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June 23, 2006updated 19 Aug 2016 10:10am

Understanding Bill Gates’ Long Goodbye

So Bill Gates is to leave Microsoft by June 2008, in a slow, drawn-out exit designed to calm investors' already jangling nerves. So the big question is, after so long at Microsoft's helm, why is Gates leaving now?Gates will end a 33-year reign at

By Jason Stamper Blog

So Bill Gates is to leave Microsoft by June 2008, in a slow, drawn-out exit designed to calm investors’ already jangling nerves. So the big question is, after so long at Microsoft’s helm, why is Gates leaving now?

Gates will end a 33-year reign at Microsoft in 2008 and hand over the software reins to new chief software architect, Ray Ozzie. Announcing the move, Gates said it was because he wants to donate more of his time to his charity, the Bill & Melinda Gates Foundation, though he will remain Microsoft chairman.

Is it genuinely that he wants to spend more time on his philanthropic activities as he claims, or is it because the company has in fact been on the ropes for some time, and Gates has shown himself incapable of matching the inexorable rise of Software as a Service, or SaaS, in general — and Google in particular?

You may remember how we reported in November last year that Gates had sent a memo to his staff saying that the company almost missed the boat on SaaS, and needed to redouble its efforts. But if as chief software architect it wasn’t Gates’ job to spot the trend and make sure Microsoft led it, then whose was it?

In that memo Gates attached a note from Microsoft’s then chief technical officer, Ray Ozzie. Ozzie seemed to be criticizing the company’s failure to spot the coming trend for SaaS when he wrote: “A set of very strong and determined competitors is laser-focused on internet services and service-enabled software.”

The implication was that Microsoft identified areas of opportunity but failed to pursue them. “We should’ve been leaders with all our web properties in harnessing the potential of AJAX,” Ozzie wrote. “We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position.”

He warned that even though it is difficult to predict what will happen “given the hype level”, Google’s broad investments in the internet, “might ultimately grow to substantially challenge our offerings. Office is not yet the source of key web data formats-surely not to the level of PDF. While we’ve led with great capabilities in Messenger & Communicator, it was Skype, not us, who made VoIP broadly popular and created a new category.”

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While Microsoft has undoubtedly come out with innovative new products in the past few years, even in new markets like gaming and mobile, it accepts that it failed to capitalize on what could turn out to be the most important trend of all — the move from client-server to SaaS.

You’ll remember that Steve Ballmer was at great pains at the start of this month to explain why the company was increasing its R&D spending to $2bn: “We’ve got to make this transition, which our industry is making, from software as a product to software as a service,” he told an analysts’ conference. “If you want to be a leading software company, you’ve got to be a leading software-as-a-service company.”

This transition is “not optional”, Ballmer said, and he conceded that Google has given the company a black eye already. “There was one big opportunity – advertising as a software business – where we weren’t first,” he added.

The penny has dropped — it was just a long time falling.

But the company was wrong-footed not just in search but also in other key software as a service areas too. Look at the success has enjoyed, while Microsoft’s enterprise applications strategy consisted of buying Great Plains and Navision. was founded in 1999, for goodness sake. Where was Gates’ vision then? Only recently has its Dynamics applications business started to have a semblance of cohesion.

It’s not the first time that Gates has taken his eye off the ball, of course. You’ll remember that he famously failed to spot the impact the web was going to have, and sat back as Netscape became the dominant browser vendor. That time, Microsoft was able to use its Windows monopoly to claw back its position. (As it turned out it also abused that monopoly, and so must forever carry the moniker “convicted monopolist” as a result of the landmark ruling by Judge Thomas Penfield Jackson on November 5, 1999.)

How about the way in which Sun was able to win the enterprise IT platform war with its Java Enterprise platform — though it failed to capitalize on that victory financially itself — leaving Microsoft to claw its way back to the table with .Net? Or how Adobe won with PDF, Skype with VoIP, and Apple with iTunes and the iPod?

Looked at in this light, Gates actually has a lot to answer for, considering the billions of R&D dollars he has had to play with, and his staff of among the most talented programmers in the world.

As Dave Winer of Dave Winer’s Scripting News fame noted in a recent blog, in which he showed a graph of Microsoft stock’s decline over the past couple of years: “Do you think Bill would be stepping aside if the graph were inverted?”

Dave makes some salient points, but his argument that it is Microsoft’s stock slide and failure to innovate recently that is the reason Gates is going perhaps misses some of the subtlety of the situation, in my view at least.

For instance, you could point out that over the last ten years Microsoft’s stock has more than doubled, and that despite all of its challenges, its sales have continued to grow — from $140m in 1985 to almost $40bn in 2005.

When he leaves in 2008 Gates will have been at Microsoft 33 years. From wherever you are standing, he has had a glittering career. The boy who could learn a three-page soliloquy in one reading when he was at school, went on to build the most powerful software company on the planet.

Gates himself has vehemently denied that Microsoft’s latest challenges have anything to do with his departure, indeed he says it is quite the reverse. He told Todd Bishop of the Seattle P-I: “We are stronger in our business and technical teams — even relative to the big challenges that we face that make this a fun place to work at — we’re in a stronger position now than ever. It was the confluence of how I felt about how Microsoft could do and how I felt about the scale of the foundation that made me say to Steve I was contemplating this and then this week really make the firm decision that two years from now I was going to make that change.”

But while there is no doubt that Microsoft would not be where it is today without Gates, it seems he lacks the energy to take on the next big battle the company needs to fight. Besides, he has nothing more to prove at Microsoft, but clearly feels he does have things he needs to do with all of that wealth he has created.

Tellingly, instead of a single replacement for Gates the company has created two roles — with Ray Ozzie becoming chief software architect and Craig Mundie the chief research and strategy officer. Why? Because to fill Gates’ rather large boots, the company seems to be reasoning, you need two people.

Or at least, you need two people to reassure Wall Street that Gates will not be missed. But in fact, it doesn’t matter how many people replace Gates, their challenge remains the same in this new era: to innovate like a small company, despite being the largest software firm in the world. For all of Gates’ achievements, even he struggled with that one from time to time.

As always, I welcome your comments.

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