Gates said June 15 he will remain as chairman and doesnt "see a time when Im not chairman of the company."
"Its not a retirement. Its a reprioritization," said Gates, who said he plans to focus his time on the Bill & Melinda Gates Foundation.
Gates, 50, started Microsoft in 1975 with childhood friend Paul Allen. He took Microsoft public in 1986 and was the companys chairman and CEO until 2000, when Steve Ballmer took over as CEO. In 2000, Gates and his wife formed the Bill & Melinda Gates Foundation, which now has assets of $29.1 billion.
With Gates out of the day-to-day role, Ray Ozzie and Craig Mundie, two chief technology officers at the company, will step up. Ozzie will take on the title of chief software architect and Mundie will become chief research and strategy officer.
During the transitional period, Gates said he will increasingly take a back seat to Ozzie, who joined the company in April 2005 when Microsoft acquired Groove Networks. Prior to founding Groove, Ozzie was the founder and president of Iris Associates, where he created and led the initial development of Lotus Notes. Gates said Ozzie will work with him on all "architecture and product oversight responsibilities."
Mundie will work with Gates to take over the responsibility for the companys research and incubation efforts, and will partner with general counsel Brad Smith to guide Microsofts intellectual property and technology policy efforts. Mundie joined Microsoft in 1992 to create and run the consumer platforms division. He also helped start Microsofts digital TV efforts. Previously, Mundie directed Microsofts advanced strategies and policy department, focusing on security, privacy, telecommunications regulation, IP and software procurement standards.
CEO Ballmer said the company was prepared for the transition, with a restructuring in September of 2005 that split the company up into three divisions under presidents Jim Allchin, Kevin Johnson, Robbie Bach and Jeff Raikes. In August 2005 the company appointed Kevin Turner as chief operating officer. That restructuring gave Microsoft the bench of management talent needed for Gates to step aside.
"We can transition to a new set of technical leaders without missing a beat. We will delegate more authority down the line," Ballmer said. "Bills imprint on this company will never diminish."
Ballmer portrays Microsoft as a company that is ready to adapt to new leaders and new technologies. Wall Street, however, has been skeptical, with Microsoft recently coming in at a 52-week low.
The Gates announcement comes at a time when Microsoft is expanding into a plethora of new markets, including IPTV, gaming with its Xbox, a new operating system in Vista and new versions of Office. Meanwhile, the company has to fend off competition from open-source software and increasing pressures from Web 2.0-savvy companies like Google and Yahoo.
Furthermore, two of Microsofts key products are at the crucial final development stage: Windows Vista and Office 2007 are both in final test phases and Microsoft has said it hopes to launch them in January 2007. Both of those products have been beset with delays; the Vista delays have gone on for years.
Meanwhile, Microsoft stock has been stagnating and employee morale has been a problem. Some inside and outside the company have been calling for the resignation of Gates right hand man, Ballmer, and even of Gates himself, as a way to re-energize the company.
Analysts said this was a good time for Gates to exit, since his successors should be set up to succeed on the product and investor relations front. "For the stock, it is probably the best possible time [for Gates decision to resign day-to-day duties], given recent lows," said Rob Helm, a senior analyst with Directions on Microsoft, based in Kirkland, Wash.
While Microsoft spokespeople are spinning the announcement as a gradual transition that has been in progress since Microsofts last corporate reorganization in September, the move is not a minor one, Helm said.
"Gates is definitely not a figurehead. He has regularly reviewed major product plans, and was called a virtual team member for Vista. The big question is whether Ozzie will wield the same kind of influence," Helm added.
Editors Note: This story was updated to include more information and comments from analysts.