Gates steps aside as Microsoft airs new vision

REDMOND, WASH. - Microsoft last week began what could be the most dramatic metamorphosis of its 25-year history, and it will happen without Bill Gates at the helm.

In a surprising move last week, Gates, who has been the company's only CEO, handed the title to Steve Ballmer, who has served as president since July 1998. Gates will remain chairman and become chief software architect. The new role, he said, will allow him to return to "what I love most - focusing on technologies for the future."

It also appears to be a strategic move to blunt talk of breaking up Microsoft as a penalty in its antitrust case with the federal government and somewhat removes Gates as the antagonist in the case.

Key is a dramatic transition at Microsoft that Ballmer laid out during a hastily called press conference that raised speculation Microsoft might be making an acquisition in the same vein as America Online's proposed $160 billion purchase of Time Warner.

Ballmer's plan requires an overhaul of the company's technology, licensing model and channel partnerships. Microsoft plans to shift from its traditional packaged software focus to developing software as services, such as platforms, applications and program logic that can be shared or rented over the Internet. The last major change was in 1995, when Gates announced Microsoft was finally catching the Internet wave.

The new transition is based on a concept Ballmer called Next Generation Windows Services (NGWS), an Internet-based platform intended to position Microsoft for a future where users will be connected to the Internet by any number of devices.

"The most immediate pieces that move us in this direction are Windows 2000, and updates to our SQL Server product, Exchange product and our development platform," Gates said. All those pieces of Microsoft software make up Windows DNA 2000, a platform for Web-based application development, which Microsoft has been shopping to service providers.

Ballmer said it will take up to three years to develop NGWS. Microsoft will offer details this spring and deliver some base technologies this summer.

As part of his new duties, Ballmer said he will lead the company through the last chapter of its antitrust battle with the federal government. Some observers say Gates stepping aside and reports of stalled settlement talks signal that Microsoft feels a breakup is a real possibility.

"If the company is broken up, I don't think Gates wants to be there for it," said Rob Enderle, a Giga Information Group analyst. Gates has maintained a breakup would be stifling and Ballmer concurs.

"It would be the single greatest disservice that anybody could do to consumers in this country. It would be reckless beyond belief," Ballmer said.

Ballmer said Microsoft's new vision could not survive a breakup. And the company's moves reinforce Microsoft's repeated assertions during the trial that the rapidly changing technology industry forces companies to innovate and change to remain competitive.

Microsoft has used AOL as an example of that, and AOL's bid for Time Warner likely helped reinforce the point.

"Microsoft has to become a different company to compete in this market," says Dwight Davis, an analyst with Summit Strategies in Kirkland, Wash.

Davis says Microsoft must change in three areas - technology, licensing and its channel partnerships.

All of these changes represent challenges for Microsoft and will now fall squarely on Ballmer's shoulders.

"Four or five years from now, we may well peg this as the famous Microsoft transition that made them a much different company than they are today," Davis says.