Analysis: Microsoft's New Gatekeeper

You may have seen this Microsoft joke bouncing around e-mail lately. It goes something like this: "Now that Bill Gates has publicly announced his plans to resign in July 2008, should we just go ahead and mark our calendars for July 2009 instead?"

Ouch. Guess that's what happens when you miss product shipping dates with the tide-like regularity of Microsoft.

Sarcasm aside, Gates' departure is big news in the IT industry, if for no other reason than the symbolism. He's the face of Microsoft, a little company he built and grew with sometimes-Machiavellian precision into a $40 billion giant. In the process, this visionary drafted the blueprint for how software is developed, marketed and sold worldwide, while introducing technology to the mainstream masses.

So why, then, did news that Gates would hand the chief software architect reins to Microsoft CTO and Lotus Notes creator Ray Ozzie meet with such a seemingly blase reaction among partners? And that's not to mention the reaction on Wall Street, where Microsoft's stock price barely moved after the announcement.

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First, it's worth noting that as Microsoft kicks off its annual partner confab next week (July 11) in Boston, Gates has not been a prominent fixture at the event since the last time he shifted gears at Microsoft--in 2001, when Steve Ballmer succeeded him as president and CEO. That's not to say Gates isn't partner-friendly--he is, very much so--but since 2001, partners have grown accustomed to seeing Ballmer and his team play the role of channel advocates.

"For the last five years, it seems to me that Gates has spent most of his time traveling the world, shaking hands and doing keynotes," says Tim Huckaby, CEO of Interknowlogy, a .Net development specialist and Microsoft partner based in San Diego. "My speculation is that he has been trying to retire for a long time."

Huckaby's theory is that Microsoft has created such a strong organization, from the field to the corner office, that even Gates' departure will be taken in stride. The "ship," as he puts it, is more than one man, even when that one man is the richest in the world.

More practically, most partners currently are in the trenches trying to prepare themselves for an onslaught of new products and services that will roll out this year and next from Microsoft.

The number of new offerings is overwhelming, from the very tardy Vista operating system to new versions of Office, Sharepoint Server, Exchange Server, Live Communications Server and the Dynamics business applications. Solution providers have their own businesses to run, and what they want and need from Microsoft is often quite tactical.

Take Fred Johnson, owner of Ross-Tek/Affluent Technology in Cleveland. Johnson is a longtime Microsoft partner whose company specializes in selling into the SMB space, deploying Microsoft Small Business Server as the anchor platform. Asked about the Gates/Ozzie transition, his response is typically localized.

"I really don't see much changing at this point, but I guess it's too early to tell," Johnson says. "I'd like to see more focus on SMB vertical markets, but I know that takes time."

NEXT: Challenges ahead for Microsoft.

As Gates' exit looms, one of the biggest challenges facing Microsoft is the changing software landscape--namely, the shift away from traditional packaged software, the company's bread and butter, to the lightning-fast world of software as a service over the Internet or the network. Ozzie, it appears, will be tapped to lead that charge. Ozzie is well-known as a technology innovator, but it remains to be seen whether he can come close to possessing the business acumen of Gates, according to some observers.

"I don't think Ray Ozzie is going to be asked to fill all of Bill Gates' shoes," says Paul DeGroot, analyst at Directions on Microsoft in Kirkland, Wash. "He's a good choice for chief software architect and has shown a lot of originality with Notes and Groove, but the business savvy--I don't see Ozzie doing that."

DeGroot believes the shake-up in senior management at Microsoft is likely to continue. The company last year consolidated its flat structure of seven different business units into three, cutting down on the number of direct reports to Ballmer. As the company continues over the next two years to settle on a services-based strategy around its Live offerings, "we could see many changes as they bring in new lieutenants," he explained.

The result, DeGroot says, is that partners may find more Microsoft folks that are directly focused on their particular area of interest, be it product-, vertical- or customer-segment based.

Andy Vabulas, president of I.B.I.S. in Norcross, Ga., says that change is inevitable at Microsoft, as it is in the IT industry at large. I.B.I.S. is a Microsoft Gold partner that delivers solutions across the Microsoft stack. Vabulas says solution providers will need to evolve and become less reliant on software sales, per se, and to deliver more services and self-produced intellectual property. It's a journey both Microsoft and its partners will have to take together.

"I think Microsoft will change day to day, and it has to," Vabulas says. "And I'm glad that they chose Ray [Ozzie] versus someone who has grown up in the Microsoft world. I think it will be a breath of fresh air."