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Originally published August 26, 2007 at 12:00 AM | Page modified August 26, 2007 at 2:05 AM

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Microsoft's new leaders prepare for the post-Gates era

Microsoft had always taken an ad-hoc approach to charting the future of technology and its place in it, relying heavily on the insights...

Seattle Times technology reporter

Microsoft had always taken an ad-hoc approach to charting the future of technology and its place in it, relying heavily on the insights of Bill Gates and his legendary "think weeks."

With the twilight of Gates' career at the company approaching and new technical and strategic leaders Ray Ozzie and Craig Mundie preparing to fill his role, Microsoft executives decided to make this prognosticating more formal.

"This year we, for the first time, said 'Let's not make this ad hoc,' " Microsoft Chief Executive Steve Ballmer told a small audience of tech-industry tastemakers in April.

So company leaders recorded their best guesses about "the things that are going to change technology over the next five to 10 years [and] what we can do to lead those trends," Ballmer said. It was an attempt, he said, to do what Gates has done "in his head" and bring more people into the act.

Building a bank of collective wisdom is one part of the preparations going on at the highest levels as Microsoft prepares for a momentous shift to the post-Gates era.

For the past year, and really the better part of the past decade, Gates has been downloading the institutional knowledge of Microsoft and the software industry stored in his head to the leaders who will handle his responsibilities at the company he co-founded 32 years ago.

Gates' "think weeks" — an annual event nearly as old as the company, in which he took time to read, develop strategies and think deeply about the best ideas submitted from throughout Microsoft — are now done by committee.

" 'Think week' has been transitioning from a single 'Bill thing' to something where a broader audience gets the chance to comment on submitted papers. The tradition of think week is incredibly strong," Ozzie, who replaced Gates as chief software architect, said in an interview earlier this year with the Wharton School's online business journal.

Gates has no plans to relinquish the title of chairman when he recedes next July from day-to-day involvement with Microsoft. And he will be available to work on special projects at the company, but Gates' full-time attention is moving to the work of his global philanthropy.

Since Microsoft announced an orderly succession plan last summer, the focus has been on Gates' named replacements: Mundie, a veteran Microsoft strategist, and Ozzie, a respected software engineer and veteran executive who is a relative newcomer to Redmond. Ballmer, who assumed the title of CEO from Gates in January 2000, remains in that position.

This triumvirate is settling into roles both new and familiar at a company with more than 81,700 employees spread across 100 countries, in the midst of a dramatic change to the fundamentals of its business.

"Think of it as a multistage rocket and Bill took it for the first two stages, let's say, and now it's somebody else's turn," said Mark Anderson, a Friday Harbor-based analyst and adviser to the technology industry. "And they've got to do something different for the company to continue to prosper."

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Big money-makers

For much of Microsoft's existence, its two biggest money-makers, Windows and Office, have been firmly rooted on the PC desktop, where they enjoyed little meaningful competition.

Now, along with the rest of the software industry, Microsoft is investing billions of dollars to orient itself and its products to better use the remote computing power and storage that users can access through the Internet.

This world of Internet services is Google's field of play, and Microsoft is coming from behind in important categories including search and online advertising.

Ozzie, the chief software architect, is in charge of transforming the company for this challenge. Mundie's purview as chief research and strategy officer is to plan Microsoft's moves further into the future, ideally to prevent the company from coming late to the next major industry shift.

Their success or failure will be measured in the years ahead, but all of it starts with a smooth transition from the Gates era of technical leadership to what comes next.

Anderson called this kind of succession "the great test of great companies."

Equipped for change

Microsoft is well-equipped for such a transition, having done it once before, said Brad Silverberg, a top Microsoft executive in the 1990s who was a strategic consultant to pre-CEO Ballmer. Silverberg said Gates and Ballmer, longtime business partners and friends, benefited from challenges they faced in balancing their new roles during the first year after Ballmer became CEO.

"I think they've learned well how to continue to pass off Bill's existing responsibilities to folks like Ray and Craig," said Silverberg, co-founder of Bellevue venture-capital firm Ignition Partners.

Still, he said Microsoft is "a notoriously difficult place for outsiders to come in and be successful."

As such, it's important for the rest of the company to see that Gates fully endorses the new leadership, Silverberg said, particularly Ozzie, whose job carries with it the weight of inspiring Microsoft's legions of software engineers — something Gates has done as an almost mythical figure in the history of the company and the industry.

Gates has the "automatic respect of every Microsoft employee," said Matt Rosoff, an analyst with Kirkland-based Directions on Microsoft. "When he says something, product groups listen and take it very seriously."

Silverberg said both Ozzie and Mundie clearly have the support and respect of Gates, Ballmer and many other business and technical leaders inside the company.

Ozzie and Mundie also get uniformly high praise for the depth and breadth of their technical knowledge.

Others say they are perceived as more personable and less aggressive than Gates, perhaps because their names were not attached to the company's ugly antitrust battles.

"I think they're totally capable of doing these jobs," Anderson said, "but the jobs are easily the hardest in the world."

Neither Ozzie nor Mundie has direct control over a product group, but they both have companywide mandates.

They've been assigned different pieces of Gates' portfolio.

Ozzie's attention is inside the company, on near-term opportunities across its businesses. Mundie looks outward at longer-term trends in the industry and the world.

From a technology perspective, Ozzie starts at the top of the "stack," meaning he thinks about end-user applications and the layers of technology below. Mundie said, "My world is one that starts at the physics of the computer system itself and works its way up." They meet in the middle.

Divvying up functions

While Ozzie and Mundie can divvy up and fill Gates' functions at Microsoft, they readily admit that no one can replace Bill Gates himself. And they're not trying to.

"I don't think you can ever really separate Bill from Microsoft," Mundie said in an interview earlier this summer. He added that there's no reason to think Microsoft will have to because Gates will still be the company's chairman.

Influence played down

Gates has consistently downplayed his personal influence on Microsoft, but his star power is undeniable.

People line up for hours in advance to get a seat for his annual speech to open the Consumer Electronics Show in Las Vegas.

He's scheduled to present there again in 2008, but with each passing event on the Microsoft calendar — its Financial Analyst Meeting, most recently — people wonder whether Gates will be back next time.

"He's been the main attraction for so long, so it will be interesting to see the reaction at his absence," said Charles Di Bona, an analyst with Bernstein & Co.

Rick Rashid, a veteran executive in charge of Microsoft Research, isn't expecting to notice much of an absence.

"I'm sure I'll continue to get plenty of e-mail from Bill, as I do now," he said.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2007 The Seattle Times Company

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