Bill Gates: A New Era of Technical Leadership at Microsoft

LARRY COHEN: My name is Larry Cohen. I’m the general manager of Corporate Communications for Microsoft. I would like to welcome everyone to Redmond, and also welcome everyone who is joining us on our audio bridge, and on our webcast. We have some news to share with you today. First, Bill Gates will come up and make some remarks, then Bill will be followed by our CEO Steve Ballmer. Afterwards, we will open up for questions for those of you who are here in the room. We will also offer the opportunity for those on the phone to ask questions as well. We will also be offering a replay of the Web cast, as well as the audio call, on our press Web site, microsoft.com/presspass. We’ll offer a replay of that as well as a podcast.

Now, I would like to introduce Bill Gates.

BILL GATES: Thank you all for coming.

I’d like to share with you today some significant news concerning my personal plans and the plans of the company.

I have decided that two years from today, starting July 2008, I will reorder my personal priorities. Today I am working full-time for Microsoft and part-time for the Gates Foundation. Starting two years from now, I will shift, work full-time at the Foundation, part-time at Microsoft as Chairman and as a senior technical adviser.

Given that I’m going to be working full-time for Microsoft for another two years, some people might ask “Why even talk about this today?” We’ve decided it’s the right to thing to announce this publicly two years in advance, because it allows us the time to make a strong transition, and provides the full transparency we think is best.

When Paul Allen and I started Microsoft over 30 years ago, we had big dreams about software. We had dreams about the impact it could have. We talked about a computer on every desk and in every home. It’s been amazing to see so much of that dream become a reality and touch so many lives. I never imagined what an incredible and important company would spring from those original ideas.

I have one of the best jobs in the world. I love software, and I love working with the smart, creative, passionate people at Microsoft. Together, we’ve built a great company whose products have empowered people around the world. We’ve certainly gone through a lot of changes over the years. In the early days, I liked to review every line of code, to interview every job applicant. Today, our products include millions of lines of code, we hire thousands of people a year, I’ve had to lighten up in both of those areas.

As Microsoft has grown, our impact has grown. So has the depth of the business management and the technical leadership. The company is as strong as it’s ever been. I have no doubt that over the next 30 years, Microsoft will play just as important a role in people’s lives as we have in the last 30 years.

Of course, with the success of Microsoft, I’ve also been given the gift of great wealth. I believe that with great wealth comes great responsibility, a responsibility to give back to society, a responsibility to see that those resources are put to work in the best possible way to help those most in need.

Many years ago, I made it clear that almost all of my wealth would be returned to society through a Foundation. Over the last 10 years, the Bill & Melinda Gates Foundation has focused on global health and education, two issues I believe are at the crux of global needs. When Melinda and I set up the Foundation, we didn’t realize all of the advances using some of the same approaches we use at Microsoft, assembling a team of very bright people, optimistic people, providing them the resources they need, encouraging them to think big and come up with long-term solutions.

Already, we are seeing great results in new medicines, new ways of delivering healthcare, and new approaches to school design. Just as Microsoft took off in ways I never expected, so has the work of the Foundation, and it’s growing rapidly. With the early successes comes the challenge of scaling up and delivering these new approaches to everyone who can benefit. As a result, I want to spend more time on Foundation efforts in the future.

For the last couple years, I started a discussion with Steve about how to shift my priorities and yet maintain strong ties to Microsoft. After careful consideration, Steve and I decided to announce a two-year transition plan that will shift my day-to-day responsibilities to a group of incredible technical leaders who are already doing amazing things at the company. We have a great team of people. I believe we can make this transition without the company missing a beat.

Ray Ozzie will take on the role of Chief Software Architect starting immediately. I was thrilled a year ago when Ray joined the company. You’ve all seen him step up to help drive our Live Services strategy. For the next two years, Ray and I will work side-by-side to ensure a smooth transition. I’ve worked with Ray for over 20 years, and his vision has led to some of the most important developments in our industry. Over time, he’ll take on the central role for architectural leadership at Microsoft. David Vaskevitch, who has done key work in many areas including our enterprise platform, will move to work for Ray, with the same responsibilities he has today.

Another key leader who will step up to additional responsibilities is Craig Mundie, whose title will become Chief Research and Strategy Officer. Over time, Craig will assume my responsibility for our research and incubation efforts. Rick Rashid will report to Craig, and Rick and his team will continue to run Microsoft Research, which is one of the most valuable assets the company has, a source of tremendous long-term innovation. Craig, in partnership with Brad Smith, will also step up to manage our intellectual property and technology policy work. Craig has been a leader in early product innovation and policy issues throughout his career. This is a natural expansion of his role at Microsoft.

In addition, Steve has identified several key product leaders from across the divisions – Bob Muglia, J Allard, and Steven Sinofsky – who will step up with my current staff to play an expanded role in shaping the company’s business and technology strategy. The world has had a tendency to focus a disproportionate amount of attention on me. In reality, Microsoft has always had an unbelievable strong depth and breadth of technical talent. It starts with the senior executives, but it extends to our Technical Fellows, our Distinguished Engineers, our researchers around the world, and the thousands of awesome technical people throughout our product groups. Our technical talent is the best in the world.

The same is true of our business leadership, as well. Steve’s organization of the company into three divisions under Jeff Raikes, Robbie Bach, and Kevin Johnson, we’ve laid the foundation for greater focus and agility. With the great addition of Kevin Turner as COO, our leadership team has never been stronger.

Obviously, this decision was a hard one for me to make. I’m very lucky to have two passions that I feel are so important and so challenging.

Even as I prepare to shift my focus in July 2008, I know Microsoft is well-positioned for success in the years ahead. Our core businesses are strong. We have a clear vision for how we will meet new challenges and opportunities. We just had our first US$12 billion quarter. We continue to generate almost a billion dollars in profit every month. We are about to launch breakthrough versions of Windows, Office and Exchange, which are already generating a lot of excitement.

Six years ago, Steve and I made a major transition when he stepped up to be CEO. He’s done a fantastic job by every measure, whether it’s the people he’s brought in, the new ways he’s running the company, or just the objective results, like doubling our sales and profits during that time. Steve has driven us to make bold bets on things like Xbox, Real Time Communications, business applications, IPTV, and many others including the Live platform. Steve is the best CEO for Microsoft I could imagine. He is changing the company in ways it needs to be changed. He is bringing in new leadership at all levels. And he is focused on the long term, how to make Microsoft a great company not just for today but for decades to come.

The change we’re announcing today is not a retirement. It’s a reordering of my priorities. There’s a common thread through my different work, at Microsoft and at the Foundation. It’s a sense of optimism that smart, committed people with the right support and vision can have a huge impact. It’s about using technology, not just for the privileged few but for everyone.

The road ahead will let me take on new challenges while keeping my connection to this great company. The road ahead for Microsoft is as bright as ever.

The dream of what software can do is just beginning. We see it day by day as we’re revolutionizing business and entertainment. So many of the seeds we’ve planted, whether it’s gaming or TV or development or communications, have just started to grow. The biggest impact is yet to come.

And as Steve Ballmer comes up to share his thoughts, I want to say that one of the hardest things about my decision is that a couple years from now I’ll miss working with Steve every day as I have for the past 26 years. I couldn’t ask for a better business partner, or a better friend.

STEVE BALLMER: Thanks, Bill. Thank you for those very, very kind words.

Every day for the last 26 years, it has been my privilege to work shoulder-to-shoulder with a true visionary, Bill Gates, my friend, more than anyone else, unleashed the technology revolution, and who is now headed, in my opinion, to become the greatest philanthropist of all time.

I know the contribution you will make to the world of health and education will be as great as the contribution you’ve made, and continue to make, to the world of software.

I feel a lot of emotion today, given the incredibly close working relationship Bill and I have. But I also feel a lot of confidence that this company is ready and capable of making a smooth and orderly two-year transition to a new set of technical leaders without missing a single beat.

Over the years, Bill and I have talked about how to build the company’s leadership as the company has grown, and as he expressed an interest in spending more time at the foundation. We knew that we would have to be transparent with the public on any changes and that as the scope of our work has expanded we had to build stronger core leadership and delegate more authority down the line. We have been preparing the company for many years to meet the demands of growth, and few realize that we’ve nearly doubled in size in the last six years to over 70,000 employees and nearly $50 billion in revenue.

Bill and I are confident that we can complete this transition of the technical leadership in the next two years in a smooth and orderly way. This is really a natural step in a process of leadership growth that has already been underway for a number of years.

We already started to give our teams greater responsibility and agility last year by organizing our operations into three major divisions and an operating group, headed by presidents Jeff Raikes, Kevin Johnson, and Robbie Bach and our COO Kevin Turner. This change was designed to push decision-making and accountability out to the individual businesses.

So we are ready for members of our current team to step up to expanded roles, for Ray Ozzie to take on the role of Chief Software Architect and Craig Mundie to become Chief Research and Strategy officer and for all of the other changes Bill discussed, and I am outlining today in a detailed email to all Microsoft employees.

And as our teams reach major milestones at the end of this year, our leaders will have the chance to take bold steps to further improve agility, focus on Live and other new priorities, and give expanded opportunities to our people.

As we move forward, there are some basic principles that will continue to be the key to our success. First, nurturing innovation in all its forms will remain our highest priority. We will continue to take a broad view of innovation and how we deliver it. We invest in basic research and we invest in product features, ready to come to market right away. We nurture small teams, and we do large scale projects. We innovate in development teams and incubation groups, as well as through external acquisitions.

Second, we are a software company. To accomplish this, we hire the most brilliant and passionate technical people, and give them the tools and environment so they can really do their very best work.

Third, we are patient and relentless. We keep working and investing and listening to our customers and improving our products. We never give up on good ideas. Windows, Office, our server software, all took a number of years to get to critical mass. We are applying that same tenacity and long-term commitment to break through in all areas, from Windows, Office, Business Applications and servers, to advertising, search, TV, gaming, and mobility.

Perhaps most importantly, we will be tenacious and persistent in driving our Live initiative with all the technology and business model implications it has.

At the same time, we need to be relentless in improving our agility as a company, while maintaining our high quality and impact. That means ensuring our products come to market on a timely basis, decisions we make are clear, and our time and energy are focused on customers and creating new software.

Today, we face a world of change. We may well add another billion customers in the next decade, customers who will be connected by the Internet and using ever-faster and more powerful hardware. This means that the opportunity we have to serve the world and have an impact with great software has never been greater.

I believe we have an amazing opportunity before us. I think we have the team, the strategy, the pipeline and the will to keep on winning over new customers in a changing world. And it will remain my mission as CEO to drive that process.

Today we announce Bill’s transition in two years. But we’re really also announcing the transition we are making as a company to get to the next level of success and meet the new and expanding set of needs of a world hungry for technology.

Bill may reduce his time here but his imprint on the company will never diminish. It will continue to be reflected in everything we do. We will continue his tradition of thinking big and executing even bigger. Of relentlessly facing challenges until we overcome them; of hiring the best and the brightest and letting them do their best work; and of setting the standard of great software that really does improve people’s lives. That has been his passion, and mine, the passion of our new technical leaders and of this whole company. It is really why I think we will keep on succeeding.

Thank you all for your time today. Bill and I will be happy to take your questions.

LARRY COHEN: We’re going to open up for questions. We’re going to start with some questions from those in the room here. For those of you on the call-in bridge, the operator will give you instructions for how to submit your smoking questions. We’ll take questions off the bridge.

With that, I’ll open for any questions.

QUESTION: Are you guys saying you would take (inaudible)

STEVE BALLMER: I certainly said I’d be around. I keep saying that, though, the clock restarts every time I say it. This is a good place for me to express my energy, my passion, my enthusiasm. Bill has to comment, my memory is not that good either, but Bill’s got a lot of that passion and energy.

BILL GATES: I don’t remember ever making a prediction about a particular timeframe. I will say that the Foundation, and the type of the opportunity there, and the neat things that have gone on, that was somewhat of a surprise to me, but I don’t think I ever made a statement that would particularly say what my career plan looked like.

QUESTION: (Inaudible) in the chairman role, and also whether when you brought Ray Ozzie on board whether this was something that you already were thinking about.

BILL GATES: In terms of my being chairman, obviously I serve at the pleasure of the board, in that they elect the shareholders elect directors, and then the directors decide who the chairman will be. We had the board call on Tuesday and were nice enough to say that, at least as far as the present directors are concerned, they’d like to see me do that indefinitely. And that’s my plan, I don’t see a time in the future when I won’t be the chairman of the company. I want to have that association my entire life, and so I’m committed to do that. Subject to those processes, I’ll stay in that role.

STEVE BALLMER: Certainly Bill and I had begun the discussion about his future and the future of the company by the time we acquired Groove. We acquired Groove two things, number one it was a great product, great technology, it enhanced the collaborative capability of our Office product suite. And number two, we’d wanted to work with Ray for about 20-plus years. So that was also a benefit, of course. It’s been great the way it has worked, having Ray here. We expected a lot, and things have worked out even better than we probably had any right to expect. When we talked to Ray about taking on this assignment, we were glad he was interested.

QUESTION: There’s been some concern among investors, and even some of your own employees about whether Microsoft can keep pace with the rapid pace of innovation. Some of your competitors in the software landscape really makes a big change in the next couple of years. Bill, the direction of innovation at this company has always been, for the entire history of the company, your area. Should people be concerned with your departure, what kind of signal does that send to them?

BILL GATES: I’d say that any view that the innovation comes primarily from me really reflects that notion that there’s been an over-focus on my individual contribution. I love what I do, I think I’ve had some real impact, but if you look at the innovations, and you name any products, form Office to Windows, SQL, Exchange, Xbox, I’m not the primary person in any sense on those things. There are amazing people that will get even increasingly visibility for the great work they do, including many of the people that were called out in my remarks.

So this company from all its different groups has plenty of brilliant IQ about innovative software. There are a few of the things that I do that are important, like the architectural alignment of the various activities, and that’s what over the next two years Ray and I will do together, and subsequent to that Ray will take that on as his sole responsibility. So we’ve really gone carefully through the things that I actually do, not what is written that I do, and said how to make sure that those get taken on. And I feel great about how Ray and Craig, but also the extra autonomy of the divisions are going to fill in for all the things that, in fact, I did as my full-time role. Then what I’m doing as chairman in my part-time role, just would come in and be available on top of that.

STEVE BALLMER: I would think about Office 2007 or Xbox as proxies. There were teams of people that created the vision for those products, engineered those products, made them happen, and sure, Bill gave him his suggestions, and insight, and advice, but Steven Sinofsky and his team, Jay Allard and his team, those are the folks who really create that work. And I think we can be proud of what they’ve accomplished, and confident in what they’ll accomplish in the future.

QUESTION: (inaudible) and what will your role be at the foundation?

BILL GATES: First, I’m not leaving Microsoft. I will be chairman, have a very strong connection, and spend meaningful time here helping out. So now it’s not what’s happening now is we’re starting this transition plan. To be clear, except for a little vacation this summer, longer than normal, I’m here working as hard as I ever have during these next two years. So it’s really July 2008 that’s kind of the date of change. At that time I expect the foundation will have grown in some pretty substantial ways, and that the value of my time there to help shape things will be really quite great. So I felt the need to put more time into that. That’s why Steve and I have had this dialogue and I reached the decision a couple of days ago.

Melinda, obviously I talked with her even before I talked with Steve about this possibility and got her advice. For a couple of weeks she said, have you mentioned it to Steve yet, and I said, no, it wasn’t easy to bring up today, maybe it will be easy to bring up tomorrow. Obviously she is also very involved with the Foundation, spending more of her time. The same way I love working with the people at Microsoft, working with her, and the team that’s been built there is going to be fantastic. So, she participated in the thinking, but the date really has to do with the strength of the team here at Microsoft, and how that’s grown, and the sense of need of what my time at the Foundation would be able to do.

QUESTION: I know that during the transition when Steve became CEO, you had some bumps, and made some adjustments there. Is there anything that you’re going to draw from that in order to make this transition, especially considering that announcements like this for the long term, or even a two-year horizon, in some other companies maybe hasn’t worked out so great. Do you have specific thoughts about how you’re going to make this work to have Microsoft get the most value of you, and then let the people under you use the approach?

BILL GATES: I feel fantastic about once Steve and I got into the roles where I was CSA and he was CEO, how we got our working to be, I think, one of the greatest business partnerships of all time. We had to change a little bit there, but once we got through that it’s been quite amazing. And I think we have that as we go through the next two years, and as I work a bit less time, the dynamic is exactly the same. Steve is in charge. He views me as a resource. He’s got because of the scale of the company and the incredible talent, and the change I’m making, he’s got to draw more on the rest of the people in the company. So, I don’t think it’s going to be that hard. Steve has been great about saying to us, hey, let’s not let this two years go by and just sort of say, oops, it went by. And that’s partly why putting research under Craig right away, and changing his title. Putting David Vaskevich under Ray, and giving him the Chief Software Architect title, it’s a very clear message to all the groups at Microsoft that this transition is a serious thing. It’s started now. Actually a year from now, we’re going to do something that will further reinforce that message, which is we’ll say that the two of them actually work directly for Steve at that point, and what Steve and I want to see at that point is that, by and large, they’re doing their new jobs. I’m in virtually all those meetings, but I’m not as necessary. Because even in the first year I’ve done a lot of transition work.

So, I don’t see any difficulty in this process, that’s partly because of the great people involved, and the great relationships we all have with each other.

QUESTION: Congratulations, Bill, on your new career.

It seems like there’s been a disconnect lately between the enthusiasm you guys have for all the cool new products you’re developing and the way Wall Street and the public and even some of your employees feel about the company. I wonder how this leadership reorganization will affect that disconnect and perception.

I’m also curious to know, Bill, if you’re going to move to Seattle now that you’re going to work on that side of the lake. (Laughter.)

STEVE BALLMER: Well, I was going to — go ahead. You can decide whether you move in a minute. (Laughter.) His house isn’t very mobile would be my observation.

Yeah, you take a look and say how is the company performing, and I think our company has performed very well. We have the strongest position we’ve ever had with our business customers, primarily with Xbox but also with IPTV. I think we’re really on a roll, making great progress on the entertainment side of our business. We certainly have done a very good job competitively over the last few years with the competition we faced from Linux and Open Office and a number of other things.

And we have some opportunities to do better in some of the areas. I suspect always if we’re a great company there’s always something you can do better while you’re doing a number of things very, very well. As Bill highlighted, the financial results have been good.

So we’re going to continue to build on the great strength that we have. Stock markets do what they do, that’s their job. Certainly we have announced and have been executing as a company on a buyback program. As of the end of March we have bought a bunch of stock, you can see we bought at prices higher than today’s price. That certainly tells you something about how Bill and I and our board of directors feels about the opportunities in the company.

QUESTION: How long is your vacation and you said it’s unusually long, and where are you going?

BILL GATES: Yeah, I’ve never taken more than a two-week vacation, and this time it will actually be about seven weeks, so that is very long. A little bit of that will be in Africa. Actually, I’ll be doing some Microsoft stuff while I’m there, but we have a Government Leaders Forum that’s the first couple of days that I’m over there, and then actually a fair bit of it I’ll be here in Seattle enjoying the Seattle summer.

STEVE BALLMER: Just for technical accuracy, that vacation predates all of this discussion. It’s well earned, it’s something Bill and Melinda have wanted to do for a long time.

QUESTION: Obviously you’re preparing the company to make the transition. What will it be like for you personally to move on? Do you yet have a grasp psychologically for what it will be like for you to move beyond Microsoft in a certain way?

BILL GATES: No, I don’t, but I’d emphasize the strength of the connection that I will always have with this company, and the excitement I have about the things that this company is doing and the people that are here.

I don’t know what it’s going to feel like not to come in here every day and work 10 hours and just have that as a simple decision thing, okay, what am I doing today, oh, get over there and work my 10, 11 hours, and do my best, send a lot of e-mail, meet with some of the best engineers.

I have a sense of what it’s like to do Foundation work, because I have squeezed that in part time and I look at that in a lot of ways like the work at Microsoft, you need people there who are experts in their field. But I think it will probably take me a while, just like it did six years ago when I switched not to be CEO, this will be one where it might take me a year, a year and a half to actually get a sense of how to work best both in my time at Microsoft and in this role at the Foundation.

To be clear, I’m not going to run the Foundation, the Foundation is being run super well by Patty Stonecipher, and that continues. I have the same sort of chairman-type strategy, advice role there that I’ve had here.

So a little bit of an unknown there, and because I’ve got two years, I don’t — in some ways don’t even want to go there, because I’ll see what that’s like when I get there.

QUESTION: (Off mike).

BILL GATES: At this time there’s no plan to do anything in terms of taking Microsoft shares and moving those into the Foundation. I took the dividends was the last thing I took, and actually I still have a little bit of that that’s flowing into the Foundation over the next year. But other than that, there’s nothing imminent along those lines.

Now, as the shareholder, personal shareholder, I see myself always being the largest shareholder of Microsoft. I’m proud of that, and Steve is the second largest, and I think we both take a lot of pride in that, so that’s something I want to maintain.

LARRY COHEN: We’ve got time for one more question, and we’ll take that over the phone as well.

QUESTION: (Off mike).

BILL GATES: Okay, so the big thing for Microsoft is not so much about the competitors, it’s about the way that software, partly because of hardware advances, and partly because of software breakthroughs, that software can do new things. You know, we talked about our incubation groups, we have an incubation group under Research that’s working on robotics. We’re not going to get anything out of that right away, but that’s this neat new area. We have a group working on language translation where you can take and go from one language to another. There’s a lot of things that have to do with vision, that as cameras can recognize things and decide who’s who or we get speech recognition working, the shape of computing and how software will change entertainment and business, we really are just at the beginning of that.

And so most of the things Microsoft does are like the work we did in Tablet or real time communication or productivity or collaboration where we get out there in front, we get out there first, we put our long term approach on that, and build on that.

That’s not to say there aren’t always a couple things where somebody else does something well, we need to see that and learn from it, but most of what we’re doing is stepping back and just thinking about software, where can it go, and whether it’s reading or memories about your life, organizing those, or education, the kinds of things software can do, we’re just at the beginning.

Communications is one we’ll have an event here in the next couple weeks where we talk about the breakthrough things we’re going to do there, and a lot of that you’ll hear is stuff that just no one else is doing.

STEVE BALLMER: I’d probably add just three things. Number one, as I said earlier, our Live initiative is very, very important to us. It’s a transformative thing going from software to software and service. And it’s important both in terms of the way we serve our customers in absolute, and it will be important to our success in the marketplace. That would be number one.

Number two, we’ve been on a — let me call it multi-device strategy for a number of years now. When Bill was recruiting me to first come to Microsoft, it was a computer on every desk and in every home, and I think that got invented to get me excited about being here. And we transitioned that, because servers, TV, Xbox and phones, those are all important areas in which people are going to connect and communicate in this Internet world. We’ve got some good traction in a number of those areas, and frankly nicely growing traction, but I think that’s a second important observation.

The third thing is we really — and this is a project that David Vaskevitch has been leading, but Ray and Bill are also champions, we’ve been stepping back and saying what are the key technological advances over the course of the next 10 years, where do we need to invest, what does it mean, how would we describe. And it’s not a roadmap, not a specific description of exactly what we’re going to go do, but really frame kind of where north lies.

And if we do those three things, we keep a long term perspective on our horizon, we do software as a service and our Live initiative right, and we participate not only in the PC but also in other devices, it’s going to be an exciting and a successful future in the marketplace.

LARRY COHEN: Thanks, Bill and Steve.

Thank you, everybody, for joining us here today, and joining us on the call. Have a good afternoon. Thank you very much.