Microsoft after Gates

Software giant turns to new leaders in its effort to become major player in online services space.

After 33 years spent building Microsoft (NASDAQ: MSFT) into the most recognizable name in computing — and his own personal fortune into the world’s biggest — Bill Gates relinquished the company’s helm last week.

With a reputation for technical foresight and business acumen as solid as the Coke-bottle lenses he used to sport, it’s not surprising that Microsoft will need two executives to replace him.

The Redmond, Wash. software giant announced June 15 that Gates will be moving away from his day-to-day involvement to concentrate on a health- and education-related charity he established in 2000 with his wife, Melinda.

The announcement comes at a time when Microsoft is trying to find a greater share of the online search and advertising markets. That terrain is currently dominated by Google (NASDAQ: GOOG) and other savvy Internet-based firms that have done a better job of anticipating society’s and business’ shift toward the use of online services. Recent Microsoft attempts to purchase Yahoo and gain a chunk of the market have failed.

Stepping into the chief software architect’s role is Ray Ozzie, who will oversee Microsoft’s technical architecture and various product lines. Current chief technical officer Craig Mundie will take the title of chief research and strategy officer, responsible for overall development of future products. Both will report to CEO Steve Ballmer.

Mundie and Ozzie are current Microsoft employees but the latter’s name is perhaps more familiar, given his role in creating the popular Lotus Notes groupware platform and his deification within software programming circles.

His new role will see him attempting to adapt Microsoft to the online world, and specifically the corner of that world peopled by developers of online service applications. That’s according to Rob Helm, an analyst with Directions on Microsoft, an independent research outfit focused solely on Microsoft.

“When you think of Bill Gates’ greatest achievement, it was coming up with software that supported application developers for the PC. What Ozzie is trying to do is develop the same thing for developers working on the Web,” Helm said.

Unlike Gates, however, Ozzie is getting in at a time when entrenched competitors like Google, Amazon and Facebook rule the roost. “So he’s probably got a tougher job that Bill did starting the company.”

Rob Enderle, principal analyst at Enderle Group in San Jose, says Ozzie’s biggest challenge will be the size of Microsoft itself. Even toting a reputation as a master collaborator (he built Notes, after all) might not be enough to corral the Redmond octopus.

“His weakness is that he doesn’t have Gates’ authority to drive completely separate units together,” Enderle said. “Microsoft has grown very complex and it’s hard for someone to reach across the company and create a common theme.”

As for Mundie, the veteran Microsoft exec can be expected to lead an aggressive search for firms possessing technology the company needs, and to snap them up, said Enderle. The focus in this area will primarily centre on the online space.

“But I would expect them to look at things that fix some other problems they have right now, such as advancements in the core operating system, and in making applications more intelligent,” Enderle added.

The announcement last week pointed out that Gates would continue to work “side by side” with Ozzie and “closely” with Mundie for two years as the transition is played out. So just how much influence will the face of Microsoft retain?

Not much, according to Enderle.

“[Gates’] mind has been off the company for…the last five years,” the analyst said, pointing to the development process of the Vista operating system as evidence. Leaked internal memos about its progress showed few comments from Gates. “(That’s) typically not what happens if you’re a core player in a product’s design.”

The company’s key online battle will be led by the new guard, Helm said, not Gates. And it is not shaping up to be an easy process for either them or investors, he added.

“[Microsoft has] yet to articulate fully, without Yahoo, how they are going to execute against Google,” Helm said. “It will be a difficult case to make to investors. I think they have a plan but it’s going to be a long road and not necessarily one that impatient investors are going to appreciate.”