Bill Gates Bowing Out

Published: June 16, 2006

by Alex Woodie

Bill Gates has begun the process of leaving Microsoft, the company he co-founded 31 years ago, to spend more time on his charitable work, it was announced yesterday. The plan calls for a two-year transition out of day-to-day activities. The evolution will begin immediately for Gates, who is giving up the chief software architect title, and it will continue through July 2008, at which point he will work only part time. The move comes amid a period of re-organization at the world's largest software company, and signals more changes to come.

Gates' current responsibilities will be divided and filled by the company's two chief technical officers, including Ray Ozzie, who gains the title of chief software architect, and by Craig Mundie, who has the new title of chief research and strategy. Gates will work side-by-side with Ozzie and Mundie over the two-year transition process, Microsoft said. However, a year from now, Ozzie and Mundie will reportedly begin reporting to Chief Executive Officer Steve Ballmer instead of Gates.

After July 2008, Gates will work part-time with Microsoft as its chairman and as a senior technical adviser. This will allow him to spend more time with the Bill and Melinda Gates Foundation, the charitable organization founded in 2000 by Gates and his wife "This was a hard decision for me," Gates said in a press release. "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."

This is an interesting time for Microsoft. On the one hand, the company continues to reap huge profits from its monopoly on desktop operating systems and from its Office desktop productivity applications. The third leg of its money-making triad, the Windows Server system and tools business, is also competing very effectively in the business world. Windows, which has owned the volume server business for years, recently overcame Unix as the number one platform by revenue--owing to the big strides Microsoft has made in the reliability of its server operating system.

While Microsoft is making about $1 billion in profit every 30 days, that doesn't change the fact that it's facing huge challenges as it begins its fourth decade. For starters, the company is continually trounced by Google in Web-search market share and, increasingly, in the area of Web-based application delivery, which Microsoft sees as a strategic area. Google recently launched an online alternative to Excel, and industry observers believe it's only a matter of time before Google makes a serious attempt at the business application market.

Internet-based applications may be the next computing battle ground, but Microsoft's shrink-wrapped software still rules the market. However, even here, Microsoft faces huge challenges, including repeated delays of the next release of Windows, which is already two years late. This led Microsoft to mount an all-out blitz to get the code to market, including rapidly accelerating the hiring of new programmers to work on the new products.

However, the extra spending has its own consequences. In its quarterly financial report last month, the company disclosed an additional $1.8 billion in spending during the past nine months, which precipitated a 12 percent drop in its already-flat stock price--another area of concern for the software giant. Ballmer said the extra spending was a worthwhile investment because the new products will be "blockbusters" (see "Ballmer Talks Up 'Big Bold Bets' In Wake of Big Stock Drop").

One can't say that Microsoft is sitting flat-footed as the computer industry changes around them. The company has embarked upon several organizational shifts over the last year or so, including bringing in new executives to try and get that creative spark back.

The biggest change is the pending retirement of Jim Allchin, the man who has driven development of the Windows operating system since Windows NT 3.5. Last fall Allchin announced he will retire after the delivery of the next version of Windows. Allchin, who currently shares the title of co-president for the platforms and services division with Kevin Johnson, will be succeeded by Steven Sinofsky upon his retirement (see "Microsoft Reorganizes Ahead of Allchin's Retirement in 2006").

The acquisition of Ozzie's Groove Networks (virtual office collaboration software) business in April 2005 has also sparked organization changes for Microsoft. Ozzie, whose stock has rapidly ascended in Redmond, was heading up the company's Live Web-based software strategy when he was tapped to succeed Gates as chief software architect. Could there be bigger shoes to fill?

Gates says he's confident the right pieces are in place to guide Microsoft in the post-Gates era. "I feel very fortunate to have such great technical leaders like Ray and Craig at the company," Gates said. "Our business and technical leadership has never been stronger, and Microsoft is well-positioned for success in the years ahead."