Jun 24, 2008

Microsoft after Gates

In some respects, this week won't be terribly different for Bill Gates than the previous 1,712 weeks he has spent working full-time at Microsoft, the company he co-founded as a teenager. The 52-year-old icon has some one-on-one meetings scheduled with a few of his top technical executives. He has some customer meetings. And, as often happens, he'll go to the television studio on Microsoft's Redmond, Wash., campus to tape a few messages for events he won't be able to attend. In addition, he says, "I hope to write a few memos."
But normalcy will be an illusion. Everybody knows that when the week ends,
Bill Gates will walk out of his office for the last time as someone on the clock for Microsoft. (On that final day, the routine will be shredded, and the staff has planned some internal commemorative events.) He'll take a break this summer (including a sojourn to the Beijing Olympics), and beginning in September the new focus of his work life will be the Bill & Melinda Gates Foundation, the organization he began with his wife in 2000. With a current $37.3 billion endowment, it's the world's richest philanthropic institution.
Gates leaves at a challenging time for Microsoft, but this is the final step in a painstakingly planned process that began four years ago. It was spring 2004 when the Gateses began discussing the possibility that if Bill increased his role at the foundation—making as big a donation in brainpower as he has in dollars—he could save or improve many lives. Gates formalized the move in June 2006, when Microsoft announced a two-year transition period scheduled to end, well, right now. "I don't know of any retirement that's been as carefully thought through," says Gates.
The paradoxical aspect of this period has been that while Gates has consciously been stepping back in some areas (almost no one reports to him, and he has limited his tech focus to a few key areas like search and the next version of Windows), his passion for the
software world is as intense as ever. "Bill comes to every meeting like he's going to be here for the next 10 years," says CEO Steve Ballmer. So no one really knows how much culture shock will set in when Gates leaves the campus this Friday. Though he will remain the chairman of its board of directors—assuring him a huge voice in any big decisions—and plans to spend the equivalent of one day a week on company business, the idea that he won't be there seems unreal. Microsoft without Bill Gates? It does not compute.
"He's not just Bill Gates, he's the Bill Gates," says Ballmer, the guy who will be holding the bag after Gates leaves the building. "If you were to say who are the five most famous guys on the planet today, he'd probably be on that list. He founded the company, he's accumulated this wealth, he's got this foundation, he's got this fame. That's irreplaceable. Also, Bill grew up with every one of the technologies in this company. He's got more capacity to remember things than anybody I've ever known. It's unlikely we'll have anybody again who has that breadth."
Since Gates and his partner Paul Allen invented the PC software industry (they formed Microsoft to write the first program for the very first personal computer, the Altair), one can say that an era is truly ending. On the other hand, critics of Microsoft contend that Gates's departure is anticlimactic—because the company is past its prime. "The Gates era has already ended—this is the coda," says Mitch Kapor, founder of Lotus, the spreadsheet giant humbled by Microsoft in the 1980s. "Today,
Google is the defining company in the industry."Was it only a decade ago that Silicon Valley quaked at Microsoft's every move? Start-ups would abandon business plans if they felt that Microsoft was thinking of competing in their space; no one wanted to take on the "800-pound gorilla," as pictured in the cover image for James Gleick's influential 1995 New York Times Magazine story. Yes, Microsoft's revenues are still massive, and its core products still permeate the computer world with monopoly-level market share, but in terms of intimidating Valleyites, the gorilla is a chimp. When Web start-up guru Paul Graham was telling a young entrepreneur about how companies used to fear Microsoft, the kid couldn't understand why anyone would behave that way. "It was as if I told him how much girls liked Barry Manilow in the '80s. Barry who?" Graham wrote in a well-linked 2007 essay entitled "Microsoft Is Dead."
It's hard to characterize a company's taking in more than $50 billion a year as deceased. But Microsoft has some serious woes. Its stock has barely budged in five years. (Its core business of Windows and Office is still hugely successful, though —so much so that, while its U.S. antitrust matters are settled, the EU is constantly investigating Microsoft for behavior that supposedly exploits its 90-plus percent market share.) The latest version of Windows, Vista, was a disaster: Microsoft released it years late, without key features originally promised, and its performance failings have led customers to make unprecedented demands on PC makers to downgrade their new computers to run the previous operating system, Windows XP.
Then there is Google. Microsoft is doing so miserably in competing with the Mountain View, Calif., search giant—in both the number of searches and the ad revenue from those queries—that it attempted, unsuccessfully, to buy Yahoo for almost $50 billion. In the aftermath of that fiasco, Microsoft is left with an admission that its Internet strategy needs a deep fix that isn't forthcoming. Meanwhile, the hostile takeover attempt sent Yahoo into the willing arms of Google, as CEO Jerry Yang arranged to let Microsoft's key rival handle some of his search advertising.
To Gates, such pressure is business as usual: it has always been this way. (Indeed, looking back on over a dozen years of interviews, that's what he has said consistently.) "Every year that we've existed, we've had the excitement that this is a fast-changing business. This wouldn't be a fun business if it wasn't always risky," he says.
But doesn't the Yahoo move mean that Microsoft's online strategy—forged in 1995 with a Gates memo, "The Internet Tidal Wave"—has been swamped by Google? "Let's see," says Gates, his voice raising in volume. "How have things gone since 1995? Have our sales increased? Have our profits increased? (Answer: yes, about tenfold.) Then he softens a bit. "Do we also wish we'd done everything that Google has done? Sure. But I'll take our track record since 1995 versus anyone."
That's a refrain that echoes down the corporate chain. "A lot of the company's strength is that Bill created a culture of crisis—if there weren't a Google, we'd have to make one," says Ray Ozzie, who has inherited Gates's title as chief software architect. "While they are significant competitors, Google and the rest aren't materially different than others in the past. This is a period of unprecedented strength for the company. If there had to be a time when Bill transitioned out, we couldn't have set it up better than it is right now."The question is whether Microsoft can compete as effectively without its founder. Ballmer, who took over as CEO from Gates in 2000 after 20 years as his key exec, is confident it can. That transition had been rough for both parties; according to Ballmer, it took a while to determine who was the junior partner and who was senior. But after the bumpy transition, Ballmer is comfortable flying solo. Anyway, it won't be like Gates is falling off the face of the earth; one day a week, he'll be there (though, in a symbolic act, Ballmer is moving into Gates's office, forcing Bill to establish his part-time digs down the hall). But if Gates got so totally involved in working out Third World microfinance deals that he stopped taking Ballmer's calls, "we'd be fine," says Ballmer. "If he really said, 'You can't have a minute of my time in the next year,' I'd feel bad. But the place would be fine."
While Ballmer runs the business, the burden of filling the Gates gap in geek expertise falls to a pair of technical leaders who will split duties. Craig Mundie, a 16-year Microsoft veteran, will make more public appearances, and grapple with and lead longer-term projects involving education, health care and software that exploits the superpowerful computers that will appear in the future. He'll also concentrate on more basic technologies like chips and infrastructure. Ray Ozzie—the software pioneer (he invented Lotus Notes) who arrived in 2005 when Microsoft bought his company, Groove—will be more of an internal presence, crafting the Web-based strategy that will roll out in the next couple of years.
As for Vista, Microsoft is well aware of its failings and Gates wants to make sure the next release, Windows 7, will not suffer a similar fate. Several months ago, he outlined his product vision to the team. "He brilliantly brought together the history of Windows, the mission that was ahead of us and the importance of Windows, but also challenged us on a personal level to think about what we could do better," says Steven Sinofsky, who heads the Windows effort. To Sinofsky, it was a bittersweet moment. "It was hard to escape the reality that his time allocation to Microsoft will be shifting while we're building this product," he says. Sinofsky's worries are mitigated by the fact that Windows 7 is one of the projects Gates will continue to follow closely. (Others include search, the next version of Office and the user interface.) In fact, the last of the notorious "Bill Reviews," a sort of geek kabuki where Gates unstintingly assesses a product, was devoted to the latest iteration of Windows 7.
Anyway, that one day a week on Microsoft business isn't a firm limit. "Measuring time is always tricky when you're someone who is on e-mail night and day," says Gates.
While Gates has a clear picture of his continuing role at Microsoft, the details of his new job at the foundation are somewhat fuzzier. "He's still trying to figure out what mix of things he'll be doing," says foundation CEO Patty Stonesifer. Some things, though, are determined. "He'll be out there working with people in Germany on foreign aid, and working with Bono on the advocacy end. He'll use the same approach here that he uses as chief software architect at Microsoft."
Gates does have some specific ideas, big and small. At the suggestion of Warren Buffett—who will donate billions from his fortune to the foundation over the next few years—Gates intends to work on an annual letter, in the same spirit as Buffett's yearly missive to Berkshire Hathaway shareholders. To learn more about areas the foundation is working on, he is doing intensive reading on education and science, and has monitored online college courses in geology, history and microparticle physics. He is fully engaged on several problems already. "People know I have a particular fascination with AIDS and malaria," he says. One obsession is an AIDS vaccine, and Gates was disappointed when a trial indicated that a promising candidate for a solution, made by Merck, was not effective. Discussing the vaccine, an intense Gates cites research that implies that a variation might be more effective. Clearly, he's viewing the process the same way he views software development—maybe version 3.0 will do the trick.One thing he won't do is get involved with the foundation's day-to-day operations. That's a job for the CEO. Coincidentally, Gates's transition occurs as Stonesifer is leaving that job; after several months of searching, Gates and his wife chose as a successor Jeff Raikes, a 27-year Microsoft executive who is close to the couple. "He will be very easy to get into a rhythm with, because we know each other so well," Gates says. Raikes admits, "If the Joe and Sally Smith Foundation had been the world's largest, I might not have immediately been thought of as a candidate." But as a product of Nebraska farm life, Raikes is interested in agriculture (a foundation focus), and his business skills will be important as the foundation roughly doubles its staff over the next few years and moves to a campuslike headquarters near Seattle's Space Needle.
Gates understands that his identity as a philanthropist will be drastically different than his role as the king of software. "We don't have a CES on malaria, so you don't get 50,000 people converging on a city and saying, 'Oh, Bill's keynote on malaria is coming'," he says. He realizes that working on the issues of the foundation could make him more of a lightning rod than he was as the head of the digital Borg. "The new world is more controversial than the old world," he says. "We do family planning. We fund research on crops, and some people think that you shouldn't take science to help the poor people. This whole thing about which operating system somebody uses is a pretty silly thing versus issues involving starvation or death."
As an example, Gates cites the choice he must soon make regarding the foundation's malaria funding. As he explains it, one alternative is to spend $300 million for trials of the current, imperfect vaccine. Or he could wait a few years until the vaccine is refined, possibly becoming more effective in preventing the disease. "You can't do both," he says. "One of those paths saves millions of lives, compared to the other path. I've never had a Microsoft decision that had exactly that character."
Treading on uncertain ground like that underlines the difficulties Gates may face in leaving the job he has loved so much. "It may be more of a change than he thinks," says Paul Allen, recalling his own departure from Microsoft in 1983. "You don't always realize how dramatic that transition is going to be when people aren't depending on your decisions day by day."
"In no sense would I say, 'Oh, I'm making a sacrifice because it's something my mother told me I ought to do'," Gates says. "I am doing something my mother told me I ought to do, but it's going to be a lot of fun. And I feel good about the impact as well." As for Microsoft, there's always e-mail

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