Gates' reduced role sign of major transition

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Friday, June 16, 2006

Gates' reduced role sign of major transition
Two-year transition will leave Ballmer, Ray Ozzie at the helm

By TODD BISHOP AND DAN RICHMAN
P-I REPORTERS

REDMOND -- Bill Gates is moving on -- but not entirely, and not just yet.

IN THEIR OWN WORDS

Listen to an interview with Bill Gates and Chief Executive Steve Ballmer

Foreshadowing the end of a storied career, Microsoft Corp.'s iconic leader announced plans Thursday to step down from his day-to-day executive position in two years. The news begins a momentous transition for Gates and the company he built into a technological and commercial force.

Gates will shift to a full-time role at his philanthropic foundation by July 2008, although he plans to remain the company's chairman and a technical adviser on key projects. He also said he expects to continue as Microsoft's largest shareholder.


		AP
	Microsoft Chairman Bill Gates announced Thursday that he will step down from his day-to-day duties at the company in two years. Steve Ballmer, right, will remain Microsoft chief executive.

Microsoft quickly named the executives who will fill Gates' technological role after he leaves, working with Chief Executive Steve Ballmer. But the move has huge implications on a variety of fronts. Gates, who founded Microsoft in 1975 with Paul Allen, conceded that the personal ramifications hadn't yet sunk in.

"This decision was a hard one for me to make," he said in a news conference Thursday afternoon on the company's Redmond campus.

In an interview, Gates acknowledged Microsoft's challenges but said his confidence in the company's direction was one factor leading to his decision.

"We're in a stronger position now than ever," Gates said. "It was the confluence of how I felt Microsoft could do, and how I felt about the scale of the foundation that made me say to Steve I was contemplating this, and then this week really make the firm decision that, two years from now, I was going to make that change."

The transition comes at a pivotal moment in Microsoft's history. The company is trying to transform its business for the Internet age, and expand its traditional Windows and Office businesses -- all the while trying to come from behind in key markets against such rivals as Google, Apple Computer and Sony.

Although the company continues to post sizable profits, it reported its smallest revenue growth on record last year. Earlier this week, Wall Street sent Microsoft's already-floundering share price to its lowest point in nearly four years. After rebounding to above $22 in regular trading Thursday, the shares were down slightly in after-hours trading after the announcement.

In announcing his decision, Gates voiced support for Ballmer, whom the company said will remain chief executive. Ballmer, who assumed the CEO job from Gates in January 2000, has been under fire from investors since announcing plans to boost company spending by more than $2 billion next year to better compete in various businesses.

In an interview with Gates, however, Ballmer said he felt no pressure to step down or to change his own role.

"Not at all," he said, pointing out that he and Gates are the two biggest shareholders and believe strongly in the investments they're making. "Is the company in good shape and doing the right things? I think we'd say the answer to that is yes."

"Steve is doing a fantastic job," Gates added.

Gates, 50, said during the news conference that he considered the transition not a retirement but rather a "reordering" of his personal priorities.

His shift will cap a business career that has contained extraordinary accomplishments but also turbulent times -- ranging from the runaway success of the Windows PC operating system to the dark days of the company's U.S. antitrust suit, which shed public light on the company's hardball business tactics.

Although Gates' everyday role will be reduced, some veteran observers of the company said they expect his influence to continue to be felt, particularly on the competitive front, even after he leaves Microsoft in two years.

"I don't think that Gates is ducking that fight," said Charles Di Bona, a financial analyst at Sanford C. Bernstein & Co. "He's going to be around for that."

But leading the technological charge will be Ray Ozzie, one of Microsoft's chief technical officers, who was given Gates' previous title of chief software architect as part of the Thursday announcement. Gates said that he and Ozzie will work side by side during the transition.

"Over time, he'll take on the central role for architectural leadership at Microsoft," Gates said.

Microsoft named another chief technical officer, Craig Mundie, to the position of chief research and strategy officer, assuming another slice of Gates' duties.

But the ascension of Ozzie, who joined Microsoft last year, drew attention for its potential to alter the company's direction. Mitch Kapor, whose Lotus Development Corp. funded the Notes software for which Ozzie first became known, called his appointment "a good thing for Microsoft and the computer industry."

Microsoft continues to enjoy lucrative monopolies on its Windows operating system and Office software suite, Kapor said -- but the software industry is moving away from such PC-based software and toward Web-based programs, and Ozzie is the right person to lead the company down the new path.

"Bill's been doing this for a long time, and he is absolutely in software of a certain era and certain style," Kapor said. "When I talk to entrepreneurs who are starting companies, they're only thinking about Google as competition, not Microsoft."

In the company's corporate structure, Ozzie and Mundie are expected to continue reporting to Gates and then shift their reporting relationships to Ballmer at some unspecified point during the two-year transition, Microsoft said.

Although Gates emphasized he isn't severing his ties to the company, his decision to end his day-to-day duties will in many ways leave the company without the man who has become its public face. But the Microsoft chairman sought to downplay the significance of his role.

"The world has had a tendency to focus a disproportionate amount of attention on me," Gates said. "In reality, Microsoft has always had an unbelievably strong depth and breadth of technical talent."

Microsoft's divisional presidents -- Jim Allchin, Kevin Johnson, Jeff Raikes and Robbie Bach -- were in the room as Gates and Ballmer made the announcement, along with Ozzie, Mundie and others who wanted to witness the historic event. Ballmer and Gates sat quietly next to each other in the front row before they were introduced.

"We love Bill, he has done amazing work," said Bach, president of the company's Entertainment and Devices Division. "Bill has instilled the company with many values that are super important, and we want to keep those. There's more for us to do. It's an exciting time."

Gates' departure "will be a big loss, but I think we're going to make it," said Microsoft employee Christoph Bichsel, chuckling at the understatement.

Co-founder Allen, on his way to Microsoft's campus for an event marking the transition, said that the changes brought back memories of his own departure from Microsoft, about 22 years ago, and of the times he and Gates have shared.

"I know Bill had been thinking about this for some time, and these transitions are obviously significant in the company's history, but I think the company's been preparing for this kind of a step for a while," Allen said.

He added, "It's the kind of step you take after you've thought long and hard about it, and I don't think Bill would be doing it if he didn't feel the company was in great hands with Steve at the helm and people like Ray Ozzie taking larger roles."

An Apple Computer spokesman said Chief Executive Steve Jobs, Gates' longtime rival, had no comment on the announcement.

Gates said he has been speaking with Ballmer over the last two years about how Gates could shift his priorities but maintain his ties to Microsoft. He said he also talked extensively with his wife, Melinda, who is heavily involved in the foundation. After making the decision, Gates said, he told Melinda but initially delayed telling Ballmer the news.

"One of the hardest things about my decision is that a couple of years from now, I'll miss working with Steve every day as I have for the past 26 years," Gates said. "I couldn't ask for a better business partner or a better friend."

MAKING HISTORY

Milestones in one of the world's best-known business stories.

1975: Gates drops out of Harvard and co-founds Microsoft with childhood friend Paul Allen.

1979: Microsoft moves from Albuquerque to Bellevue.

1980: Steve Ballmer, whom Gates met at Harvard, joins Microsoft as the company's first business manager.

1984: Ray Ozzie founds Iris Associates, a software development firm in Littleton, Mass., where he pioneered Notes, a collaboration product whose creation is funded by Lotus Development Corp.

March 13, 1986: Microsoft shares are first traded publicly.

1987: At 31, Gates becomes the world's youngest self-made billionaire.

1990: Microsoft releases Windows 3.0, the first popular Windowing operating system for Intel-based PCs.

1994: Lotus buys Iris for about $84 million.

1990: Microsoft releases Windows 3.0, the first popular Windowing operating system for Intel-based PCs.

1994: The William H. Gates Foundation is established to address global health and community needs in the Pacific Northwest.

1997: The Gates Library Foundation is launched to provide computers, Internet access and training to public libraries in low-income communities in the United States and Canada.

October 1997: Ozzie founds Groove Networks Inc., which links groups of co-workers, customers or friends in real time, without the need for a central computer server.

May 18, 1998: Microsoft is named a defendant in antitrust suit brought by the federal government, 20 states and the District of Columbia.

2000: The two earlier foundations are merged into the Bill & Melinda Gates Foundation. The foundation gives $750 million, its largest grant ever, to launch a global alliance to provide basic vaccines to children.

Jan. 13, 2000: Gates steps down as chief executive at Microsoft, naming company President Steve Ballmer to the position. Gates remains chairman and becomes chief software architect.

Nov. 6, 2001: Microsoft and the federal government settle antitrust suit. Microsoft agrees to let computer makers promote competing Web browsers and media players.

March 24, 2004: The European Commission concludes a five-year antitrust investigation, orders company to change its business model and fines it $611 million. The matter remains unresolved.

July 20, 2004: Microsoft says it will give as much as $75 billion to shareholders in stock buybacks and dividends.

March 2005: Microsoft buys Groove and names Ozzie as one of its three chief technical officers.

2005: The Bill & Melinda Gates Foundation gives another $750 million to the Global Alliance for Vaccines and Immunizations. The effort is credited with saving the lives of hundreds of thousands of children. Gates, his wife, Melinda, and U2 lead singer Bono are jointly named Persons of the Year by Time magazine.

June 15, 2006: Gates announces he will step down from his daily duties in two years, but remain chairman, so he can spend more time working with the Bill & Melinda Gates Foundation.

Gates names Ozzie to replace him as chief software architect, effective immediately, though Ozzie will continue reporting to Gates.

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com.

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