for more than a year, but it wasn't until a few weeks ago that Gates put the wheels in motion. He's giving Microsoft and the rest of the industry two years' notice. Between now and July 2008, BillG, as he's known inside the company, will work alongside Ozzie--a highly accomplished software executive in his own right--and Mundie, who's being promoted from CTO to chief research and strategy officer. In short, it becomes Mundie's job to feed emerging technology into Microsoft's product pipeline, and Ozzie's to make Microsoft's vast portfolio of products work together.

Gates will continue as chairman and, beyond the middle of 2008, serve as an adviser to the company. There are plenty of loose ends to tie up over the next 24 months. Windows Vista and Office 2007 are due later this year, Exchange 2007 sometime around the turn of the year, and Longhorn Server in 2007. At the same time, Microsoft is rapidly building out its "Live" hosted software offerings, trying to leapfrog Google in search technology, writing next-generation ERP applications for business, and aggressively pushing into home entertainment.

In a March interview in his office to discuss the upcoming release of Office 2007, Gates gave no indication that the clock was ticking on his tenure. About that same time, Microsoft revealed, to the dismay of many, that Windows Vista wouldn't ship in time for this year's holiday shopping season as planned. It's possible that the pressures of missed deadlines--Microsoft is famous for them--have begun to wear on him.

Gates has long had an exit strategy--throwing his energies into the charitable work done by the Bill & Melinda Gates Foundation, which has $29 billion in assets and stands to gain more as the world's richest man funnels his wealth to chosen causes. Few will quibble with Gates' decision to concentrate on the planet's biggest health hazards and its most disadvantaged people; no time is too soon in the battle against diseases such as AIDS and malaria. Gates pointed last week to a "common thread" between the world of computer technology that ignited his passion as a young man and the research into health and education in developing countries. "It's about using technology not just for the privileged few, but for everyone," he said.

Microsoft has been putting the pieces into place to allow Gates to pull back. "Good for him," says Glenn Rodgers, deputy CIO of the Food and Drug Administration, a Microsoft customer. "The company is positioned extremely well for the future." Gates turned over the CEO job to Ballmer six years ago, and just last fall, Microsoft restructured into three business divisions headed by four presidents. The acquisition of Groove Networks in April 2005 brought along Ozzie, whose influence has risen quickly. Mundie expects decision making to be more decentralized in the new-look Microsoft.

A Changing World
Ozzie's No. 1 job: light a fire under Microsoft's software-as-service strategy. "While we think Microsoft gets it, the reality is that it's difficult to navigate such a large development organization that is rooted in many old practices," Credit Suisse's software analysts wrote in a report last week.

Like Gates, Ozzie is a technologist first, a business manager second, and he and Mundie increasingly will be the public voice of Microsoft's technical direction, while Ballmer attempts to steady the overall business. But Gates has been much more than a chief software architect, the title he just gave up. His more significant role has been one of Chief Visionary for Microsoft and, more than any other person, for the rest of the computer industry. More so than Jobs or McNealy or Ellison, Gates has been the one to articulate--often on stage in front of packed crowds--not only where Windows is heading, but the future of PCs, software, multimedia content, 64-bit computing, and what he calls the digital lifestyle.

Who will step into that void? There's no obvious heir. Gates has always been more than a talking head; he can dive into APIs and protocols and programming languages with the most experienced of software engineers. His combination of technical depth, experience, and star power (boosted by his incomprehensible personal fortune) will be hard to replicate.

Not everyone, of course, thinks of Gates as the voice of the computer industry. Some say he's the scourge. The bugginess of Windows, the high cost, the lack of scalability and interoperability with competing products have fueled the anti-Microsoft crowd for years. Some people think Gates gets too much credit for technology innovation he didn't conceive himself--something he acknowledged last week. When Mr. Microsoft got a pie in the face eight years ago on a business trip to Brussels, not everyone felt regret. Several competitors last week passed on the opportunity to say something nice. Officials at Google, IBM, and Oracle had no comment.

Stay Tuned
Gates' exit plan comes at a time when the future of Windows, and the bulk of Microsoft's PC software, is subject to revision. Microsoft and competitors Google and Yahoo are investing millions of dollars to bring online new data center capacity that could deliver business and consumer applications to more computer users at faster speeds. "The entire consumer software industry has changed to services, but that transition hasn't really happened yet in the business space," Ozzie said in a keynote speech at Microsoft's TechEd conference in Boston last week. "Well, stay tuned."

In an interview last fall, Ozzie said Microsoft needs to "pick up the tempo" of software releases to compete in the new world of online software. But he also gave the PC a vote of confidence and said it would figure prominently in Microsoft's plans.

During his speech last week, Ozzie said Microsoft is designing software that its business customers will be able to run on-site or over the Internet, with the ability to switch as their needs change. "We're approaching a new era," he said. "Internet services will transform business software."

Ozzie now inherits the "central role" in designing Microsoft's products, Gates said. Mundie will oversee Microsoft's 700-person emerging technologies research group, led by senior VP Rick Rashid. Mundie will simultaneously work with senior VP Brad Smith on intellectual property and technology policy issues.

Gates gave a vote of confidence to Ballmer, whose leadership has been questioned by Wall Street of late as Microsoft prepares for big spending increases for operations next year while refusing to return more company cash to shareholders at a time when the company's stock hasn't provided significant market returns in years. "Steve is the best CEO for Microsoft I could imagine," said Gates, highlighting Ballmer's track record of increasing company profits, hiring top talent, and managing the company for the long term.

A Billion More users?
In choosing to make the transition announcement now, Microsoft hopes to bring new faces to the fore and reassert a sense of optimism about the company's future. "I believe we have an amazing opportunity before us," Ballmer said, suggesting Microsoft could add a billion customers over the next 10 years.

Microsoft is jockeying for position as software changes from being a PC- and server-based resource to a Web-based service. The company has fallen behind leading Web technologies, such as Ajax and Ruby on Rails, which produce quick applications with an emphasis on Web interactions. That explains why so many are fast to declare Gates' planned departure as the end of an era.

Gates last week acknowledged he's not quite sure how the adjustment will go. "I don't know what it's going to feel like not to come in here every day and work 10 hours," he said. Neither do we.

-- With Charles Babcock, J. Nicholas Hoover, and Aaron Ricadela

Continue to the sidebars:
Mundie Will Stick To Gates' Culture
and Ozzie Has A History Of Being Right