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Gates-Ballmer rifts marked Microsoft power shift

The chairman and CEO have been close friends and business partners for nearly 30 years. But they sometimes clashed over sharing power, according to a Journal report.

Bill Gates and Steve Ballmer have been close friends and business partners for nearly 30 years. But the two sometimes clashed over the sharing of power at Microsoft, particularly before Ballmer's rise to the CEO slot.

The sparring became so intense that at one point, board members intervened to iron out differences, according to a detailed, behind-the-scenes look at the men Thursday in The Wall Street Journal. The power struggle may have also undermined product strategies and slowed decision making on key issues.

The story forms a backdrop to Gates' planned transition out of day-to-day management at Microsoft, beginning June 27.

Reporter Rob Guth reveals that, despite Gates' decision to hand over the chief executive title to Ballmer in 2000, he sought to retain his power within the company. As Guth writes:

Things became so bitter that, on one occasion, Mr. Gates stormed out of a meeting in a huff after a shouting match in which Mr. Ballmer jumped to the defense of several colleagues, according to an individual present at the time. After the exchange, Mr. Ballmer seemed "remorseful," the person said.

In meetings involving the two men, Gates "still held sway that wasn't tied to a title...Mr. Gates would interject with sarcasm, undermining Mr. Ballmer in front of other executives, Mr. Gates and other Microsoft executives say," according to the report.

Gates and Ballmer share the stage at the D6 conference last week. Dan Farber/CNET

Gates gradually came to accept his role as No. 2 at the company. "I had to change," Gates said, according to the report.

Now, as Gates' departure is imminent, Ballmer will have free reign. "I'm not going to need him for anything. That's the principle. Use him, yes, need him, no," Ballmer told the Journal.

Last week, the two men shared the stage at the D6 conference to reminisce about Microsoft's beginnings and to discuss future products, such as Windows 7, the successor to Windows Vista.

While the behind-the-scenes anecdotes make for compelling reading, perhaps the more revealing sections of the story deal with internal struggles over key product development efforts.

One, for instance, involves an internal effort to build an online application suite in 2000, called NetDocs, long before Google and other competitors began offering Internet-based rivals to Microsoft's Office franchise (longtime readers of CNET will recall that we wrote some of the first stories about the NetDocs effort in 2000). According to Guth:

In one case, two vice presidents clashed over the future of NetDocs, a promising effort to offer software programs such as word processing over the Internet. The issue: because NetDocs risked cannibalizing sales of Microsoft's cash cow Office programs, some executives wanted NetDocs killed. Messrs. Gates and Ballmer were unable to settle on a plan. First, NetDocs ballooned to a 400-person staff, then it got folded into the Office group in early 2001, where it died.

Now, as Microsoft continues to struggle with its transition to an online-advertising and product strategy, Gates is staying largely on the sidelines, letting Ballmer and other executives call the shots. Guth highlights the now-aborted bid for Yahoo as evidence that the transfer of power is nearly complete.

Gates promises to leave those matters to Ballmer and will not return full-time to the company. "I am done with that," he told the Journal.