Goodbye, Bill. Hello, Steve

Gates Retrospective

Image courtesy Reuters

Friday, June 27, 2008, is truly the end of an era. The founder of the software industry’s most successful company is leaving after 33 years.

Bill Gates is iconic, and despite all the press coverage that constantly surrounds him, enigmatic. He’s probably a certifiable genius; it certainly showed early on when he was a programming wunderkind. It’s also showed in his technical chops: Even his detractors have to admit that he’s an incredibly astute businessperson and executive.

To say he’ll be missed in those roles would be a gross understatement. Where he goes from here, besides trying to help the world’s underprivileged, is anyone’s guess. As for the past, suffice to say that in the past three decades, Gates and company have literally changed the world.

Now, he’s leaving to spend the majority of his time working on his family charity, although he has said he will still work as much as 20 percent of his time on “special projects” for Microsoft’s (NASDAQ: MSFT) CEO and Gates’ best buddy, Steve Ballmer.

Ballmer, himself, has reportedly said he would hang around as CEO for another nine or 10 years &#150, until his kids go off to college. Gates, he says, will always be available for advice. However, Microsoft is now his baby. The recent play to buy out Yahoo was Ballmer’s.

When people will barely be able to remember who the last president was, Gates’ name is sure to be a part of the cultural milieu, perhaps like Andrew Carnegie — a true robber baron as well as one of our history’s great philanthropists.

Gates first announced he would one day retire – at 50 — about 12 or 13 years ago. As that date got closer, he reneged somewhat, and many industry watchers thought he might become the classic entrepreneur who couldn’t let go, like some other tech company founders such as Steve Jobs or Michael Dell. But two years ago, Gates said he could let go.

He’ll be 53 in the fall. By announcing his departure two years in advance, he’s smarter than most top executives that retire. He seems to have worked diligently to assure that the firm he founded — arguably the biggest software company in the world — will continue on successfully without him.

Still, Gates began the process of setting up the company for his eventual departure when he, and the board of directors, promoted Ballmer to the job of CEO in 2000. Two years ago, Gates passed off his chief software architect title to perhaps the only technologist fit to take his place as company visionary – the legendary Ray Ozzie.

Now is the cutover point. Ballmer has been stepping out from behind his old friend’s shadow, and observers will now start writing that Ballmer is finally making the decisions. In reality, that’s been going on for a long time.

Gates was known as a firebrand — and often arrogant — when he was CEO and the company was much smaller. The company grew, and Gates wanted to do what he loved best — guide the technology vision.

Gates visually became mellower; Ballmer didn’t become any less hyperactive than he’d always been. They’ve been buddies who can probably complete each other’s sentences after 28 years in business together. And while the focus has always been on Gates, much of what the media has taken for Gates acting behind the scenes has actually been Ballmer making what he feels are the best decisions for the sake of the company.

One of the reasons for this timeline is to illustrate the power shift over time. As you read it, try to envision a subtle move, beginning in the late 1990s, where decision making power was gradually transferred. Gates gave his last speech to the troops Friday morning. Now it’s Ballmer’s baby.

Gates Retrospective

The early years

Oct. 28, 1955 — Bill Gates is born, one of three children of a prominent Seattle lawyer and a schoolteacher. His mother, Mary Gates, sits on the University of Washington Board of Regents and on the national United Way executive committee.

1968 — At 13, Gates enrolls at Seattle’s Lakeside School (where he meets classmate Paul Allen, who later co-founds Microsoft). The availability of a teletype computer terminal at the school triggers both students’ fascination for computers.

1972 — Gates, then 17, and Allen found Traf-O-Data, and design a computer for counting and totaling automobile traffic statistics.

1973 — Gates enters Harvard, where he meets Steve Ballmer, who later joins Microsoft. For the past eight years, Ballmer has been the company’s CEO.

Gates Retrospective

1978: Front row (left to right): Bill Gates, Andrea Lewis, Marla Wood, and Paul Allen. Middle row: Bob O’Rear, Bob Greenberg, Marc McDonald, and Gordon Letwin. Back row: Steve Wood, Bob Wallace, and Jim Lane. Not pictured is Miriam Lubow.

Dawn of the PC revolution

1975 — The January issue of Popular Electronics features the MITS Altair, the first eight-bit personal computer kit, on its cover. Excited at their vision for the future, Allen and Gates decide to write a version of the BASIC language to run on it.

1975 — Gates and Allen found Microsoft, and move to Albuquerque, N.M., where MITS is located. Gates, who is CEO, takes a leave of absence from Harvard and never looks back. (He receives an honorary degree from Harvard in 2007.)

1979 — Microsoft moves to the Seattle area.

1980 — IBM (NYSE: IBM) contracts with Microsoft for a version of BASIC for its upcoming IBM PC. The young entrepreneurs also talk “Big Blue” into licensing an operating system, later to be named MS-DOS. This system was originally written by another Seattle company and purchased by Microsoft, which then licenses it to IBM. In a lucky (or shrewd) move, Gates and Allen retain the right to license MS-DOS to other PC manufacturers. The deal would go on to hollow out IBM’s PC business and lay the foundation for Microsoft’s monopoly in desktop software.

1980 — Gates talks his old Harvard buddy, Ballmer, into joining Microsoft. He eventually becomes the second-largest individual shareholder after Gates.

1981 — IBM launches the IBM PC, and with it, Microsoft’s original cash cow – MS-DOS, short for disk operating system. The availability of a standardized operating system that can run applications written for it on virtually all Intel-based PCs helps give birth to the PC industry. Initially, IBM believes it would sell only a few hundred thousand PCs. (IBM eventually leaves the PC business, selling it to Lenovo in 2005.)

1983 — IBM and various “clone” makers sell more than 1 million PCs in a year for the first time.

1983 — Allen leaves Microsoft due to Hodgkin’s disease, now in remission. His stock holdings later make him one of the wealthiest people on earth. He never returns to work at the company he co-founded.

1984 — Apple ships the first Macintosh computers. Microsoft introduces applications for the Mac, including Word.

1985 — Microsoft releases a windowing interface for MS-DOS that is very similar to the Mac, which it aptly names Windows 1.0. The first several versions are all but ignored by customers.

1985 — Microsoft’s revenues in fiscal 1985 total $140 million.

1986 — Microsoft goes public (NASDAQ: MSFT).

1987 — IBM and Microsoft announce DOS’s replacement, OS/2, which features a windowing user interface named Presentation Manager. It will eventually compete directly with Windows, creating much bad feeling between the two companies.

1988 — Microsoft and IBM announce that they will keep Windows and OS/2 from competing with each other by limiting the power of the PCs Windows will run on, triggering scrutiny from the U.S. Department of Justice that would, years later, lead to the antitrust settlement that still drags on.

1989 — Gates decides that the company’s relationship with IBM would have to go due to his vision of Windows fulfilling the role OS/2 was designed for.

1989 — Microsoft ships the first release of Microsoft Office, creating the company’s second major cash cow.

Next page: The Roaring ’90s

Page 2 of 3

Gates Retrospective

Microsoft’s campus in Redmond, Wash. (Microsoft)

Microsoft in the Roaring ’90s

1990 — Microsoft ships Windows 3.0, and customers finally jump on the bandwagon. Windows 3 is off and running.

1990 — Microsoft breaks the $1 billion in revenues mark.

1993 — Microsoft launches Windows NT, which eventually evolves into Windows Server. (NT, along with server applications SQL Server and Exchange Server, eventually becomes Microsoft’s latest cash cow after a very slow start.)

1995 — Gates writes his famous “Internet Tidal Wave” memo, an alarm meant to turn the company’s attention to the Internet, an important opportunity Microsoft had “missed” when it started its proprietary online service, MSN, that year.

1995 — Windows 95 ships, bundling Internet Explorer (IE) with it. That move essentially drives browser pioneer Netscape out of the market, laying the base for the federal government’s eventual antitrust suit against the company.

1997 — Microsoft breaks 10 billion in sales for the fiscal year ended June 30.

1997 — The first version of Visual Studio, Microsoft’s integrated development environment, ships.

1997 — The U.S. Department of Justice (DoJ) asks a federal court to stop Microsoft’s “tying” of IE to Windows.

1998 — Steve Ballmer becomes president of Microsoft. Gates retains CEO and chairman roles.

1998 — The DoJ sues Microsoft for broad antitrust violations, including illegal tying. During the trial, Gates is criticized for appearing arrogant and evasive in a videotaped deposition.

Gates Retrospective

2000 — A federal judge rules that Microsoft violated antitrust laws, and orders the company split in two. An appeals court later overturns the divestiture order but upholds the antitrust violations verdict.

2000 — Ballmer takes the role of CEO. Gates retains chairmanship. As he steps away from his previous day-to-day tactical roles, Gates takes on the role of chief software architect, responsible for planning the company’s technology directions, and taking him closer to his technologist roots.

2000 — Microsoft releases Pocket PC 2000, which will later evolve into Windows Mobile.

2000 — Gates and his wife start the Bill and Melinda Gates Foundation, which becomes the best endowed charity in the world, with assets of more than $37 billion.

2001 — Windows XP ships.

2004 — The DoJ and Microsoft agree to a consent decree regarding the long-running antitrust case that puts Microsoft under government oversight until November 2007.

Gates Retrospective

2004 — The European Commission (EC) rules that Microsoft abused its market dominance to disadvantage competing companies within the European Union. The company decides to fight the ruling.

2005 — Microsoft buys out Groove Networks, a collaborative software platform built by Lotus Notes creator, Ray Ozzie. The company hires Ozzie in the deal. Ozzie subsequently comes out with a memo of his own, dubbed the “Internet Services Disruption” memo. In it, he describes how “cloud computing” and the availability of large amounts of communications bandwidth are transforming the way software is delivered. While the rest of the industry has already dubbed it “software-as-a-service,” Microsoft’s version is called “software-plus-services.”

2005 — Microsoft introduces its Windows Live branded online services for consumers, including renaming several MSN services. That includes rebranding MSN Search, which debuted in 1999, now renamed Live Search.

2005 — Bill and Melinda Gates, along with U2 singer, Bono, win Time magazine’s “Person of the Year” award for their charitable work.

Next page: The dawn of the Ballmer era?

Page 3 of 3

The Ballmer years

2006 — Gates hands his role as chief software architect off to Ozzie. He also announces he’ll leave full-time work at Microsoft in 2008 to spend more time on charitable work, and begins phasing out of the company’s leadership.

Steve Ballmer

2007 — Windows Vista and Office 2007 ship. While Office has sold well, Vista’s numbers have been less robust than analysts expected.

2007 — Microsoft breaks $50 billion in revenues for fiscal 2007.

2007 — Silverlight, Microsoft’s cross-platform, cross-browser streaming media plug-in debuts, competing with technologies such as Adobe Flash and Apple QuickTime.

2007 — Microsoft buys aQuantive for $6 billion to bolster its online advertising business.

2007 — The European Union’s second-highest court upholds the EC’s ruling against Microsoft, causing the company to settle with the EC. The decision cost Microsoft nearly $1 billion in fines. An additional $1.35 billion fine for tardy delivery of interoperability information to competitors is on appeal. Further investigations continue.

2008 — The U.S. federal judge overseeing the consent decree orders Microsoft’s oversight to be extended until November 2009, primarily for being slow in providing interoperability information to competitors.

2008 — Microsoft bids $44.6 billion for Yahoo (NASDAQ: YHOO) to bolster its position in search and online advertising vis-à-vis Google (NASDAQ: GOOG). After being repeatedly rebuffed, Ballmer withdraws Microsoft’s offer. The company will instead pursue the search strategy it already has in place.

[cob:Special_Report]2008 — Microsoft ships Windows Server 2008 and Visual Studio 2008. SQL Server 2008 is due in the third quarter.

2008 — Ozzie announces his “Live Mesh” initiative, which aims to sync users’ devices with all of their data and information via services provided “in the cloud.” It is expected to become a key component of Microsoft’s emerging “software-plus-services” strategy for revolutionizing the company’s business.

The next era begins

2008 — Annual PC sales are expected to reach 300 million units in 2008, and 1 billion will be in use by the end of June.

Gates Retrospective

June 27 — Gates leaves full-time work at Microsoft to dedicate himself to the Bill and Melinda Gates Foundation.

Gates has said that he will probably still work as much as one day a week for Microsoft, and he remains chairman and the largest shareholder. CEO Ballmer is the second-largest shareholder. As of July 1, 2008, he’s on his own.

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