Microsoft: Life after Gates
Iconic founder says he's stepping away from a day to day role at the software maker in two years. Will the company be the same?
NEW YORK (CNNMoney.com) - The world's largest software company announced an eventual changing of the guard Thursday - at a time when it is facing significant challenges.
Microsoft (up $0.19 to $22.07, Charts) chairman Bill Gates announced he is transitioning to a part-time role at the company, effective July 2008. He'll then stay on as chairman and technical adviser while concentrating full time on the Bill and Melinda Gates Foundation, the foundation he and his wife founded to focus on issues of education and health care around the world.
Gates co-founded Microsoft in 1975 with Paul Allen and took the company public in 1986. He remained as CEO until 2000, when Steve Ballmer took over that role.
Analysts contacted after the announcement said the years of advance notice that Gates gave helped buffer any negative impact on the stock, which fell about a half a percent in after-hours trading.
"I think the company does have a big group of talented managers, and Microsoft is more than one individual," said Paul Latta, director of research at McAdams Wright Ragen. "From that perspective, it's not a shocking announcement, and it'll be business, mostly as usual."
But analysts acknowledged that Gates is a cultural icon who cannot be easily replaced.
"I think, unlike many technology executives, Bill Gates is somewhat irreplaceable," said Michael Cohen, director of research for Pacific American Securities. "Gates' genius is (finding) the nexus between coupling his understanding of technology with business strategy. If they completely lost him as a strategist, I think it would not be a good thing."
The news comes at a challenging time for Microsoft, which has battled a stagnant share price for more than three years and is combating both slowing growth in the PC market and increased competition.
The company announced earlier this year that it is delaying the launch of Windows Vista, its ubiquitous operating system, to consumers until 2007. Analysts and investors have been hoping the launch of Vista and the newest version of its Office software will be the catalyst that finally perks up Microsoft's stock.
Microsoft is also grappling with Google, the Silicon Valley search giant, which currently trounces Microsoft in the search market and which has recently struck deals to have some of its software installed on personal computers made by Dell, handheld messaging devices from Nokia, and phones from Japanese cell phone carrier KDDI.
But Microsoft, never a company to relish second place, is making big moves to prepare for the future, focusing on "software as service" - simply put, interacting with software applications and other programs with nothing more than a Web browser and a high-speed Internet connection.
Peter Misek, senior technology analyst at Canaccord Adams, said the company appears to have a strategy in place to take on competitive challenges, particularly with the appointment of Ray Ozzie to the role of chief technical officer.
"Ray is very much a software-as-service guy, and those initiatives will be powered forward even faster and harder than before," said Misek.
As for Gates' future, McAdams' Latta said the transition from business mogul to philanthropist brings to mind another famous figure who made the same move: Andrew Carnegie. That transition has the potential to shape how Gates is viewed in the annals of history, Latta said.
"Throughout the 90s, he was a feared and hated name - this borg absorbing the world," said Latta, referring to Gates' reputation in the 1980s and 1990s as a competitor-crushing business man whose tactics drew the ire of antitrust regulators. "He could become a very popular man."
Latta of McAdams Wright Ragen owns shares of Microsoft, but his firm does not have banking ties to the company. Misek does not own shares of Microsoft, but his firm has banking ties to the company. Cohen does not own shares of Microsoft and his firm has no banking ties to the company.