The best-known, most successful and most embattled chief executive in America kicked himself upstairs yesterday, giving up day-to-day control of the company he built into the dominant force of the computer era.
Bill Gates, who dropped out of Harvard University a quarter-century ago to co-found a company called Micro-Soft, turned over the reins to his longtime deputy, Steve Ballmer.
Gates said he will now be "chief software architect" for Microsoft Corp., which over the years changed its name slightly, grew to 30,000 employees, became the first company to be worth $500 billion and put its products inside the vast majority of personal computers.
As a result, the worlds of technology, communication and commerce all were changed.
"It is a nice milestone to look back and say: 'Hey, you know, over the last 25 years we really got something done, and I'm proud of that,' " Gates said at a news conference at Microsoft's Redmond, Wash., headquarters. He said he had "no regrets at all."
This isn't a retirement--he'll remain as chairman--but a marked shift in priorities. "My commitment to working full time, working with the same energy that I've brought to this job over these last 25 years, is 100 percent."
The announcement came two days after the news leaked that the U.S. government wanted to dissolve his company into three pieces, and three days after America Online Inc.--which Gates once tried to buy and then did his best to put out of business--announced a merger with Time Warner Inc., a combination that is likely to prove a formidable competitor to Microsoft.
Both Gates and Ballmer stressed that their announcement was in no way linked to those events.
"We have been in deep discussions about this for several months," Ballmer told reporters at the news conference. The timing, he said, "is really coincidental in every sense."
Added Gates: "There is no relationship in terms of the different events."
The news conference was vintage Gates. He looked boyish as ever. He was wearing one of his trademark sweaters. He used the word "neat." And he waxed enthusiastic over the wired future and his company's prospects.
"When I think of what will this next decade be, how will people look back at it, I think we can say that they might even call it the software decade," he said.
"It's during this decade that the way business is done will be defined by software--the way that you share information, find information, will be defined by software, even the way we think of entertainment, the way we think of music and photos."
If this wasn't quite the moment for Gates's eulogy, it was time to take stock of what he and his company had wrought.
"Bill was driven to make the personal computer succeed, and make it ubiquitous," said Dan Bricklin, the co-inventor of the first spreadsheet program, VisiCalc. "His vision of the world was that everyone would be using a personal computer and taking advantage of computing. And he made it happen."
And if there had been no Gates?
"Imagine if all the railroads in the country has different gauges and wouldn't take each other's freight," said Bricklin, who has known Gates for 20 years. "That's what the minicomputer world was like before him."
Nothing about Microsoft was inevitable. Paul Allen, Microsoft's other co-founder, remembered a moment while they were still in college. "Bill and I were sitting around eating a pizza not far from Harvard Square, and we said, 'If we're really successful, we'll have 30 employees.' We were only off by a factor of a thousand."
Much of that success is due to Gates's legendary determination--an aspect of his personality that was evident in the poker games he used to play at Harvard.
"Bill would win hundreds of dollars and then lose hundreds of dollars--but he always went back for more," Allen said. "He wouldn't be stopped."
Since Gates is nearly as controversial as he is successful, a host of different motives for yesterday's shift were quickly bandied about.
Leo Hindery, who formerly headed AT&T Corp.'s cable and Internet division and now heads GlobalCenter Inc., a Web hosting business based in Silicon Valley, has known Gates for nearly a decade.
In the past two years, Hindery said, Gates has shown the strain of his scrapes with regulators and his pariah status across much of the technology and political worlds.
"My guess is he's simply tired of the criticism and tired physically," Hindery said. "Bill's been doing this since he was 19. He's been at it 20-something years at a blistering pace."
Each year, Gates retreats into seclusion for a week and catches up on all of his accumulated memos, trade articles and papers. He calls this ritual "think week."
"I think Bill was ready to turn his think weeks into think years," said investor Warren Buffett of Berkshire Hathaway, a close friend of Gates since 1991.
But despite Gates's hard-driving reputation, Buffett noted that he was still prone to childlike dazzle. "He bubbles over," Buffett said, adding that Gates recently called him at 1:30 a.m. to tell him about his unexpectedly strong performance in a bridge tournament.
While Gates denied that the federal government's antitrust suit had a role in his decision, Paul Saffo, a director of the Institute for the Future in Silicon Valley, said it probably did.
"Bill didn't have the heart to preside over the breakup of his own company," said Saffo, who has known Gates for most of Microsoft's history. Furthermore, "Bill has to be looking at the Time Warner-AOL deal with great anguish, realizing if he had just been a little more cooperative earlier in his career he would be the guy leading the charge into the future. But Microsoft has stumbled--it's stumbled with the Internet, it's stumbled with the Web, and it's stumbled with the Department of Justice."
Accordingly, Saffo said, new leadership is probably a good idea. Just don't expect it to be a kinder, gentler Microsoft: "Ballmer makes Bill look laid back."
Nathan Myhrvold, Microsoft's chief technology officer, noted that Gates "has always been the business genius and the technology genius who runs the company" but that his primary strengths are not on the administrative side.
"All this time the company, of course, has grown bigger and bigger and bigger and bigger," said Myhrvold, who is currently on leave from Microsoft. "It's gotten to the point where Bill has been stretched very thin."
Other marquee technology companies in Silicon Valley, which have often tangled with or felt brutalized by the colossus to the north, weren't issuing any valentines.
"Management changes at Microsoft have no effect on Sun's mission, which is to provide solutions to customers in this increasingly networked world," Sun Microsystems Inc. said in a statement. "Every company makes changes in its organization." Officials of Intel Corp., which makes the chips that power Microsoft's operating systems, declined to comment.
Yesterday's announcement is the latest in a procession of top-level management moves at Microsoft that began in July 1998, when Gates promoted Ballmer to president. Since that time, Ballmer, 43, had essentially assumed day-to-day control of the company, with Gates stepping back to focus on strategic direction. Ballmer's formal ascension into the top job had been long anticipated, although the timing was unclear.
Gates started Microsoft in Albuquerque after dropping out of Harvard at age 19. He moved the company to his hometown of Seattle in 1979, and Ballmer, a Harvard graduate, joined the company in 1980. That year, Microsoft's growth and profit curve was catapulted when International Business Machines Corp. chose Microsoft's MS-DOS software to be the operating system for its personal computers.
In the mid-1980s, Microsoft launched what has become its signature product, the Windows operating system. The company held an initial public offering in 1986, and Gates became a billionaire a year later.
Gates, now 44, holds a 15.3 percent stake in Microsoft that is worth close to $90 billion. He is the richest person in the world.
In November, a federal judge dealt the company a staggering blow in its antitrust battle with the government, ruling that the firm has used its market clout to hobble competition, stifle innovation and harm consumers.
The company and the government are in mediation talks, but government sources have said they are seeking a breakup of the company.
"I think it'd be absolutely reckless and irresponsible for anyone to try and break up this company," Ballmer said yesterday. "I think it'd be the biggest disservice anyone could do to consumers in this country."
Besides the lawsuit, Microsoft faces critical challenges in the marketplace. Internet analysts said Microsoft's vision for services delivered online that magically coordinate with one another has become conventional wisdom in the Internet industry, and all the company's competitors are charging hard toward the same goal.
But Matthew Forrester, an analyst for Forrester Research, said Microsoft's desire to define and control the software standards for Internet-based services is a flawed strategy because the Internet is inherently open.
"I heard no change in that strategy from what they said today," he said. "I think the 'Microsoft Everywhere' strategy has already failed. There are more servers out there on the Internet powered by Linux alone than there are running Microsoft, not to mention other competitors like Sun and Hewlett-Packard and IBM."
The announcement of the management change, made after the financial markets closed for the day, didn't seem to greatly impress traders one way or the other. In after-hours trading, Microsoft was up less than a point.
Staff writers Peter S. Goodman, John Schwartz, David Segal and Leslie Walker contributed to this report.
Bill Gates, Building
1975: Bill Gates founds Microsoft after dropping out of Harvard University at age 19.
1980: IBM chooses Microsoft to write the operating system for its new PC machines. MS-DOS becomes the operating standard for PCs.
Mid-1980s: Microsoft introduces Windows, an operating system that borrows features from Apple's Macintosh system.
1986: Microsoft goes public. A year later, Gates becomes the industry's first billionaire.
1995: Antitrust concerns derail Microsoft's $1.5 billion acquisition of Intuit, a maker of the personal finance software.
Gates, once a holdout on Internet technology, begins to embrace the medium; Microsoft Network (MSN) is introduced.
1996: Microsoft introduces Internet Explorer Web browser with Windows.
1998: Backed by 20 states, the Justice Department files antitrust charges against Microsoft, saying it stifled competition and limited consumer choice. Gates vehemently denies the charges.
Gates turns over the president's job to Steve Ballmer, a longtime Microsoft executive.
1999: A federal judge finds that Microsoft is a predatory monopolist.
This week: The Justice Department decides to seek the breakup of Microsoft.
Yesterday: Gates relinquishes chief executive position to Ballmer, so Gates can concentrate on being the "chief software architect." Gates remains chairman of the board.
IN THEIR OWN WORDS:
Gates on CNBC: "It's been a great 25 years, but the excitement of my career is still very much in front of me. The urge to see and do the new thing, I think, is absolutely compelling."
Ballmer at news conference: "I think the times when Microsoft has been faced with challenges is frankly often the time when we do our very, very best work and have helped to do the most to revolutionize the industry through our innovation."
SOURCES: Hoover's, wire reports