Microsoft News Was Mostly Soft

Microsoft (MSFT) has never been a company that's backed down from a challenge. And amid its ongoing legal troubles, today's announcement of a top-level management shuffle showed the giant is as intent as ever on fighting to keep the colossus whole and maintain its edge as the world's most powerful software company.

Still, despite the management change, many analysts say today's announcement was heavy on hype and light on real news.

"This is business as usual," says Charles Rutstein, a senior analyst with Forrester Research. "They announced nothing today on the technology front that wasn't already known."

During a press conference held after the close of the stock market, Microsoft announced that co-founder Bill Gates will assume a new role as "chief software architect" while remaining the company's chairman. Microsoft further said that Steve Ballmer, the company's president, will be the new CEO and will become a director later this month.

The shift didn't faze some analysts, who argue that Ballmer's promotion will not lead to any significant changes in the way Microsoft is run. "Ballmer has been running the company for some time now," Rutstein says.

Microsoft: Join the discussion on our message boards.

But others suggest that by allowing Gates to refocus on his first love, the software itself, the move could be a boon for the company. "My guess is that he's going to be a bigger value-add to the company," says Sam Jadallah, Microsoft's former vice president of sales who left in July to become the managing director of holding company Internet Capital Group (ICGE). As the chief software architect, Gates says he will concentrate on "building great software and strategizing on the future and nurturing and collaborating with the core team."

Microsoft faces immense challenges. The company is trying to extend its dominance of PC software onto the Internet. But attaining a monopoly on the operating system, applications and services of the Internet will be a difficult feat. In this new, Net-centric world, Microsoft is playing catch-up with competitors like America Online (AOL), Sun Microsystems (SUNW) and open-source software like Linux.

Still, the company realizes its future lies in developing the Net's software infrastructure. "Now is the time to supercharge the effort," says Ballmer. "The fundamental value of the Net will be in developing software." The company will unveil a more detailed strategy this spring, and later this summer at its developer conference.

Microsoft also seems more determined than ever to prevent the company from being broken up. This week, USA Today and The Washington Post reported that government lawyers are backing a plan to split the company into two or three different parts. Asked what he thought of these reports, Ballmer called the notion "absolutely reckless and irresponsible." Both Gates and Ballmer argued that Microsoft's innovation depended upon its ability to focus the entire company's efforts on software development.

Yet some legal experts said that Ballmer's promotion may have been planned in case of a breakup. "It may be designed to reassure shareholders that, in the event of a breakup, they can still run the company," says Dana Hayter, an attorney with Fenwick & West and a former Justice Department employee.

Still, that doesn't explain the timing of the announcement. One analyst provided a simple answer: Gates was tired of fighting his own government. "The world's richest man decided he didn't need to deal with this anymore," says Rutstein.

Even so, most Microsoft watchers say Gates has had one hell of a run. "He's been on the job 25 years," says Jadallah. "He's outlasted just about every CEO he's fought against."

>To order reprints of this article, click here: Reprints