Five years of Ballmer--the effect on Microsoft

In the five years since Bill Gates surprised the technology world by announcing he would give up his title as chief executive at Microsoft, has the company changed?

Yes--and no. While CEO Steve Ballmer has clearly retooled some parts of Microsoft to more closely mesh with his hard-driving style, the world's largest software maker still faces many of the same challenges: open source, legal skirmishes, and slowing growth in some of its core businesses.

The eventual shift of power to longtime friend and colleague Ballmer was expected, but the announcement itself, five years ago Thursday, on Jan. 13, 2000, was something of a shock.

The ever-boisterous Ballmer presents a decidedly different face for the company than that of Gates, the more introverted techie who had headed the company since founding it with Paul Allen in 1975.

Ballmer reorganized the company into separate business units, changed the way workers are compensated and moved toward a broad strategy to expand on Microsoft's core products by slicing and dicing them in new ways.

"It's clearly Ballmer's company from a business perspective," said Directions on Microsoft analyst Matt Rosoff. "The seven business units were largely his deal. It probably wouldn't have happened under Gates."

Another Ballmer-inspired change: fostering a kinder, gentler image and greater trust among both customers and partners. Ballmer issues annual missives to his troops calling on them to build products that are more useful for customers and to be more responsive to customer needs.

Ballmer tackled Microsoft's image problems almost from day one. In one of his first public appearances after taking over the CEO reins, he talked about the company's dilemma. "Microsoft is a company that, in my opinion, is not very well-understood. For some people, we're the Windows company...we're known mostly by our stock market success. We're also, I think, to some extent viewed as the scourge of Silicon Valley. Unfortunately...we're known as a legal defendant," he told the Commonwealth Club of California back in February of 2000.

Gates, meanwhile, has become the brain trust behind some of Microsoft's most complex--and risky--product strategies, such as the new Longhorn release of Windows and the company's move into home entertainment.

Trying to measure the success of the Ballmer era is tricky. Since the announcement, Microsoft has seen its fortunes fluctuate. Sales have grown from just less than $23 billion in fiscal 2000 to $36.8 billion in fiscal 2004, and the company's cash balance has more than tripled. At the same time, Microsoft' stock has foundered, dropping from $47.80 on the day Gates announced his plans to around $27 a share.

Many of the issues, though, that Microsoft has faced in recent years--security issues, slowing tech spending and the rising popularity of open-source software, are things that any Microsoft CEO would have had to face.

"It's a little hard to separate the changes that would have happened anyway from the changes that happened specifically from Ballmer

becoming CEO," Rosoff said. "There's a lot of stuff that would have happened anyway that Microsoft would have had to react to regardless of who was CEO."

One of the busiest areas for Microsoft during the Ballmer tenure has been the legal front. When Gates first detailed his new career plans, Microsoft was dealing with news that the U.S. Department of Justice was considering a proposal to break up the software maker to resolve the antitrust case pending against it. A trial judge ordered such a breakup, but Microsoft had that overruled on appeal and eventually worked out a landmark settlement with the Department of Justice.

Since then, Ballmer and general counsel Brad Smith have been working to resolve many of the company's legal headaches, settling with rivals such as Sun Microsystems and AOL Time Warner and reaching deals to settle a number of consumer class-action lawsuits.

"It's sort of a way to minimize risk rather than fighting things to the end and ending up with some sort of catastrophic decision," Rosoff said.

Rosoff sees the settlements as part of a broader trend that has marked the Ballmer years. "Under Ballmer, the company has become a little more conservative," Rosoff said.

Back to its roots
In the late 1990s, Microsoft was investing billions in cable and telecommunications companies and pouring its own development resources in a number of areas, including its MSN Internet service and a range of consumer Web services.

"They are again really focused on selling software," Rosoff said. "Part of that is Ballmer's legacy--he knows where the money is coming from."

At the same time, Microsoft has continued to diversify its technology portfolio and extend its reach into the IT market. It has moved into new areas such as enterprise software and has cast itself as a major player in the home entertainment industry via the launch of its Xbox video game console and other media-oriented products. The company is currently moving aggressively into the PC security software space; it launched a beta version of its first entry into the antispyware market earlier this month, and it detailed plans to introduce antivirus software applications later this year.

As for Gates, the shift gave him more time to spend on technical projects, but in some ways there has still not been enough Gates to go around.

In the early days, nearly all products went through a "Bill review," Rosoff said. Now only some projects find their way onto Gates' plate.

"It's harder to get in front of Gates than it used to be," Rosoff said. Gates has been most active in a few key projects, he said, including the Tablet PC and Longhorn, the company's next version of Windows. Even with all of Gates' attention, though, Longhorn fell behind schedule and had to be significantly scaled back.

On a personal level, Gates has continued to expand his considerable philanthropic efforts via the Bill and Melinda Gates Foundation, which holds claim to an endowment of about $27 billion and has contributed to everything from relief efforts surrounding last month's tsunami in South East Asia to efforts to improve the IT resources in the world's education systems. Recognized as the world's richest man, with a net worth of about $46.6 billion, Gates has also transformed his image from that of a sometimes arrogant and aloof individual to a kind of polished media darling.