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Sunday, February 23, 2003 - Page updated at 12:00 AM

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Microsoft at midlife: Bill Gates' view of the future

Seattle Times technology reporter

Bill Gates at a glance


Title: Chairman and chief software architect
Age: 47 • Hometown: Seattle • Residence: Medina
Family: Married, three children • Education: Dropped out of Harvard
Ownership stake in Microsoft: 11.6 percent
2002 salary and bonus: $753,310 • Net worth: $52.8 billion
Rank in Forbes 400 richest: 1

Sources: Microsoft Annual Report, Forbes, Seattle Times

When his conversation occasionally strays from technology these days, Bill Gates sounds like any middle-age working dad.

The 47-year-old Microsoft chairman has a good idea about when he'll be retiring, he enjoys driving his daughter to school, and he has a home-improvement project he wants to get to one of these days.

But first he has a few things to get done at the office, such as build Microsoft's software platform for the next era of computing and reinvigorate the sluggish computer industry along the way.

With the enthusiasm of a science student working on a killer project, Gates talks excitedly about putting together software he thinks may change the world.

"Every year, we're just getting the computer to be a better and better tool," he said, "and that's why we pick a time frame like the end of the decade where we say, 'Yes, it will be common sense that your music is digital and you don't use CDs. It will be common sense that you can correspond with your doctor and ask him questions electronically. It will be common sense that if you go to a meeting that's recorded digitally ... you can go back and get that information."

Intense and focused since his childhood in Seattle, the boy-wonder techie who burst onto the world stage a quarter-century ago has been tempered by his experience in building the world's largest software company, being vilified by antitrust lawsuits and guiding Microsoft through the technology downturn.

"I think that the changes that he's gone through are pretty amazing," said Linda Stone, a former Microsoft executive. "He's this very wise, deeply committed grown-up and everything he's doing is pretty extraordinary, whether it's with his foundation or the level of engagement he has with the technology."

He's also happier, now that his Harvard pal Steve Ballmer handles most of the business details as the company's president and chief executive. They made the change two years ago so Gates could become the company's chief software architect. He now spends two-thirds of his time working on products, such as the portable Tablet PC introduced last year, a line of futuristic watches unveiled last month and a new version of Windows for personal computers due in late 2004.

"For me, it's been great," he said. "I think we're already seeing some of the benefits of that."

Company changing, too

Just as the world's richest man is growing into his new responsibilities as a corporate leader, father and philanthropist, Microsoft is undergoing a midlife transition of its own. The 28-year-old company is transforming from a fast-growing, young organization into a big, mature enterprise more aware of its responsibilities and the effects of its legendary aggressive — even illegal — behavior. The company is trying to adopt a more paternal role. It's using its vast resources to help the ailing PC industry in new ways. In addition to creating new software to entice people to buy more powerful computers, Microsoft is designing new types of computers, encouraging PC makers to build them and paying for a large share of their marketing costs.

Some say Microsoft's future depends on whether Gates and Ballmer can pull off the change. In recent interviews with The Seattle Times, the two described a mission and vision that clearly suggest they think they can.

Gates is confident the software his company is developing today will put Microsoft further ahead and perhaps pull the entire economy out of its slump. He thinks a dramatic evolution in technology is under way, one that will make computing an even bigger part of everyone's lives.

He also talks about how, beyond developing the products, Microsoft needs to make sure to instill values such as trust, security and leadership in what it does, overcoming the reputation for bullying behavior that still weighs heavily.

Chris Jones, a 33-year-old vice president leading the development of the next version of Windows for PCs, put it this way: "Bill, I think, (has) touched on it eloquently and well, which is the responsibility we have to be excellent in our products, to be excellent with our customers, to be a leader in how we think about these hard problems like security, like privacy, like reliability or like delivering innovation into the industry and being a responsible partner."

Still aggressive

It's a mistake, though, to say a kinder, gentler Microsoft is emerging. It may be more sensitive, but it's as aggressive and confident as ever.

"In a sense, despite the market climate, everything, we need to be even more committed to charging in and helping out and building products in areas where we don't compete today ... because that's what's really in the best interest of the customers," Ballmer said.

For investors, Microsoft's sharpened focus will provide more clarity, even if the stock never again soars the way it did in the 1990s.

Profit grew last year, but much of the growth came from a new pricing plan for its software that took effect in July and outraged many customers.

And despite a strong performance in last year's economy, the stock price fell 21 percent, or $14 a share, as investors fretted about the company's slower growth, its prospects and the health of the technology sector.

Meanwhile, the company's move into numerous products beyond Windows and Office has had mixed results.

"The real question for Microsoft is really just where's the growth going to come from," said Don Luskin, chief investment officer at Trend Macrolytics, an investment consulting company in Menlo Park, Calif. "All this other stuff they do outside their monopoly is brutally competitive, not as rapidly growing as the monopoly area once was. There are only so many tricks you can get to squeeze money out of a really quite mature monopoly market share."

Then there's the widely held notion among critics that Microsoft is essentially unchanged after its antitrust settlement with the federal government. Earlier this month, competitors alleged in a complaint to the European Union that the company is still using its monopoly on PC operating systems to shoulder into new markets.

Gates and his fabulously successful business were a media darling in the 1990s, inspiring a generation of technology entrepreneurs. But the court findings that Microsoft violated antitrust law revealed the company's harsh side, and today it's distrusted by rivals and even partners.

Customers are less likely to praise the company's software than to gripe about its prices, aggressive sales tactics and stranglehold on their machines — even as it changes its practices as a result of the antitrust case.

Such frustration has contributed to the growing acceptance of freely shared software, increasingly a major competitor to the company. The free Linux operating system in particular has emerged as one of Microsoft's biggest rivals, taking market share in corporate computing centers that Microsoft hoped to win away from IBM and Sun Microsystems.

"Much like they were the company of the '90s, they want to be the company of the current decade — and they're not," said Rob Enderle, a technology analyst with the Giga Information Group in Santa Clara, Calif. "Right now you can point to Linux being one of the major drivers for this decade, and IBM is trying to position itself as the company for this decade."

Still taking risks

Gates insists the company has maintained an entrepreneurial culture that encourages creativity and innovation, while fighting the weight of business processes and red tape that are signs of its advancing age.

"We're always trying to preserve the willingness to try new things, the willingness to take risks, the ability to move fast that characterized us as a much smaller company," Gates said.

Two products the company introduced last year illustrate the new, more supportive role Microsoft is trying to adopt within the industry.

The Media Center PC can be controlled with a TV-like remote control and is designed to manage entertainment units — TV, stereo, recorders — found in households. The other product, the book-size Tablet PC, enables users to input handwritten data into the laptop-like unit, as well as use a keyboard and mouse.

In both instances, the company is helping PC manufacturers develop and sell new products, rather than simply supplying software on strict terms. Gates said Microsoft is putting more effort into developing hardware that takes advantage of Microsoft software, but he said PC companies are doing creative work as well.

"We've always had a very close partnership with the hardware companies," he said. "I would say we've got more resources involved in building prototype now than ever before because some of the new frontiers — whether it's how the PC exists in the living room or in the office — the hardware and software advances go kind of hand in hand."

An eye ahead

New ways of doing business are a sign of maturity. And Microsoft, like many baby boomers, is doing estate planning to ensure its legacy is left in the right hands.

Gates and Ballmer are watching for young executives with the potential to take their jobs someday. Some have been recruited for a special training program in which candidates rotate through different areas of the company.

Gates may be synonymous with the company, but he doesn't think it will be too hard to find a replacement when he retires in about 10 years. He said his role has been overstated by the media, which focus on a few people to explain the nature of the company.

"I'd fully acknowledge that there is a very important job of picking technical direction — seeing is it time to do the Tablet, is it time to do voice," he said. "Steve and I talk about how we're developing people to step into his role and my role because Steve and I are about the same age (Ballmer is 46) and we're very deliberate about developing people to be able to do what we do.

"But you know my role is not as central as you might think in the articles," he said, breaking into a laugh. "I mean, I haven't written a line of code in a shipping product since — what was it? — 1983."

Gates said he plans to retire "somewhere in my late 50s" but will probably remain associated with the company, perhaps in an advisory capacity, a role he described as "ongoing support."

"You know, it's one of those complicated things where you want the new person to have all the authority and autonomy and yet you want to help them out," he said.

The qualifications to become the next Bill Gates at Microsoft? "It's possible they're just joining the company right now, but it's got to be somebody who has at least seven, eight years of experience with the company," he said.

Changes in the making

Currently, Gates is devoting much of his time to a new version of Windows code-named Longhorn. One key feature is expected to be a new file-storage system for better organizing things stored on a Windows-based PC. It could finally make it easy for people to search and find all sorts of files — contacts, printers, documents, programs, photos — with a single search tool.

Simultaneously, the company is pushing into the market for software that runs big corporate computing centers, with a new version of its network computing software debuting in April and a new version of its database aimed at this lucrative market coming later.

Tying it all together is a new software platform called .NET. It is designed to make it easier for users to synchronize and share data among devices connected via the Internet.

If it works as planned, an airline would be able to update a passenger's online calendar if a flight were delayed, while notifying the passenger of the change with an e-mail and a phone message. One goal is to create a standard format so that data could be read by whatever device the passenger uses.

Gates acknowledged the past few years have been a challenging time to sell new technologies to corporate customers, but he said Microsoft's new software should contribute to the economy's turnaround.

He said that could take up to five years and will be driven in part by increased worker productivity resulting from Microsoft's new software applications and from the smaller, easier-to-use computers in new shapes and forms — such as phones — the company is developing.

"I'm not an economist, but I think sometime in the next five years you'll see that turn around," he said. "And I think the advances we're making this year and next year will be part of the reason that will turn around ... the extra productivity and efficiency that Web services and the new form factors, simpler forms of communication will bring will help drive that productivity."

Gates also wants to find new ways for Microsoft software to take advantage of hardware advances, including improved microphones and big, flat-display screens that he expects will be common soon.

"I mean, you're going to have a screen area bigger than the front page of the newspaper, which is quite a step up," he said.

PC foundation

But is all of this enough? Critics say Microsoft is too focused on the PC and desktop computing, both of which have hit a wall in growth. Because of that focus, critics say, the company was slow to realize the potential of the Internet and is being hampered in moving into new markets.

Gates scoffed at the notion; yet, he acknowledged his vision of the future prominently includes PCs.

One source of the criticism may be the way Microsoft approaches markets for other computerlike devices, such as phones and television set-top boxes. Rather than start from scratch, it builds upon the software platform it developed for PCs and extends that platform to other devices.

Gates said this approach helps software developers: If they know how to write PC software on Microsoft's platform, it's easier for them to write programs for other devices based on that platform.

Microsoft also wants to provide a consistent, predictable experience for people who use its software on various devices.

"That criticism is always a strange one because we were into interactive TV super, super early — not that it's paid off for anyone yet," he said. "We were into small devices way before they really became mainstream. And it's important for us to get in and be a pioneer in those fields, even if it means coming in when the market's still not there."

An eye on trends

Meanwhile, Gates expects computer use will increase dramatically in the coming decade because of three emerging trends: PCs becoming smaller, more portable and more natural to use; broad use of high-speed Internet service; and the ability of users to roam about while staying connected wirelessly through fast-growing wireless radio links.

That future is already being tested in what may be for Microsoft the most important focus group of all: the Gates household, in the family's waterfront mansion in Medina.

"You know, at my house because I've got broadband and Wi-Fi and Tablets I can just pick up a Tablet and Melinda and I can sit there and go look at the movies," Gates said. "We don't have to go into the den where there's just one chair and you know it's set up for one person creating the document."

Gates installed an array of exotic technology when his house was built in the 1990s. Now many of its capabilities are available to consumers in machines such as the Media Center PC. Microsoft released software for the Media Center last fall, based on work by the same engineers who installed the systems at Gates' house.

In another preview of what average consumers may have at home in the future, he's planning to install a system built on top of the next edition of the Media Center software.

And he should have more time to enjoy the new system after he has finished overseeing Microsoft's contributions to the digital decade.

Although Gates was candid about plans to replace him at Microsoft, he was reluctant to discuss who may replace the Bill Gates who has had such a big influence on the technology industry and the world.

"I won't answer that," he said. "I mean, it just has too many assumptions about that I was so essential to various things."

He also said there's no other company that's building the kind of dominant platform Microsoft did.

"Maybe that means that I'm missing something that somebody else is seeing there," he said, "but we've got our ears to the ground pretty carefully about all the new things and investing in new things."

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

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