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UPDATE: Gates Giving Up His Management Role At Microsoft By 2008

Ozzie becomes chief software architect as Gates plans a transition to put more effort into his foundation.
Gates said the changes will illustrate that there are many skilled executives and developers at Microsoft producing innovation, diminishing the view that the firm's advances "come primarily from me," he said. "The world has had a tendency to focus a disproportionate amount of attention on me."

A Few Pioneers

Gates and Ballmer, along with Ozzie, who wrote the first versions of Lotus Notes, were among a few pioneers who ushered in an age where computers proliferated into the hands of the masses. At a time when it wasn't widely accepted that everyone needed a "personal" computer, they demonstrated what could be done with a new generation of hardware and software.

Microsoft was founded by Gates and Paul Allen in 1975 after Gates dropped out of Harvard. It now has about 70,000 employees and produces $1 billion in profit a month. Gates is called the world's richest man by Forbes magazine, which estimates his net worth at $50 billion. His estimated wealth reached $100 billion at the height of the bull stock market in 1999.

Stuart Williams, a senior analyst for the Software Business Quarterly, called Gate's announcement "the beginning of the end of an era as the founders of the PC revolution begin to wrap up their careers and transition into active retirement."

Changing Landscape

These days, much of the news out of Microsoft has focused on why the next generation of Windows, known as Vista, is being delayed again.

But Microsoft is more than just Windows. Its product lines include Xbox game machines, Tablet PCs and Pocket PCs, and an operating system for mobile devices.

Mundie led the company's plunge into digital TV with the acquisition of WebTV Networks Inc. "We have a very diverse company now... There's no other company with the same array of products," Mundie said.

Microsoft is jockeying for position as software changes from being a desktop- and server-based resource to a Web-based one, consumed as a service off large Internet servers. Microsoft has lagged on that front, after a false start in offering its applications as services. It has also fallen behind leading Web technologies such as Ajax and Ruby on Rails, which produce quick applications with an emphasis on Web interactions with users.

Microsoft and its competitors Google and Yahoo are investing many millions of dollars to bring online new data center capacity that could deliver business and consumer applications to even more computer users at faster speeds. "The entire consumer software industry has changed to services, but that transition hasn't really happened yet in the business space," Ozzie said in a keynote speech at Microsoft's TechEd conference in Boston this week. "Well, stay tuned."

Microsoft's stock has been stagnating at around $22, closing before Gate's announcement Thursday at $22.07, up $0.19. Its 52-week high was $28.38. "Microsoft has to transform itself to compete more effectively as technology moves to the Web-platform generation at the same time that it is defending the many massive markets it has already won," said Mike Kwatinetz, general partner at Azure Capital, a venture capital firm, and a former Wall Street analyst who backed early PC markets. "It's probably not as much fun as the task of building Microsoft," he added.

In an interview last fall, Ozzie, who joined Microsoft when it acquired Groove Networks last year, said Microsoft needs to "pick up the tempo" of software releases to compete in the new world of online software. But he also gave the PC a vote of confidence and said it would figure prominently into Microsoft's plans.

During his speech, Ozzie said Microsoft is designing software that its corporate customers could run either on-site or over the Internet, with the ability to switch as their business demands dictate. "We're approaching a new era," he said. "Internet services will transform business software."

Gates indicated the company is doing research in computerized language translation, visual recognition, and robotics.