Suit Played No Role in Ballmer Move, Gates Says

Microsoft Chairman Bill Gates says the historic antitrust lawsuit played no role in his decision to promote Steve Ballmer as the company’s chief executive. But other observers suggest the move is a hedge against any effort to break up the company in an antitrust action.

Gates remains Microsoft’s chairman but gave himself the title of “chief software architect” and will work full time to lead the company’s effort to develop new software for the Internet, wireless phones and other devices where it lags behind.

Gates’ new post will also help stem the technology brain drain that has siphoned some of Microsoft’s top talent in the past year.

“Microsoft is bleeding development talent,” said Charles Rutstein, a senior analyst for Forrester Research. “This exchange puts Gates’ unrivaled talent for marshaling software developers where it’s needed most--and his star power alone will rally the downtrodden development troops.”

The second reason behind these changes, some analysts say, is to put Microsoft’s two most highly visible leaders--Gates and Ballmer--at the helm of two diverging organizations in case the company is ultimately broken up.

“I think they are putting their affairs in order,” said Jeffrey Eisenach, president of Progress and Freedom, a Washington D.C.-based think tank, which supports the antitrust case brought by the U.S. Department of Justice and 19 states. “If we are going to see the death of Microsoft as we know it and the creation of something new, then they would want to prepare their most capable people for CEO types of positions.”

Under this scenario, Gates would run the Windows operating system--which is the heart of Microsoft--and a new Internet operating system. Ballmer would take control of the applications division, which is responsible for spreadsheets and word-processing software, among other consumer products.

In the meantime, Microsoft executives will continue to publicly fight talk of a breakup, observers say. “You never concede anything until you have to,” Eisenach said. “I think they are rhetorically trying to put themselves in the strongest possible position.”

Others, including Gates and Ballmer, countered that Microsoft had been planning to announce these management changes for some time. Ballmer, who was appointed Microsoft president in July 1998, has essentially been running the world’s largest software company’s day-to-day operations for months and is credited with reorganizing its management structure.

And the recent reports that the Dept. of Justice is planning to push for Microsoft to be broken into separate companies had no influence on their management changes, they said. In fact, Ballmer called the DOJ’s remedy “reckless and irresponsible.”

Gates is expected to refocus his software developers as they try to come up with software that helps Microsoft compete as the Internet puts desktop software into a less important role in the industry, now that more software is being delivered online, either as a service or through a subscription.

Gates may also rejuvenate his software team. Over the past year, some of Microsoft’s key technical leaders have departed for reasons ranging from burnout to forming their own start-up companies or escaping the company’s troubles.

The Microsoft exodus includes Nathan Mhyrvold, former chief of technology; Brad Silverberg, a key Windows strategist; John Ludwig, a behind-the-scenes player who brought networking and Internet savvy to Windows; and Pete Higgins, a member of Gates’ inner management circle.

The threat of living under constant subpoena from the antitrust case creates a level of stress that could prompt some executives to leave the company, observers say.

“Anybody who has been through the litigation that Microsoft has over the past two years knows that it is no fun,” Eisenach said. “It would be surprising if it were not taking a toll on Microsoft . . . and in terms of the morale and focus of the people left behind.”

But Microsoft executives cite the company’s 7% attrition rate, which is less than half the industry average, as proof that it still retains and attracts top technical talent.

“We don’t see a significant brain drain,” said Chris Williams, Microsoft’s vice president for human resources. “For people who do leave, we have a strong bench for people to step up and fill those roles.”