Gates Resigns as Microsoft CEO, Elevates Ballmer

Making official what has been in the works since 1998, Microsoft Corp. cofounder Bill Gates Thursday passed the company's chief executive torch to his right-hand man Steve Ballmer. Gates will remain chairman and take a new position as chief software architect.

The shift in operational power from Gates to Ballmer began officially in July 1998. At the time, Gates spoke at length about the need to relinquish day-to-day control of the company to Ballmer and concentrate on longer-term product strategy and development within its various divisions. Gates repeated that need Thursday. Executives working under Ballmer in recent months agreed that his ascension to president, not today's news, was the watershed.

"This is about following through on the idea that made Steve president in the first place," said Matt Kursh, a portal executive who recently took a leave of absence.

Given the attention lavished this week on Microsoft rival America Online's stunning acquisition of Time Warner, as well as the swirling rumors that the Department of Justice is working on a "break up Microsoft" strategy, it's not hard to imagine Microsoft warming up old news to grab back some headlines, especially with weekly magazines going to print Friday.

Nonetheless, the title changes are highly symbolic. The company's well-documented shift in focus in the mid-1990s after almost missing the first Internet "tidal wave," as Gates put it famously in a 1995 memo, is in fact far from complete. Microsoft faces increasing pressure from Web-based applications, alternative operating systems and online consumer services that have sprung to life in recent years. Its battle with the Department of Justice has been a drain on key executives' time and concentration. Removing Gates from operational duty should help the company better aim its myriad but often disjointed projects at the main competitors Ballmer named Thursday in a hastily assembled press conference: America Online, Sun Microsystems, IBM and Oracle.

The title changes also ring strangely in the ear. Bill Gates has been Microsoft's CEO since its foundation in 1975. Even if he has stepped back from daily duties since 1998, he is more than ever Microsoft's figurehead and embodiment - whether he's pictured as the helmsman of the richest and smartest company in the world, or captured on Department of Justice videotape as the evasive, hostile witness rocking in his chair.

But the heads of Microsoft's product divisions have been reporting to Ballmer since his presidential promotion in 1998. He has also overseen massive changes in the company's online strategy, including a renewed emphasis on its Internet access business, the spin-off of its Expedia travel service and a sale of 25 percent of its CarPoint auto site to the Ford Motor Company. Ballmer was acting head of the new media division during a nine-month search for a group leader that finally led to Rick Belluzzo, a good friend of Ballmer. The 43-year-old Harvard graduate has also run the Microsoft sales, marketing and technical support divisions during his 20-year tenure.

When the call is made to rally the troops, Ballmer, with his booming voice and propensity to pound tables and turn beet-red, usually answers the call. He's even poked fun at his oratory style and the company's foibles in a trade show video skit, dressed in a plaid carny's jacket and trying to hawk, Crazy Eddie-style, copies of the disastrous Microsoft Bob operating system.

During perfunctory opening remarks at the hastily assembled press conference Thursday, Gates was having no part of potential nostalgia or symbolism. "It's a nice milestone to look back over the last 25 years and say we got something done," Gates said, in what was perhaps the new year's biggest understatement.

"But it's also a milestone to look ahead and say, what can Microsoft do in the years to come?"

When asked what the chief software architect at Microsoft will do, Gates flashed some wit: "I might be threatening to write code. That's something I haven't been able to threaten in the last couple of years. But mostly, I'll be sitting with product teams and talking about how to bring the pieces together.

It'll mostly be strategizing, rather than the number of lines of codes I'll write myself."

Ballmer's promotion and Gates' new role should have little, if any, effect on Microsoft's ongoing antitrust battle with the Department of Justice and 19 state attorneys general. Despite reports this week that the government is actively seeking to break up Microsoft during settlement talks in Chicago, Ballmer clearly signaled his distaste for such a move at the press conference.

With his hands angrily planted on his hips as Gates stood by with a hand over his own mouth, Ballmer's angry retort was a telling sign that nothing in the company's stance during settlement talks or in the courtroom will change.

"It would be reckless and irresponsible for anyone to try and break up this company," said Ballmer. "It would be the single greatest disservice that anyone can do to consumers in this country."

Moreover, while government lawyers cast Gates as the central villain in the case, it's the company's conduct - not that of Gates himself - that's on trial in Washington. Many of the thousands of incriminating e-mail messages introduced in the case were either written by or sent to Ballmer.

"I don't see why it should make a great deal of difference," says Dan Wall, a former Department of Justice antitrust attorney now in private practice. "I think they could bring in Mother Teresa and the Justice Department wouldn't be impressed."

During the conference, the famously energetic Ballmer was momentarily tongue-tied, perhaps for the first time in his Microsoft career. With little reflection on his title, Ballmer immediately used the opportunity to outline the challenges, competition and development goals for the company as it moves core software products onto the Web and expands its portfolio of interests.

Ballmer's vision includes application hosting, wireless communications, new programming languages - initiatives that Microsoft has been working on for some time, and not necessarily in a leadership position. A full road map for the next three years will be announced at a conference in April.

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