Scramble to succeed Gates threatening to unsettle Microsoft

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The Independent Online

Investors have begun fretting that Bill Gates' impending exit from his day-to-day responsibilities at Microsoft might create a period of instability at the world's largest software company.

And several have warned the two-year transition period would not lead them to ease the pressure on Steve Ballmer, whose six-year tenure as chief executive has come in for growing criticism.

Mr Gates was effusive in his praise for Mr Ballmer, a Harvard classmate and Microsoft colleague since 1980, but analysts said power at the company was shifting significantly towards Ray Ozzie, the chief software architect brought in only last year.

Other managers, promoted in a reorganisation last year, are also likely to be jostling for position. Craig Mundie, to be the chief research and strategy officer, will play an increasing role, but analysts were also tipping Robbie Bach, who runs the Xbox consoles and online gaming division, for future promotion.

Mr Gates described Mr Ballmer as a "visionary" and "the best chief executive I can imagine" and said he had doubled sales and profits in his six years in charge of operations. Investors, though, are restless. Before the press conference announcing Mr Gates' retirement, Microsoft shares rose in the expectation that it was Mr Ballmer who was about to announce his departure.

Mr Ballmer made his first tour of Wall Street investors last month to try to head off demands that Microsoft hand back some of its $35bn cash pile. Investors have demanded a share buy-back to shore up the share price, which is down 60 per cent since Mr Ballmer took on the chief executive job in 2000 and has flatlined during the market rebound of the past few years. Since the attempted charm offensive, investors such as Joseph Rosenberg, the chief investment strategist at Loews, have continued to publicly criticise Mr Ballmer.

The stock fell modestly in early trade, as the market digested Mr Gates' decision to move to a part-time chairman role in 2008.

Brent Thill, a technology analyst at Citigroup, said: "Given recent product delays and stock price decline, losing such a thought-leader could temper morale in the short-term, but will give a new generation of leaders (many of whom were identified in the September reorganisation) a chance to step out of Bill's shadow."

Peter Misek, at Canaccord Adams, said the news was a shock. "We've always been used to the fact that Bill Gates played a leading role at Microsoft. His vision, drive and technical prowess changed the world. We were used to his influence and now we have to get used to Ray Ozzie's.

"This means a few things. First, the 'software as a service' trend championed by Ozzie is likely to become even more central to the ongoing strategy of Microsoft. We also expect other changes following this announcement within a year as a succession appears to have been started."

Mr Gates fashioned Microsoft in an era when you sold software on a disc that was inserted into a computer and uploaded to a hard-drive. Mr Ozzie is seen as the man who might understand a new world, where software might exist mainly in cyberspace and users might access it for free, an era when it might have to be paid for instead by advertising.

Microsoft has been under pressure to respond to the challenge of Web-based rivals such as Google. The search engine giant has increasingly moved on to Microsoft's territory by offering word-processing and other office software free over the Net. Microsoft's MSN website network has also lagged Google as a means of searching the Web and giving access to the mushrooming amount of online entertainment.