News

Gates Departure: Will the Wizardry of 'Oz' Be Enough?

• By Ed Scannell and Stuart Johnston
• June 16, 2006

In fact, Gates' announcement didn't even ruffle the stock market -- the stock's price hardly wavered on Friday. That's partly because this isn't the first time he has brought up the topic.

Gates said years earlier that he planned to retire when he turned 50, even once saying he couldn't envision himself, or anyone else for that matter, being 50 and in charge of Microsoft. Perhaps ironically, Ray Ozzie, the Microsoft executive who will take over for him is 50, as is Gates himself.

As he got closer to that 50-years-old milestone, however, Gates rescinded his earlier statements. With Thursday's announcement, he effectively put off his retirement by only two years from the original plan -- perhaps another classic Microsoft schedule slide. In any event, it will be a long goodbye.

Analysts, in hindsight, say the signs have been growing all along that this move was coming. The first step was to hand the CEO title over to Steve Ballmer in January 2000. They believe Gates has done a good job of setting up this transition, leaving a two-year timeframe for adjusting the management structure and spreading responsibilities before he leaves to work full-time on the Bill & Melinda Gates Foundation, across Lake Washington in Seattle.

The Gates Foundation has a $29.1 billion endowment from the family, and has concentrated on immunization programs in developing nations. His and spouse Melinda Gates' leadership on such issues earned the two Time Magazine's "Person of the Year" designation last year along with U2 lead singer and activist Bono.

Even after he moves his focus across the lake, though, Gates said he will continue to serve as company chairman -- at the board's behest -- and will work part-time at Microsoft as a "senior technical advisor -- basically, on special projects for Ballmer or Ozzie.

Gates is one of few entrepreneurs to be adept enough to survive with and grow a company from its founding to becoming one of the most valuable companies of all time. As such, he has historically been the company's public persona.

Some analysts however were not convinced it will be a transition that "doesn't miss a beat," as Gates said in his press conference. In a report issued on Friday, Forrester Research said Gates' encyclopedic mind, steely will and passion for technology -- which it said is the essence of Microsoft -- will be hard to replace. And it needs to be replaced now as the company embarks on its next-generation Live platforms.

"Microsoft cares about technology and products. Despite the emphasis on the company's strong management team in the announcement of Gates' transition, most of those highlighted are business managers, not technical leaders. Gates is a technical leader, first -- the most accomplished software technology manager ever. It will take a village to replace him," the report stated.

Gates' successor as chief software architect will be Microsoft CTO Ray Ozzie, a technology superstar in his own right. Ozzie started his career in the late 1970s as an engineer at Data General Corp. working on distributed operating systems development. In the early and mid-1980s he worked at the legendary Software Arts, pioneers in microcomputer-based application development where he worked on VisiCalc and TK! Solver. He moved on to Lotus Development Corp. where he was one of the principal developers of Symphony, the company's followup to 1-2-3.

Then in 1984, Ozzie started Iris Associates where he began the development of Notes, a collaborative piece of software that is still used by millions of users. He sold the product to Lotus and it became that company's most strategic product competing directly against Microsoft's Exchange Server. In 1997, Ozzie founded Groove Technologies, which produced desktop-based collaborative software aimed at small groups of users, and was crafted specifically to work well with Microsoft environments.

Going forward Ozzie will lord over the company's crucial Windows and Office Live initiatives, where he will work closely with Gates, although Ozzie will serve as the guiding force. He will also work closely with Craig Mundie, who will now oversee the company's research units and be more visible to the outside world.

Not unexpectedly Gates heaped lavish praise on Ozzie's capabilities at yesterday's press conference, showing no reservations about his ability to shepherd the Live initiatives and other associated projects.

"I was thrilled a year ago when Ray joined the company," Gates said. "We have all seen him step up and help drive our Live services strategy. For the next two years Ray and I will work side by side to ensure a smooth transition," he said.

But despite his resume, how comfortably Ozzie slips into Gates large shoes remains to be seen.

"Gates has quite a few roles [at Microsoft] and some are difficult to just pass off," said Rob Horwitz, CEO and research chair for Directions on Microsoft, an independent newsletter that tracks the company. In recent years, particularly after he passed the leadership of the company over to Ballmer in 2000, Gates has been playing four roles at the company, Horwitz added.

First, as co-founder and for most of the company's history its CEO, Gates is the public face of Microsoft. (The company's other co-founder, Paul Allen, retired from the company for health reasons in 1983, relatively early in its history.)

Since becoming CEO in 2000, Ballmer has been emerging more as the company's spokesperson. For instance, he appeared in a video spoofing the hit TV show "24" at Sunday night's keynote launching Microsoft's annual TechEd conference in Boston. But Ballmer, while charismatic and known for his contagious personal energy, does not have the "visionary" status that Gates has always enjoyed and has been cultivated by the company's public relations team.

Second, as chief software architect (and, in fact, throughout his career), Gates has been famous for his personally directed project and code reviews. "In the area of technical reviewing, they've got a deep pool of talent like J Allard, Steven Sinofsky, and Bob Muglia," Horwitz said.

(Allard is corporate vice president and chief architect of the company's next-generation gaming platform called XNA. Due to a recent reorganization, Sinofsky is now senior vice president of the Windows and Windows Live Engineering unit. Muglia is senior vice president of Microsoft's Server and Tools Business group.)

Third, Gates, even after he relinquished the CEO role, has functioned as a tie breaker in executive battles, Horwitz said. "As long as Ozzie has the support of Jeff Raikes, Robbie Bach and Kevin Johnson [the presidents of Microsoft's three divisions], [Ozzie's ability to help guide decisions through tie-breaking] will be fine."

Finally, adds Horwitz, Gates has always played the part of company visionary and long-term trend leader, not only for Microsoft but for the industry and, ultimately, society as a whole.

In that role, he sees Ozzie and Craig Mundie -- until Thursday, CTO of advanced strategies and policy and now, chief research and strategy officer. "[Those two] could do the ‘futurist' thing but who has the credibility to get two development groups to buy into a decision?"

Bluntly, Horwitz said, "Ozzie didn't found the company and he hasn't been there for 30 years so how will these big initiatives [that the company is known for] be communicated?"

Beyond the longer-term challenges, however, leaving two years for the transition period is a good idea, analysts agree. It allows time for Ozzie to grow into his new job title, and for adjustments to be made to the management structure to accommodate his strengths and weaknesses. Overall, it should make for a smooth transition.

"We are talking a two-year period here which should give them time to make a gradual and orderly transition. And remember, Bill is not exactly going away. He will still have a formidable presence in the company even though his day-to-day responsibilities will diminish," said Al Gillen, research director of System Software for IDC. "I think Microsoft can continue to be Microsoft without him," he said.

It was not as smooth when Ballmer was handed the reins of the company in 2000. "Gates later admitted they didn't handle [that transition] well, and it looks like they learned by the experience," Horwitz said. "My bet is Gates is going to be a lot more careful this time around."