Update: Ballmer Replaces Gates as Microsoft CEO

Bill Gates stepped down as Microsoft's CEO yesterday to take charge of a new "end-to-end" software plan designed to infuse all Microsoft products with Internet capabilities.

Microsoft Corp. President Steve Ballmer succeeds Gates as CEO; Gates will remain chairman.

The announcement came at the end of a week of rumors and published reports alleging that the U.S. Department of Justice had proposed breaking up the company during antitrust settlement talks. The Justice Department declined to comment.

Both executives insisted that the changes have nothing to do with those talks.

But some observers said the new software plan at least sends a signal that Microsoft is more adamant than ever about blurring the lines among its operating systems, applications and the Internet.

One of Ballmer's first acts as CEO was to accuse the federal government of being sneaky.

"I believe the leaks are deliberate. I don't think there's any doubt about that," Ballmer said in a press conference. "It would be absolutely reckless and irresponsible for anyone to try to break up this company. It would be unprecedented and the single greatest disservice that anybody could do to consumers in this country."

But if Gates' decision to change management roles means less involvement by him in the lawsuit, it could improve settlement odds, said Harvey Saferstein, an antitrust lawyer at Fried, Frank, Harris, Shriver & Jacobson in Los Angeles.

Meanwhile, Gates created a new position for himself: chief software architect.

He plans to spend 100% of his time on technology development, leading Microsoft's product teams in a new software initiative, dubbed Next Generation Windows Services. The plan won't be fully disclosed until April, and products are slated to ship gradually during the next three years.

In broad strokes, the blueprint calls for creating software that meshes a person's online life with his desktop applications. For example, a Web server-based application could track an executive's airline flights and automatically notify his family by pager that he would be late getting home, Ballmer explained.

Microsoft also plans to offer its entire product line both as shrink-wrapped packages and by subscription over the Internet, Gates said.

Rival companies are ahead of Microsoft, said Chris LeTocq, an analyst at Gartner Group Inc. in San Jose, citing Sun Microsystems Inc.'s upcoming StarPortal as well as Desktop.com Inc. and Halfbrain.com Inc., two start-ups that provide virtual "Webtops" with applications.

Microsoft's "whole purpose [here] is to freeze the developers, to keep the developers looking at Microsoft and not at the other technologies out there," said LeTocq.

Dave Snider, a network manager at Load King Manufacturing Inc. in Jacksonville, Fla., said he doesn't see Gates' new role as making much of a difference in the company's operation. "I think most of the people who are higher up in Microsoft share his same views," Snider said. "I don't think really any of their business practices will change."

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