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Bill Gates isn’t really leaving Microsoft; he’s just shifting how much time he spends there.
In late May, I chatted with Gates over cocktails before he and CEO Steve Ballmer made their final public appearance together at the D Conference in Carlsbad, Calif. Gates said he spends about 80 percent of his time at Microsoft and another 20 percent at the Bill & Melinda Gates Foundation. From July 1, that 80-20 ratio will flip, with the majority of Gates’ time being dedicated to the charitable endowment.
And Gates really hasn’t been involved in day-to-day operations at Microsoft for a while.
For example, during the D Conference, Gates said, other than consulting with Ballmer as a friend, he wasn’t involved in Microsoft’s attempted, and failed, takeover of Yahoo. In addition, Gates’ role as visionary has greatly diminished, particularly after his successors-Ray Ozzie, chief software architect, and Craig Mundie, chief research and strategy officer-fully assumed their positions during the last year.
As chairman and the largest stockholder in the company, Gates will always have a role at Microsoft. But as chief influencer, Gates left long ago.
Gates announced his departure two years ago, as part of a long transition from monopolist to philanthropist. But Gates’ exit really started in 2000, when Ballmer replaced him as CEO. A transition from charismatic founding leader burdens any company, and Microsoft has taken eight years to move from Gates to Ballmer. The change is sure to affect Microsoft during its fourth decade as an incorporated entity.
Even with waning influence, however, Gates is an important figurehead who casts a long shadow over most other Microsoft executives.
Technical expertise is one reason.
Gates’ May 1995 “The Internet Tidal Wave” memo is perhaps the best example of his technical background as a foundation for vision. Gates was looking the wrong way when Tim Berners-Lee built the first Web browser and Web server on adopted or open standards in 1991. As the Web began to grow in the early 1990s, Gates obsessed about dial-up networks AOL and CompuServe.
But when Gates finally really looked at the Internet, he understood the competitive threat to Windows. The May 1995 memo accurately articulated how the Web promoted standards out of Microsoft’s control, where the company should control Internet standards and what would be a much stronger integration strategy across all product lines. The vision he scribed 13 years ago is still a blueprint followed by Microsoft today.
Is it time for Gates to go? Click here to read more.
Ballmer admittedly is no Bill Gates. During the D Conference Ballmer joked, “I ran the Windows 1.0 development team.”
Rather, he’s a sales and marketing guy, and his background has shaped the way Microsoft is run now. In fact, there is a stark dichotomy of leadership: technologists like Ozzie and Mundie, whose leadership lineage descend from Gates, on one side, and executives with sales backgrounds like Chief Operating Officer Kevin Turner on the other.
Follow the Leaders
Microsoft has three large divisions: Platforms & Services, run by Kevin Johnson; Business, run by Jeff Raikes; and Entertainment & Devices, run by Robbie Bach.
These three leaders, along with Turner, are better known for business development and marketing than for technology.
Stephen Elop is in the process of taking over Raikes’ responsibilities before the longtime Microsoft employee exits in September. Elop arguably has a broader technical background than Turner and the other two divisional presidents.
Turner “indicates an increasing respect for sales in a once engineering-driven company,” said Forrester analyst Rob Koplowitz. Directions on Microsoft analyst Rob Helm said about Johnson and Turner, “Neither is primarily focused on product design and technical strategy the way Bill Gates was.”
Strictly viewed in terms of leadership hierarchy, Chris Liddell, Microsoft’s chief financial officer, and Brad Smith, general counsel, are also hugely influential.
The sales and technologist dichotomy accentuates the leadership vacuum Gates will leave behind because the company’s most successful growth periods were driven by technical leadership.
Can sales and marketing leaders succeed Gates? “The grown-up Microsoft might not need a technical person at the very top anymore,” Helm suggested.
Sales executives have run the company since a November 2005 reorganization established the three divisional presidents. Microsoft sales under their leadership have certainly been impressive: In the first full quarter of sales after the reorganization, ended March 31, 2006, Microsoft’s revenue topped $10.9 billion. In the same quarter two years later, Microsoft posted revenue of $14.45 billion.
But a closer examination reveals a disturbing trend. I asked several analysts about the leadership succession following Gates’ departure. Nearly all of them identified technical leaders as being the most successful and most influential, even though, by hierarchy, nontechnologists wield greater authority.
“Bob Muglia [senior vice president, Server and Tools] particularly stands out because his organization is profitable-growing in double digits, is facing tough competition against open-source alternatives, and is a major factor backing Windows and Office on the desktop,” Helm said.
Roger Kay, president of analyst firm EndPoint Technologies, shared similar sentiments. “I’ve been spending time with Bob Muglia, and I think [the Server and Tools business] is the most functional unit at the company. It’s a $13 billion business dropping $4 billion to the bottom line. It’s responsive to its customers and lives in a competitive environment. Bob motivates his troops and inspires confidence in his customers. I think he continues to do what he does in a post-Gates world. [The Server and Tools group] could almost split off as a stand-alone company, but it does share some technologies with other units.”
Another promising technical leader is Steven Sinofsky, senior vice president of Windows and Windows Live. Kay described Sinofsky as “one of the new breed. Since he’s been successful at business management on the Office side with a large, unwieldy organization, he represents the type of manager who can move the company forward in the new era. I predict greater responsibility for him over time.”
Added Forrester’s Koplowitz, “He’s been moved over to Windows to put the bloom back on that rose.”
Ozzie is the most visible of the technical leaders, and, like Gates, he has vision. Koplowitz described Microsoft’s chief software architect as a “brilliant technical visionary.” But, added Koplowitz, he “might still be a bit of an outsider after just a few years. Also, he was Gates’ man, and with Gates gone …”
Koplowitz didn’t finish the sentence, but the implications are hugely important.
Renewed Lift Needed
Analysts agreed that Microsoft will need renewed technical leadership if it hopes to compete with Web 2.0 platform companies such as Google. And the company’s sales leaders have yet to show that they can do that.
For example, Ballmer and Johnson were among the principal architects of the Yahoo takeover, which ended disastrously. Rather than getting Yahoo and boosting search market share, Microsoft’s unsolicited bid precipitated a search and advertising deal between Google and Yahoo.
Future growth in the online arena will require Gates-like vision and execution. Directions on Microsoft’s Helm described “online” as the “flavor of the day,” but said the picture there is surprisingly muddy in terms of Gates’ successor. “Ozzie and his direct reports are clearly behind the experimental online services Microsoft is putting up for developers,” Helm said.
More broadly, the other successors largely have a sales and marketing, and not technical, lineage.
“For business services like Exchange Online, the key man is Dave Thompson,” corporate vice president for Microsoft Online, Helm said. “As for consumer, it’s a three-way race [among] Brian McAndrews [senior vice president, Advertiser & Publisher Solutions group], Bill Veghte, senior vice president of the Online Services & Windows Business group, and Satya Nadella, senior vice president of the Search, Portal & Advertising group. McAndrews joined Microsoft in August 2007 with the acquisition of aQuantive. “Of the three, Satya has the most Bill-like technical record,” Helm said.
Logistically, Gates has no clear successor, nor, for that matter, is there a clear successor to Ballmer. The chairman and the CEO were college poker buddies and are longtime Microsoft employees. While their leadership styles differ, longevity makes them almost synonymous with Microsoft. Gates’ exit took more than eight years. Maybe the question to ask is, Who could replace Ballmer?
Muglia comes to mind as one leader with strong technical leadership and bottom-line growth success for his line of business. Koplowitz described Muglia as a “technical genius like Ozzie, but with better Microsoft cred.”
Still, none of the analysts interviewed for this story suggested that Muglia would come to run Microsoft or even one of the three major divisions.
What Microsoft needs in the post-Gates era, they suggested, is strong technical leadership that inherits from the co-founder. Unfortunately, no one Microsoft executive embodies that. But, together, Muglia and Ozzie come closest.
Joe Wilcox is the editor of Microsoft Watch.