Commentary: Gates' planned exit changes everything

By Forrester Research
Special to CNET News.com
June 16, 2006, 10:00AM PT

By John R. Rymer, Ted Schadler and Erica Driver

Microsoft needs a new technical leader. Check that--more than one.

In delivering Thursday's blockbuster news of from daily involvement at Microsoft, he and CEO Steve Ballmer downplayed the significance of Gates' new personal priority on his foundation. Forrester doesn't buy it.

Gates--his encyclopedic mind, steely will and passion for software technology--is the essence of Microsoft. --Ballmer, Ray Ozzie and Craig Mundie--must quickly find a way to prevent the legacy weight of Windows and Office dragging down the Live platform before it can take wing and carry Microsoft into the next era.

Microsoft cares about technology and products. Despite the emphasis on the company's strong management team in the announcement of Gates' transition, most of those highlighted are business managers, not technical leaders. Gates is a technical leader, first--the most accomplished software technology manager ever. It will take a village to replace him.

Special coverage: The end of the Gates era

• Redmond will bleed (more) talent. Gates' departure will make it more difficult to attract and retain top talent at a time when people are already flocking to Google. Gates has always been a magnet for elite computer-science talent. The best Microsoft development staff--distinguished engineers and technology fellows--went to Microsoft and stayed there after getting rich, in large part because they got to work with Gates. His departure from day-to-day work will leave a huge gap. We expect some of these top developers to depart if the new climate isn't right, leaving still other vacuums for Microsoft to fill.

• Microsoft will likely dig in its heels. The shift of day-to-day leadership from Gates to others in Microsoft will mean the debates inside the company about interoperability versus portability may go differently. The company may very well change its historical position on, for example, porting SQL Server (and other products) to Linux in the long term. But Forrester expects Microsoft to initially harden its historical "our way or the highway" posture. Case in point: Ballmer issued a memo after Wall Street razzed Microsoft's latest quarterly results, reiterating to the company that its model is the right model and will produce great results.

• A software paradigm will go out to pasture. Gates' departure comes at a time of deep soul-searching at Microsoft. The tried-and-true ways of creating and selling software aren't working--witness the latest missed ship date for Vista, the company's hammering by investors for producing uninteresting results in the third quarter of fiscal 2006, as well as blog grousing by Microsoft's own employees. The bottom line: Microsoft is crawling into the future of concise Internet services burdened by its bloated, overengineered, pay-by-the-CAL (Client Access License), one-size-fits-all software model. Microsoft now must face the future of ad-supported or subscription-based on-demand software.

• Ballmer will need to make tough business model decisions. No longer sheltered by Gates' shared responsibility for Microsoft's five-year stock slide, Ballmer must make tough decisions, just as IBM CEO Lou Gerstner had to do 13 years ago. IBM went into services. Microsoft plans to go into advertising. Is that enough? We're betting not. Forrester believes that Ballmer will have to make tougher decisions in order to re-energize Microsoft's financial and business performance. It's inevitable that Microsoft will go beyond software into software-derived services of all kinds in order to take the company to the next level. First step: Build a desktop management services organization that generates real revenue, and yes, competes with its channel.

• Ozzie will have to keep his eye on Live. He's a bona fide visionary, and he owns the future of Microsoft's technical strategy. His selection as chief software architect is a great move, made even better by assigning longtime strategist David Vaskevitch to work with him (Mundie, now CTO and chief strategy officer, will be the keeper of Gates' technical philosophy). Ozzie understands software as a service on the Internet: He made a big impact at Microsoft (after Groove Networks was acquired) by pushing what became known as the Live initiative. However, even Ozzie may be overwhelmed by the Longhorn/Vista wave. Microsoft faces a lot of work to catch Google in software as a service. Ozzie should delegate the Longhorn/Vista grind to someone else to focus on making Live--and solidify Microsoft?s position in the next era.