What the Big Vendors Did Last Month, and What We Think About It

Every month we review several announcements from multiple software vendors. However, occasionally something happens that’s so noteworthy that it demands more attention. This is certainly the case with Microsoft’s recent announcement that Bill Gates “will transition out of a day-to-day role in the company to spend more time on his global health and education work,” as the Microsoft press release put it.

Ten years ago, the idea that Gates might leave Microsoft to do charity work would have been considered ludicrous. Gates was so notorious for ignoring charities that even when he began giving away significant amounts, most analysts believed that the charitable giving was motivated primarily by a desire to reform Microsoft’s public image. However, the recent announcement that Warren Buffet would contribute $31 billion to the Gates Foundation removed any pro-Microsoft message from Gates’ giving. Clearly, Gates is serious about making a positive contribution to the world.

While the Microsoft announcement stated that Gates will be “working full time at Microsoft through June 2008, Gates then will continue as chairman and advisor,” it’s clear that Gates really is leaving Microsoft. It is, of course, the end of an era, but more importantly, it’s the start of a power struggle inside Microsoft to determine Microsoft’s future strategy.

The question is: who will set Microsoft’s strategic direction after Gates leaves? Microsoft attempted to answer this question by announcing that Chief Technical Officer Ray Ozzie would immediately assume the title of chief software architect and would be “working side-by-side with Gates on all technical architecture and product oversight responsibilities, to ensure a smooth transition.” However, Microsoft also announced that its other Chief Technical Officer, Craig Mundie would immediately take the new title of chief research and strategy officer and “will work closely with Gates to assume his responsibility for the company’s research and incubation efforts [and would] partner with general counsel Brad Smith to guide Microsoft’s intellectual property and technology policy efforts.”

Most analysts and technology reporters viewed the above as evidence that Ozzie was the “winner” and would change Microsoft’s direction and culture to be more in line with the rest of the software industry. The confidence in Ozzie is not surprising, considering that he’s a high-tech legend. Ozzie worked on the first electronic spreadsheet, VisiCalc, played a big role in the growth of Lotus Development Corp., and most recently founded Groove Networks, which Microsoft acquired in April 2005.

However, Craig Mundie has two things that Ozzie lacks: a long Microsoft pedigree and a close relationship with Gates.

The pedigree is important because Microsoft has a habit of rejecting outside executives faster than a bargain-basement organ transplant.

Witness the case of Rick Belluzzo, who for about a year was Microsoft’s president and chief operating officer. At the time, Belluzzo was the top executive with the widest range of experience outside Microsoft, having formerly been Chairman and CEO of Silicon Graphics and an EVP of Hewlett-Packard’s all-important computer division. While Belluzzo was widely hailed as Microsoft’s future CEO, two long-time Microsoft EVPs remained as direct reports to Ballmer – a sign that Belluzzo wasn’t in control. After about a year, Belluzzo left “to pursue other business opportunities.”

Mundie has the inside track with Gates. When Belluzzo was named as president, Mundie, an EVP at the time, continued to report directly to Gates, while every other executive only reported to Ballmer or Belluzzo.

Therefore, if history is any guide, Mundie will sooner or later (and probably sooner) manage to isolate Ozzie and consolidate his control of Microsoft’s strategic direction. What this means for the industry at large is that Microsoft will continue to behave as it always has and that predictions that Ozzie will change Microsoft’s direction and culture are simply wishful thinking.