All You Need Is Love, $50 Billion, And Killer Software Code-Named Longhorn An up-close look at why Bill Gates still holds the key to Microsoft's future.
(FORTUNE Magazine) – The old Bill, the one we all know, thought he could do it all--and pretty much did. He built the most profitable tech company in history, almost single-handedly transforming the rarefied, clubby computer industry into a mass-market enterprise. He plotted what may prove a successful legal strategy to thwart federal trust-busters. Along the way, he wrote two bestselling books, developed into a mean bridge player and passable golfer, got married and fathered two children (with a third in the offing), took singing lessons, and after an intensive and exhaustive study of global health issues, founded and funded the world's richest charitable foundation. Let's see--are we forgetting anything? Oh, right. In 27 years he claims he has never called in sick or missed work. Not even once.
The new Bill, the one we met when we spent a dozen hours tagging along at meetings and speeches and hanging around his office, is a man who is noticeably older, weirdly wiser, and maybe even a little humble. This new Bill is...well, let him speak for himself, as he did in his office one day in June: "I've always liked multitasking. But there are incredible limits to what I can do--like how much time there is in a day, and how much I like going home at night and having a lot of things to cogitate on." He stands and begins to pace around his chair, just like the old Bill. "You know, the notion that a kid who thought software was cool can end up creating a company with all these smart people whose software gets out to hundreds of millions of people, well, that's an amazing thing. I've had one of the luckiest situations ever. But I've also learned that only through focus can you do world-class things, no matter how capable you are."
Three years ago Gates decided for the first time in his life that less could be more. He turned over the CEO title and all that organizational stuff to his old pal Steve Ballmer and dubbed himself Microsoft's chief software architect. Friends, relatives, and associates--heck, even Bill himself--all think it may be the smartest thing this famously smart guy has ever done. Which should send shivers down the spine of every competitor. Yes, Mr. McNealy, Mr. Ellison, Mr. Case, and Mr. Idei, we're talking to you.
Gates now devotes most of his time to what he loves best: namely, communing with the geeks who actually build Microsoft's products. His new role plays to perhaps his greatest skill--that uncanny ability to foresee how emerging software technologies can be woven together and parlayed into must-have "industry standard" products, which, in turn, reinforce demand for other software from Microsoft and its allies. He has settled into his new job just in time to direct what promises to be the granddaddy of all integration projects--a radically new version of Windows, code-named Longhorn, which, if all goes well, will come out sometime after 2005. If Longhorn really does turn out to be a Super Windows--a big if--it will handle so many functions of computing that Oracle, Sun, AOL Time Warner, and Sony may find themselves with less to do.
But that's not Bill's concern. He has lots to do, both at work and at home. Jettisoning the CEO-ship has freed up Gates' beloved "cogitating time" on evenings and weekends, giving him more opportunity to be a family man as well as to bone up on AIDS and other afflictions that the $24 billion Bill and Melinda Gates Foundation is tackling. Says bridge buddy and fellow billionaire Warren Buffett: "Bill has found a rhythm in the three areas of life that he really cares about, and that's terrific. In the business, in philanthropy, and in his personal family life, he has what he wants, and it's all clicking."
There's no better way to see how his return to his geeky roots has revivified Gates than to watch him in action. Not only did I spend several hours interviewing him in recent weeks, but Gates also invited me to sit in on a two-hour brainstorming meeting with key Microsoft coders and allowed FORTUNE's photographer behind the scenes to document a typical workday as well as impromptu meetings backstage at some of his public appearances. While it's apparent that Bill, now 46, still tries to wring the most out of every minute, he also seems more serene and contemplative--and just plain funnier--than at any time in the 18 years I've known him. When I mentioned that a story about his new role would be a good chance to update the myth that had grown up around him, he rolled his eyes and deadpanned, "I hope I'm not too mythical."
Actually, the days of myth are pretty much over for Microsoft. Its growth rate, a torrid 29% as recently as 1999, slowed last year to 10%. Its latest major upgrade, Windows XP, has not proved the booster rocket Microsoft had hoped, and its ambitious Web services strategy, called .NET, has also been slow to unfold. The stock, which recently traded at $54 a share, is down by half from its 1999 peak. Sure, Microsoft is still a powerhouse, on track to generate revenues of more than $28 billion and profits of nearly $9 billion in the fiscal year ending June 30. It now employs more than 50,000 people, supports a portfolio of 227 products and services, and has subsidiaries in 74 countries. And with its lock on the desktop and its $39 billion in cash, it will dominate the world of software for years to come. But if the products beginning to take shape in Bill's labs aren't world-changing, Microsoft may never be a growth stock again.
That challenge wasn't as visible three years ago when Bill switched jobs. The move reflected the maturation of Microsoft as a company and of Ballmer as an executive--and Gates' need for a change. "Bill had gotten a little weary," concedes Ballmer. "The scale of Microsoft and the scope of his responsibilities had become more than one person could handle. A new division of labor was required." Craig Mundie, chief technical officer for advanced strategies and policy and one of only a handful of people who report directly to Gates, recalls that Microsoft's technology and product strategy had begun to suffer what he calls disconnects: "A telltale indicator was that there were actually product groups who never, ever got a 'Bill review' of their strategies."
Ballmer and Gates admit that the first year of the transition was rough. "Bill and I didn't know who was going to make this specific decision or who was going to defer to whom in that kind of a meeting," Ballmer says. "There were things Bill was used to doing, and there were occasions when I wondered if I should show my authority or defend some of our guys on something." Gates had retained the title of chairman, so in a certain sense he is still Steve's boss, not to mention that his compensation remains ever so slightly higher. (Last year Gates made $666,520 in salary and bonus, $1,234 more than Ballmer.) Besides, he's hardly out of the loop. As Buffett puts it, "Even though Steve is really running it all, Bill knows what's going on everyplace. No sparrow falls, or even thinks about falling, at Microsoft without him knowing about it."
The division of labor is much clearer now. Bill still travels a lot on behalf of the company and gives his share of speeches, but he's pickier about where he goes and whom he speaks to than he was before. He calls on big customers, but now prefers to meet with CIOs and IT guys and let Steve schmooze the CEOs. "There is yin and yang here," says group vice president Jeff Raikes. "It's a very strong statement about Bill's ability to manage his ego."
Microsoft, strikingly, looks at Gates differently than it used to--less as an executive and more as a kind of grand geek. There's nothing mystical about this. No matter how many products the company makes, Microsoft needs a single, unified technology vision to grow and thrive, and that's up to Bill. Explains Mundie: "Bill's unique gift was always the way he does this complete and continuous synthesis. It's like he's a pipe, and all kinds of stuff goes in at this end and a continuous output of optimized strategy comes out the other end. What we are designing is critical infrastructure for everything digital going forward--business and government systems, communications, entertainment, you name it. The complexity of the challenge is unprecedented, but that just gets Bill's competitive juices flowing."
Time spent with Bill in technology and business reviews is so valuable that Microsofties consider it a currency. They even have a name for it: Bill capital. The board regards his time as a strategic asset to be monitored each quarter. Ballmer strenuously dissuades him from as many outside commitments as he can (including media interviews). The point is to enable Bill to spend at least half his time meeting face-to-face with developers, usually in very small groups and sometimes even one-on-one, and rarely with any other senior managers present.
Everyone at Microsoft agrees that Gates provides the greatest strategic "leverage," to use a favorite term of his, in the early stages of a software-development project, which is why the company is investing roughly half its Bill capital in Longhorn. At its simplest, Longhorn can be thought of as the next generation of Windows. But it is no mere upgrade. Bill and his teams are starting with a clean sheet of paper, rethinking what a computer operating system actually is, from the way documents and other data are stored and shared to the way people interact with the machine.
That's just the beginning. Because Gates' geeks are completely overhauling the operating system, they'll also have to redesign most of the company's other software products and services to take full advantage, including the MSN online service, its server applications, and especially Microsoft Office, the productivity suite that accounts for nearly a third of the company's sales and profits. If this enormous undertaking succeeds, it will make computers more personal than ever. Equipped with Longhorn, your PC will keep track of how you work, whom you talk to, what sites you look at, how you make documents and whom you share them with, which data on the network are yours--making all those things easier.
The business risk is obvious. Microsoft is putting its best development teams on a project that will render virtually all its products obsolete. In essence, the software game is simple: Everything depends on innovation. So unless Longhorn is a compelling advance over what users already have, Microsoft's growth will stall; regrouping would take years. All that makes Longhorn, in Gates' words, the equivalent of "many moon shots." Company executives are uneasy even talking about the project, for fear of hurting sales of Windows XP.
Ballmer made the decision to roll the dice at a senior-management retreat last August. It wasn't an easy one. Gates recalls: "We'd been talking about doing a lot of these things separately for a long time, but the mood was like, 'Hey, this incremental stuff is okay, but let's do something more dramatic.' And Steve said, 'That means synchronizing the release.' And I said, 'Isn't that risky?' And Steve said, 'But isn't it obvious we should do this?'"
Even before Ballmer gave the green light, Bill envisioned how the new operating system and its applications should delight users. The vision was--well, you have to hear him tell it: "My biggest thing is getting knowledge workers to install this version of Windows and say, 'Wow!' in two dimensions. As in 'Wow, they took the pain away! They fixed the stuff that was always crummy!'-- like it was hard to update the software, to move files between different systems, to understand what these error messages meant, etc.' And as in 'Wow, I can get new value out of my PC by taking it to meetings and taking notes on it. I'm doing annotations, or when I call somebody my screen comes alive, and we're looking at the article or contract or budget we're working on, and if I want to add somebody into the call, I just go to my screen, pick the name, and all that phone stuff just happens--the guy is there and looking at the same document.' And then, having all your stuff available anywhere on any device you own."
Gates also has a detailed grasp of how Longhorn will benefit consumers, kids, IT professionals, and more. But you get the idea. What he's focused on now is translating his ideas into "scenarios" for developers. When mouthed by a Microsoftie, "scenario" means not merely a real-world setting in which a software feature or capability might come in handy, but how it will change the user's life. Every Microsoft product has its genesis in a list of transformative scenarios.
"The scenario is the dream, not something defined in super-gory detail," says Mundie. "It's what Bill and I focus on more than the business plans or P&Ls. For a project as big as Longhorn, there could have been 100 scenarios, but Bill does this thing with his mind where he distills the list down to a manageable set of factors that we can organize developer groups around." Gates' scenarios usually take the form of surprisingly simple questions that customers might have. Here's a sampling from our interviews:
--Why are my document files stored one way, my contacts another way, and my e-mail and instant-messaging buddy list still another, and why aren't they related to my calendar or to one another and easy to search en masse?
--Why can't my computer protect me from distractions by screening phone calls and e-mails, and why can't it track me down when I'm out of the office or forward things to me automatically?
--Why can't our computers arrange conference calls and online meetings for us?
--Why is it so hard for a soccer mom to set up a simple Website and e-mail group to keep people informed about who's driving and who's bringing treats?
--Why can't I tap into all my stuff at home or at work from any device that's mine, and have it just be available because it knows I'm me?
--Why can't I read digital versions of magazines on my portable computer that look the way they're supposed to look?
And on and on. Gates and his technical assistant, former Stanford researcher Anoop Gupta, boiled such questions down to a final list of ten key Longhorn scenario categories with titles like People, Annotation, Real Time Communications, Storage, Authentication and Security, and New Look, and assigned them to teams of developers and managers drawn from various product groups across the company.
Gates compares all this to building an airplane--a really big airplane. "If you are designing a Cessna, you have five or six guys whose offices are next to each other, and at lunch one guy can say, 'Hey, your thing seems a little heavy. I'm not sure my wings can handle this.' You don't have to have a weight review meeting. Longhorn is more like a 747, and the wing group alone is 500 people who don't have lunch with the fuselage guys, who don't know the engine guys, who don't know the customers."
Gupta and Gates keep tabs on the progress of the Longhorn groups, meeting every six to eight weeks for a couple of hours. The June meeting we sat in on was typical. It involved six top developers of the New Look group, which is devising how people will interact with some of the novel features of the new operating system, in particular its file system for organizing and finding documents. The only "manager" present was the programmers' most direct supervisor.
They convened in a small conference room around the corner from Gates' office. The discussion leader wasn't Bill or even the group's manager, but a developer named Hillel Cooperman. Gates interrupted often with questions, observations, and suggestions like the following:
--I want to make sure that you guys are asking the right questions.You can't ever forget that the No. 1 question we're trying to solve with Longhorn is "Where's my stuff?" Right now, file space on any PC is a cesspool. The file system should be more like e-mail archives, where you can search and sort by any of a number of criteria. And it's got to be snappy as heck.
--I'll give you the philosophy: Everything is just a document, whether it be music or video or e-mail or whatever. Each will have a name and a history, and every user will have his or her favorites.
--If we can get this nailed so that I can find my stuff no matter what device I'm using, I think Longhorn will become a real breakthrough. Everything beyond that is extra credit.
What was Gates' take on the meeting? "There's no grade given. But I just happened to see [Windows group vice president] Jim Allchin later that day and said, 'Hey, this was a great session. Good energy, good thinking,' " he says. "Also, I did clue him in that I didn't need to inject any new ambition into this group."
Mundie has watched Bill in scores of review sessions like this one. Says he: "Bill has three modes in meetings, which you might describe as listening, challenging, and coaching. He's gotten better at coaching in the past couple of years."
Gates spends the rest of his Chief Software Architect time keeping an eye on other products and on special curiosities dear to his heart. This part of his job is more informal, because many projects are well past the brainstorming phase. His favorite by far is the Tablet PC, a cross between a conventional laptop and a pen-enabled computer, which is due to hit the stores this fall. (Microsoft came up with the design specification, but the devices will be made and sold by PC makers.) He's convinced that "digital ink"--basically, your handwriting superimposed on a document onscreen--will become an extremely versatile and popular way to record data. He is especially hopeful about integrating digital ink into instant-messaging programs so you can exchange drawings or handwritten notes electronically.
Gates also takes an intense interest in Microsoft Research, the 600-person think tank he set up a decade ago to push the envelope of software technology, user-interface design, speech recognition, and computer graphics. Among his favorite projects is BestCom, an experimental program that turns a PC into an administrative assistant. It will screen calls and e-mails, set up and confirm meetings and telephone conferences just by entering them in the calendar, and prioritize and forward messages to the user's cellphone, PDA, or pager when he's out of the office. Bill calls it Outlook Plus and hopes it can be turned into a product for Longhorn.
He's keen on another project called Broadbench, the brainchild of Gary Starkweather, best known for inventing the laser printer back in the 1960s at Xerox's legendary Palo Alto Research Center. Broadbench is a parabolic screen for your computer as big as your desk. Indeed, Gates foresees a time when Broadbench will evolve into your desk itself. Talk about a paperless office. Says Starkweather: "Bill isn't afraid of taking long-term chances. He also understands that you have to try everything, because the real secret to innovation is failing fast."
Gates finds that hanging around the researchers boosts his morale. Says Rick Rashid, the senior vice president who runs the labs: "I got a nice piece of mail from Bill out of the blue about a year and a half ago in which he said our work at Microsoft Research kept him going during the darker times and inspired him with hope for the future."
The rest of Bill's life is in many ways a quest to "leverage" his scarce free time and his $50 billion fortune. This creates interesting paradoxes. While he's one of the world's most public figures, he is also intensely private and family-oriented, spending most of his spare time with Melinda and the kids. He and Melinda aren't jet setters in the conventional sense--but they'll fly off in a time-share private plane to Omaha for a Saturday night game of bridge with Warren Buffett, or they'll pack up the kids for a day trip to Palm Springs, Calif., to spend time with Bill's father, who also helps oversee the foundation. Bill usually earmarks hours spent in transit for reading up on health issues.
Melinda, who declines to be interviewed about Bill, is a multitasker too. Beyond being a full-time mom, she's deeply involved in the foundation. She is an important sounding board when Bill has work issues on his mind. Says Bill: "I talk to Melinda every night about how I'm feeling about work-related things. We talked a lot about how the whole value system got distorted during the dot-com era and how much that bothered us, and she was a big help as Steve and I were going through the transition and finding our new roles."
The man who's known Bill the longest--his father, William H. Gates II--likes what he sees in his son these days: "He has kind of a new state of mind about what he needs to do with his days and weeks. As the business has matured, and with Steve Ballmer having taken the pilot's role, Bill has been able to come at things in a bit more relaxed, less overburdened way. It shows in the additional attention he has given the foundation and also in his personality. There is a softening and a sort of relaxation."
Friends and relatives say it's the experience of having kids that has most profoundly influenced how Bill is living his life and spending his vast fortune. Only after he had his own toddlers did it sink in how tragic and dicey life is in the developing world, where millions of small children die each year from AIDS or tuberculosis or malaria. "When I looked into it, it surprised me to see such a systematic failure in world health programs.... Those lives were being treated as if they weren't valuable," he says. "Well, when you have the resources that could make a very big impact, you can't just say to yourself, 'Okay, when I'm 60, I'll get around to that. Stand by.'" So now when Bill talks about changing the world, he's talking about doing it not only with software but also with vaccines and food supplements and scholarships. Yes, the new Bill is still multitasking. Some things never change.
But here's the thing: Not being CEO has made him more focused, not less, and if he pulls off Longhorn, lots of things will change. Competitors will have to live in a world even more dominated by Microsoft--and the new Bill will be even richer and more powerful than the old one.