Gates shows no sign of fading from sight after Microsoft exit
Posted on Sunday, August 5, 2007
REDMOND, Wash. — Microsoft Corp. is beset with competition from all sides, unlike any it has seen in decades, and Bill Gates, who co-founded the company 32 years ago, still intends to step away next year as planned.
But so far, Gates, Microsoft’s 51-year-old chairman, shows no sign of fading away. One year into a planned two-year transition, there are few visible cues that he is ready to leave the world’s technology stage to devote his energies principally to the $ 33 billion foundation he established seven years ago with his wife.
At the company’s recent annual financial meeting, Gates spoke first, outlining a decadelong agenda, not a mere 12-month outlook. He described a world in which the widespread availability of broadband networks would reshape computing, giving rise to “natural user interfaces” like pen, voice and touch, replacing many functions of keyboards and mice.
Gates has stayed deeply engaged in the company’s technology strategy. He still frequently participates in high-level strategy planning sessions with Microsoft’s closest partners, like Intel, according to executives who have attended the meetings.
During a wide-ranging interview exploring his diminished role at Microsoft, the company’s challenge and its competitors, Gates insisted that he really has begun stepping back.
“I am in a lucky situation of having way more things that seem interesting to do and very exciting and important, and working with smart people, and highly impactful, way more than a 24-hour day will fit,” he said.
There is widespread skepticism in the industry about the possibility of Gates genuinely disengaging himself. Microsoft’s dominance is being challenged as never before by Google Inc. in particular, and Wall Street refuses to believe the company will regain its edge. Microsoft’s stock has largely remained flat since the end of the dot-com era.
“It’s very hard for someone at his age, who has built a company with that much success and with continuing challenges, to really walk away,” said David Yoffie, a professor at Harvard’s business school. “He will never be a titular leader.”
As he spoke in his office, Gates was joined by the two Microsoft executives, both veteran technologists, who are succeeding him. Craig Mundie, the chief research and strategy officer, and Ray Ozzie, chief software architect, agreed with him that despite significant industry challenges from all directions, Microsoft is at a perfect historic juncture for Gates’ departure and that the first stage of his withdrawal from Microsoft has been reasonably seamless.
“The weaning process inside the company is inevitable,” said Mundie, a computer scientist who began his career developing minicomputers and supercomputers before joining Microsoft in 1992.
The greatest danger, according to all three executives, would be if Gates continues to make decisions while not staying deeply involved. He will remain chairman.
“It can’t be a situation where he’s expected to suddenly, magically come up to speed,” said Ozzie, who developed a softwarecollaboration tool called Notes for Lotus and then started Groove Networks, which was acquired by Microsoft in 2005. “You know, did you see the 20 announcements last week that Google did, Yahoo did, Cisco did ?”
For his part, Gates said he planned to remain deeply involved in a few areas indefinitely.
“Other than board meetings, there’s not much in terms of regular meetings,” he said. “It’s much more sitting down a couple hours a month with Craig, sitting down a couple of hours a month with Ray.”
Steven Ballmer, who took over the chief executive role from Gates seven years ago, said in a separate interview that the company’s overall performance had never been stronger. Microsoft, he noted, has doubled its revenue and almost doubled its profits since he has been at the helm. Despite that growth, the stock price has remained flat in the period.
Although smooth leadership transitions are infrequent among high-technology firms, it appears that Gates has had the freedom to begin stepping away gracefully because Ballmer has been largely successful in shouldering the burden of running Microsoft.
Gates no longer attends senior leadership team meetings, and last month he made what company executives described as a farewell appearance at the annual Microsoft sales-force meeting in Orlando, Fla. When Gates finished his speech to the thousands of sales people, they gave him a five-minute standing ovation, underscoring the bond the company still retains with its co-founder, according to a person who attended the event.
But as he cedes Microsoft’s technology leadership to Mundie and Ozzie, the company is struggling with a radical transition in the computer industry. Six months ago, Microsoft shipped its longdelayed Windows Vista operating system, and there is widespread belief within the industry that the era of such unwieldy and vast software-development projects is coming to an end.
SMART CONNECTED DEVICES
Ubiquitous broadband networks and high-speed wireless networks have for the first time given rise to meaningful alternatives to bulky and costly personal computers. In their place is a proliferating collection of smart connected devices tied together by a vast array of Internet-based information services based in centralized data centers.
The industry is rushing to “software as a service” models ranging from Salesforce. com, a San Francisco company that sells business-contact software delivered via Web browsers, to Apple’s iPhone, which is designed as a classic “thin client,” a computer that requires the Internet for many of its capabilities.
It is a vision that Microsoft itself has at least partially embraced. Microsoft is calling its strategy “software plus services,” an approach that is intended to protect the company’s existing installed base.
During the interview, all three executives indicated that Microsoft is moving quickly to offer new Internet services for personalcomputer users. Centralized data storage will make it possible for PC users to gain access to most or all of their information from all of the different types of computers they use, whether they are desktops, laptops or smartphones, and wherever they are located.
During the transition, Gates has also stayed closely involved in shaping Microsoft’s strategy in the search market, where it has been attempting to catch up to Google and Yahoo.
“We made all the structural changes we were going to make, and we rode in tandem last year,” said Mundie. “In the last few months, Bill has transitioned to what I start to think of as specialproject mode.”
If he is stepping away from Microsoft, Gates has shed none of his trademark combativeness. He rejected the Silicon Valley view that Microsoft has begun to exhibit the signs of middle age that IBM did when it dominated the computer industry but failed to respond effectively to the challenge of the personal computer.
IBM is no longer at the center of the computer industry for two reasons, he said. First, the industry is now centered on personal computing. “As much as IBM created the IBM PC, it was never their culture, their excellence,” he said. “Their skill sets were never about personal computing.”
Second, the center of gravity in the computer industry has dramatically shifted toward software, he said. “Why do you like your iPod, your iPhone, your Xbox 360, your Google Search ?” he said. “The real magic sauce is not the parts that we buy for the Xbox, or the parts that Apple buys for iPhones, it’s the software that goes into it.”
During the interview, Gates rejected the notion that Google could become a successful competitor in the smartphone-software market, where Microsoft has about 10 percent market share. The Silicon Valley search-engine provider has been widely reported to be preparing to enter the cellphone market with its own software and a host of services springing from that software.
Microsoft’s chairman said it was unlikely that Google would be able to make inroads into the Microsoft’s share of the market for mobile-phone software.
“How many products, of all the Google products that have been introduced, how many of them are profit-making products ?” he asked. “They’ve introduced about 30 different products; they have one profit-making product. So, you’re now making a prediction without ever seeing the software that they’re going to have the world’s best phone and it’s going to be free ?” Again, the ability to create compelling software will determine the winners. “The phone is becoming way more software-intensive,” he said. “And to be able to say that there’s some challenge for us in the phone market when its becoming software-intensive, I don’t see that.”
DEFINING ROLES The new, less-central role for Gates was first formulated at a June 2006 meeting in which the three men worked out how they would divide responsibilities for guiding the technology direction of the $ 51 billion company, according to Ozzie, who was a longtime rival of Gates at companies like Lotus and IBM before joining Microsoft two years ago. They decided that Mundie and Ozzie would divide Gates’ role along three axes. Along one of these lines, Mundie, who has been described as Microsoft’s “secretary of state” and who is deeply involved in federal government and international policy issues, would take a more public-facing role, while Ozzie would focus more closely on internal company matters. Gates insists that his new world of philanthropy will be just as compelling as software has been.
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