New Microsoft leaders face a tightening Web

REDMOND, WASH. — REDMOND, Wash. -- Microsoft stands astride the computing world much as another corporate giant, International Business Machines, once did: Now its task is to avoid repeating IBM's mistakes.

As the PC era wanes and the Internet era gathers force, Microsoft's revenues have never been higher and its quarterly profits remain in the billions. But it has yet to find profitability in an array of businesses that it has entered beyond those it has dominated, operating systems and office applications.


Finding the company's way in the new era will fall largely to the successors to Bill Gates, who said Thursday that he would leave his day-to-day role at Microsoft in two years. But in an interview yesterday in his office on the Microsoft campus, Gates said he was confident that the company was positioning itself for success in its fourth decade and beyond.

Microsoft's future, he said, lies in an array of applications that will offer new capabilities. He noted an announcement planned this month that is intended to extend the Microsoft Office business into the telecommunications world by more tightly linking the power of PCs and telephones.


Even as he pulls back from day-to-day activities, Gates will continue to play a prominent role as chairman, as well as the company's largest shareholder. But Thursday he said the company's technical leadership would continue to report to him for only another year before reporting to Steven A. Ballmer, the chief executive.

It is at that point that the unusual chemistry the two men have refined over a quarter-century -- with Gates as the technical visionary and Ballmer, his friend since Harvard days, as the sales leader -- will be most thoroughly tested.

Whether Ballmer can change his role to take responsibility for both sides of the equation remains to be seen, but there is little doubt that he has the commitment to carry on as Microsoft's chief executive far into the future.

Even six years ago, when Gates first said that he agreed with Ballmer to remain committed to Microsoft until he was 50 -- the age they have now reached -- Ballmer said he often felt that he would leave only by being carried out of the company.

Ballmer's immediate challenge is to convince Wall Street that he is still the right man for the job, something that is certain to take hard work and several successful products.

At a news conference Thursday at a Microsoft corporate television studio, he and Gates made a particular effort to emphasize continuity in the company's leadership -- what Ballmer referred to as the "relentless patience" underlying the company's strategy and long-term planning approach.

In the front row facing the two executives were Ray Ozzie, the veteran computer industry executive to whom Gates is handing the role of chief software architect, and Craig Mundie, a second veteran who has been the designer of the company's government and international strategy, and who will now formally head research and strategy.

At the back of the room sat the company's three division presidents: Jeff Raikes, Robbie Bach and Kevin Johnson, as well as a handful of key lieutenants, including Rick Rashid, the chief of research; Steve Sinofsky, now leading the technical effort in the operating systems business; and J Allard, the original designer of the Xbox video-game system, who is now leading an effort to extend the software technology underlying the company's entertainment business.


The array of executive talent represents the breadth of Microsoft's ambition. Ozzie, whose resume includes the conception of Lotus Notes in the 1980s, has risen rapidly to his position of technical leader since he came to Microsoft last year when it acquired his company, Groove Networks.

Ozzie's ascent is interpreted by some industry executives as an acknowledgment by Gates that it is time for Microsoft to build a new foundation on the Internet.

Brad Silverberg, a previous technical leader at Microsoft, left the company in the 1990s when he became convinced that Gates was not willing to move quickly enough in breaking with the past.

"Ray is the real DNA in terms of the future of Microsoft's software path," said Mark R. Anderson, an analyst at Strategic News Service, a technology consulting firm. Gates, he said, has been a "fast follower" who has been able to repeatedly change Microsoft's strategy to rapidly pursue and then overtake competitors with new technologies.

Ozzie, in contrast, has a record of innovation, first with Notes and then with Groove, a PC-based software system that allows groups of workers to collaborate -- a product that is now being integrated into the next version of Office.

"It's easy when you're following the taillights," Anderson said. "It's a lot harder when you have to invent the car."


One crucial aspect of Gates' legacy at Microsoft will be its ability to salvage its Windows Vista operating system, now delayed three years or longer. The program has entered its second test version and is scheduled to be commercially available early next year.

In interviews during the past two days, Microsoft executives almost universally expressed caution about whether the program, the most complex software undertaking in the company's history, is certain to be on schedule for January shipment -- more than five years after the current version, Windows XP.

A number of researchers who follow the company say Vista, a project born under the code name Longhorn, has left psychic scars from which the company and Gates are still trying to escape.

"It is clear to me that Gates lost touch with the core of the company several years ago, as evidenced by the collapse of the Longhorn project and the abyss the Windows group fell into," said Michael A. Cusumano, a management professor at the Massachusetts Institute of Technology, "so this announcement is really just recognizing what already exists -- his mind is elsewhere."