Microsoft Enters Post-Gates Era

Execs and analysts expect a smooth transition, but doubters remain.

Will the way Microsoft does business change as founder Bill Gates spends more time at the Bill and Melinda Gates Foundation?

Thats the question on everyones lips following Gates June 15 decision to step aside from a day-to-day role to focus on philanthropy. But, so far, there is no consensus among Microsoft executives and analysts, with diverse views ranging from those who believe there will be almost no changes to those who expect a new Microsoft to emerge.

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

With Gates aside, Ray Ozzie and Craig Mundie, formerly chief technology officers at the Redmond, Wash., 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 expects Microsoft to stay the course on the product development front.

"I think that the culture of the company is rich and established," Mundie said. "After 31 years, Bill has put a fairly indelible imprint on the company. 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."

While noting that he and Ozzie are different personalities from Gates, Mundie said they all have been involved in the executive discussions as the company has grown.

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

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, Ozzie said in a phone interview.

"Incubations and advanced development [are] 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."

For the most part, analysts agree. "I dont expect well see major changes in the near-term strategy," said Burton Group analyst Peter OKelly in Andover, Mass. "In some respects, Ray Ozzie and Craig Mundie are simply expanding the scope of their previous roles."

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, Citigroup Investment Research analyst Brent Thill said New York-based Citigroup 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 through 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.

Mundie agreed with this perspective, telling eWeek that Gates had pointed out in his public remarks June 15 that he thought his iconic status and the way that it was reported tended 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, brought a new level of leadership and the emergence of strong technical product leaders like Steve Sinofsky, the senior vice president of Windows and Windows Live Engineering, and Bob Muglia, the senior vice president of Microsofts server and tools business, Mundie said.

But others, like Goldman Sachs analyst Rick Sherlund in New York, 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.