Is Microsoft Ready for Gates Transition?

By Peter Galli  |  Posted 2006-06-15

Is Microsoft Ready for Gates Transition?

Will the way Microsoft does business, externally and internally, change significantly as founder Bill Gates transitions to spending most of his time at the Bill and Melinda Gates Foundation and a lot less at the Redmond software maker?

Thats the question on everyones lips, but there is no consensus among Microsoft executives, financial analysts, researchers and industry watchers on this, with diverse views ranging from those who believe there will be almost no changes to those who say they will be both huge and significant.

Gates, Microsofts chairman and chief software architect, is planning to leave in 2008 the company he founded 31 years ago, to focus on his philanthropy work. Gates said June 15 he will remain as chairman and does not "see a time when Im not chairman of the company."

Click here to read more about Bill Gates decision to spend more time at his foundation.

But, with Gates out of the day-to-day role, Ray Ozzie and Craig Mundie, formerly chief technology officers at the company, will step up. Ozzie takes on the title of chief software architect and Mundie becomes chief research and strategy officer.

In an interview with eWEEK June 15, Mundie said he does not expect any significant changes, particularly not on the product development front.

"I think that the culture of the company is rich and established. After 31 years, Bill has put a fairly indelible imprint on the company," he said. "A lot of people have grown up inside this company and, to some extent, we do what we do the way we have grown up doing it. I dont expect there to be any abrupt change as a function of this transition."

While noting that he and Ozzie are different personalities than Gates, all of them were involved in the executive discussions as the company grew and matured over the past five to six years, Mundie said.

"So, Im not expecting it to be very disruptive relative to certainly how the product groups develop their products," he said.

Bill Gates and Steve Ballmer issued memos to try to calm the Microsoft troops. Click here to read them.

For his part, Ozzie joined Microsoft in April 2005 when it 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.

In terms of divvying up responsibilities between the Ozzie-Mundie brain trust, Ozzie will handle more of the tasks around product development and commoditization, he said in a phone interview shortly after the transition announcement was made June 15.

"Incubations and advanced development is where my responsibilities start," Ozzie said. "The products we ship and what we take to market will be more in my domain."

Windows Live will be at top of mind for Ozzie, in terms of his foremost priorities in his new role (which began June 15), Ozzie said. "The reason I picked up our services strategy six months ago was that I believed it to be the biggest change catalyst" for Microsoft, he said. "[Services] will touch every single product Microsoft has."

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The Next Generation

Some analysts, like the Burton Groups Peter OKelly, in Andover, Mass., agree with that assessment. "I dont expect well see major changes in the near-term strategy. In some respects Ray Ozzie and Craig Mundie are simply expanding the scope of their previous roles, so I dont expect the organizational change to be disruptive," OKelly said.

The two new leaders are uniquely well-prepared for their respective roles, OKelly said, adding that he would not be surprised to learn that this had been the plan with Ozzie since Microsoft finalized its acquisition of Groove Networks.

In a research note issued late June 15, Citigroup Investment Research said it is only slightly concerned about the impact of these moves, given the two-year transition period and "our belief that Gates has been preparing the organization for this through previous reorganizations and the hiring of Ozzie."

"But, given recent product delays and stock price decline, losing such a thought leader could temper morale in the short term, but will give a new generation of leaders a chance to step out of Bills shadow, evolve new business models like advertising and gaming, and develop the software and services vision of Windows Live," the note said.

For his part, Mundie is in complete agreement with this perspective, telling eWEEK that Gates pointed out in his public remarks June 15 that he thought his iconic status and the way that is reported tend to overemphasize his role in the companys innovation and execution.

"There has already been a successful transition, over more than six years, from Bill to Steve Ballmer as the CEO. There have been structural changes put in place under Steves leadership to prepare for the company to scale to its current, more diverse efforts and absolute size," Mundie said.

That, in itself, has brought forward a new level of leadership in the company and the emergence of strong technical product leaders such as Steve Sinofsky, senior vice president of Windows and Windows Live Engineering; Bob Muglia, senior vice president of Microsofts server and tools business; and Jay Allard, a corporate vice president and Microsofts chief XNA architect. XNA is the tools and technologies Microsoft will offer to help game developers and publishers overcome the problems they face, he said.

In March, Microsoft significantly restructured its Platforms & Services Division and appointed Sinofsky to lead the Windows and Windows Live groups. Click here to read more.

"So part of what Bill used to do in time immemorial is now more directly the responsibility of those divisions," Mundie said.

But others, like Goldman Sachs analyst Rick Sherlund, see Gates transition away from Microsofts daily operations over the next two years as a negative. That said, Sherlund said he expects the two-year transition to be orderly.

Even some of Microsofts fiercest competitors and harshest critics, such as Marc Benioff, chairman and CEO of, refrained from making any negative predictions about Microsofts future, choosing instead to praise Gates role in the industry.

"The industry has been fortunate to have the technical, business and philanthropic leadership of Bill Gates—he is the Thomas Watson of our generation," Benioff said.

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