Gates steps away from Microsoft

The Baltimore Sun

Bill Gates is retiring, sort of. He is still only 52, and he is going off to spend more time guiding the world's richest philanthropy, the Bill and Melinda Gates Foundation.

He will still be Microsoft's chairman and largest shareholder, but yesterday was his last day as a full-time worker at the software giant, marking the unofficial end of his career as a business leader.

And what a career it has been. Gates has been an animating force behind the personal computer revolution, helping to build a global industry and engineer blockbuster products such as Windows and Office.

The Harvard dropout was the wealthiest person on the planet for years - worth more than $100 billion in 1999 - though his fortune is now about half that because of the decline of Microsoft Corp.'s shares and his continued donations to his foundation, which is focused on global health and education.

Despite his success, Gates is moving on as the company he co-founded in 1975 is struggling to find its way. The center of gravity in technology has shifted from PCs to the Internet, altering the old rules of competition that were so lucratively mastered by Microsoft.

For millions of users, mobile devices like cell phones are beginning to edge out PCs as the tool of choice for many computing tasks. And Google Inc., the front-runner in the current wave of Internet computing, has wrested the mantle of high-technology leadership from Microsoft.

Although Gates will spend one day a week at the company, it will be up to his successors, led by Steven A. Ballmer, the chief executive, to master the challenges of the Internet or watch Microsoft's wealth and stature in the industry steadily erode.

"Bill's legacy is Windows and Office, and that will be a rich franchise for years to come, but it's not the future," said David B. Yoffie, a professor at Harvard Business School.

Gates grasped and deployed two related concepts on a scale no one ever did in the past: the power of network effects and the value of establishing a technology platform.

Put simply, the network effect describes a phenomenon in which the value of a product goes up as more people use it: E-mail messaging and telephones are examples.

A technology platform is a set of tools or services that others can use to build their own products or services.

Gates took advantage of both notions and combined them to build Microsoft's dominance in PCs.

Today, there are many thousands of software applications that run on the Windows platform, not just word processing and spreadsheets but also the specialized programs in doctors' offices, factory floors and retail stores - a very broad network on a nearly ubiquitous technology platform.

"Gates saw software as a separate market from hardware before anyone else, but his great insight was recognizing the power of the network effects surrounding the software," said Michael A. Cusumano, a professor at Massachusetts Institute of Technology's Sloan School of Management.

In the past, Microsoft has beaten back challenges and vanquished rivals, even when it came late to markets, as it did in the first wave of Internet technology. Gates' shrewd 1995 decision to embrace Internet browsing technology and attack the early leader, Netscape Communications, started a pitched antitrust battle with the government.

However, Microsoft is lagging badly in the current round of Internet competition and, analysts say, is facing more formidable challengers this time - notably Google.

Microsoft's share of Internet search in the United States is less than 10 percent, while Google holds more than 60 percent and Yahoo has about 20 percent. And search is only part of the new platform on the Web, which includes social networks like Facebook and MySpace and Internet-based alternatives to traditional desktop software, including e-mail messaging, word processors and spreadsheets.

Traditional desktop software - and the technology standards Microsoft controls there - matter far less when more software is accessed with a Web browser and delivered over the Internet from vast data centers run by Google and others.

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