R. Microsoft 2

R. Microsoft 2
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Remaking Microsoft
Building Microsoft 2.0

'I'm Trying to Let Other People Dive in before I Do'

NEPTUNE RISING. MegaServer foresees a time when computer users will be able to keep much of their professional and personal information and programs on large central servers that they access via the Web. That way, anywhere they are in the world, they can quickly get vital information. The idea behind WinTone is to make it simple for people to plug into the MegaServer--just as easy as making a call from a pay phone.

Microsoft is working on products to fulfill Gates's vision. For example, it's planning to meld its Web-based E-mail system, HotMail, with its corporate messaging system, Exchange. This will let road warriors get important messages from anybody's computer. Microsoft also will beef up its Web portal MSN to give corporate users the ability to log into their personal calendars, schedules, and even a mirrored image of their desktop from any location. That process was speeded up by the Apr. 27 purchase of Jump Inc., a maker of an online calendar system.

The other Gates priority is making the PC simpler to use. It's partly a defensive move. A new generation of computing appliances is coming that threatens to render the PC obsolete. IDC expects 12.2 million consumer devices to be sold in 2000--close to the number of consumer PCs sold. Gates wants to make the PC so easy that it attracts the 50% of home buyers that have shunned it so far. ''Its pretty complex,'' says Gates. ''We can make it easy.''

Even more basic improvements are in the works. For the past 18 months, top Microsoft engineers such as Steve Capps and Joe Belfiore have been crafting an overhaul of the Windows user interface. Called Neptune, it will see the light of day as part of a consumer version of Windows 2000 that's due late next year. The idea is to offer computing novices a choice of activities ranging from writing a letter to balancing their checkbook--all laid out in simple icons.

At the same time, another crew of engineers is working on a set of technologies--called Universal Plug-n-Play, which is expected to show up in desktop PCs this year and handhelds next year. The technology will allow consumers to plug their computer into the Net from wherever they are--say, getting baseball stats wirelessly while they're watching a game at Yankee Stadium. At home, the PC can become a central file cabinet for all things digital--from sprinkler systems to home security devices. ''There are some really exciting things that can be done--generating the same kind of excitement we had around Windows 95 and Windows 98,'' says Gates.

Gates wants computing to be much more intuitive for corporations, too. He's pushing the concept of a computing tablet that office workers can tote between meetings--giving them easy access to the latest information and E-mails wherever they roam. He believes a combination of Microsoft's own new ClearType screen-resolution technology with improved handwriting recognition and faster wireless networks will hasten the arrival of such devices. He also has high hopes for technologies that will allow geographically scattered people to collaborate on projects by posting spreadsheets or presentation slides and graphics on Web sites.

While Gates envisions the technology of the future, Ballmer is tending to ''business discipline and performance.'' And few are better at it than the 19-year veteran of Microsoft. Ballmer has had Gates's ear since their college days at Harvard. Since 1980, when Gates wooed Ballmer out of graduate school at Stanford, he has been the company's nuts-and-bolts guy. In 1995, when Microsoft was grappling with the sudden popularity of the Web, it was Ballmer who badgered Gates to set a time to tell the world their Internet plans, even though they hadn't yet jelled. Ditto an E-commerce Day the company held in March, and the Vision 2 shakeup.

Ballmer is doing it again, but this time his goal is customer focus. The first nonengineer manager at Microsoft, he has held nearly every major executive post, including head of sales for the past seven years. His experience there clued him in to how customers think--and how much Microsoft has ignored that. When he became president last August, he immediately sent hundreds of product engineers out to learn from corporate customers. ''I'm going to dial up my focus on delighting customers,'' he said at the time.

That he is keeping his word is no surprise. Ballmer's determination is legend even at a company that has redefined the word ''relentless.'' At the first hint of trouble he leaps into action. Take the time in February, when he got a call from Nancy Faigen, CEO of Beltsville (Md.)-based Web-hosting company Digex Inc. Her message: By ignoring companies like hers, Microsoft was missing out on a big chunk of business. Ballmer immediately dispatched a SWAT team of consultants to Digex to learn about the hosting business. And on Apr. 30, he sent Vice-President Thomas Cole to explain to Faigen what Vision 2 could mean for her. ''That's what I call walking the talk,'' says Faigen.

REINVIGORATION. Given Ballmer's customer bent, it would seem he had planned this realignment from the get-go. But it wasn't until he delved deep into the organization last fall on a morale-checking mission that he understood just how much work needed to be done. In September, he embarked on a series of more than 100 interviews with a cross-section of employees. His goal: To hear what was right about Microsoft--but, more important, to hear what was wrong. ''They were no-holds-barred sessions,'' says Williams of Human Resources.

Two of Ballmer's interviews stood out from the pack. The first was a ''senior guy,'' who wanted more authority and autonomy and less micromanagement. The second was a high-level executive, who did not understand why Microsoft was involved in a wide cross-section of products and efforts that didn't serve the main profit centers--Windows and Office. ''I thought that if these key employees didn't understand the roadmap, then we needed to make sure that everyone understands what we're trying to accomplish,'' says Ballmer.

January sent Ballmer globetrotting for the company's semi-annual business reviews. It was Jan. 14, and Ballmer was in the midst of taking 60 pages of notes from a discussion with one of his European managers when his ideas clicked. We needed to ''reinvigorate the vision,'' he says, that computing power will be on any device, anywhere. And the only way to know which software would be best in this new wired world would be to listen to customers. He sketched out the rough outlines of Vision 2 on a yellow legal pad. Ballmer raced to meet with Gates at his home on the next available weekend. ''I wanted to make sure before I got too excited that we were in synchronization,'' says Ballmer. While the two came at it from different vantages--Ballmer from a business perspective and Gates from technology--the pair agreed.

Now, Microsoft is revving the engine. The new structure divides the company's product development groups into six pieces. There are two groups targeting corporate leaders and knowledge workers. Two others divvy up home-PC buyers and people who buy games at stores. Another focuses on software developers. And the last group is aimed at Web surfers and cybershoppers.

Previously, the product divisions were split along technology lines, one for applications and one for operating systems. The latter, for example, included heavy-duty Windows NT on down to the stripped-down WinCE version for handheld consumer devices. There were no distinctions based on customers, so features were the same for power users and newbies alike. ''We have to some degree been doing technology for technology's sake rather than based on what customers wanted,'' says David Cole, vice-president of the new Consumer Windows group. Now, Cole is eliminating arcane and hard-to-use features from the upcoming consumer version of Windows 2000.

Wiping out old, dysfunctional approaches is paramount throughout the company these days. In the past, when Brian Valentine, vice-president of the Business & Enterprise Div., wanted to hire a few people or move them around in his organization, approval went up to the executive committee for discussion. They often spent weeks batting it around in E-mail before making a decision, says Valentine. Now, he just does it. A month ago, for example, he created a ''Customer Love'' group of six people assigned to making sure big customers are happy. ''I'm effectively the president of my business,'' says Valentine.

To be sure, Ballmer and Gates are still calling the shots. The pair must approve goals for profitability, customer satisfaction, and industry leadership for each of the groups. But coming up with the goals is now the job of the new division heads. And once they get the stamp from above, the new managers have been told they need only seek Ballmer and Gates out for advice.

Will it really work that way? Microsoft observers are skeptical, given the long history of Gates and Ballmer exercising tight control. But the troops are hopeful. ''We haven't lived in the system long enough to know,'' says Jon DeVaan, new head of the Consumer & Commerce group. ''But that's the theory.''

They can look to the past, though, to know if the new customer focus will stick. That's the way it has been in Microsoft's sales division since Ballmer took charge there seven years ago. The philosophy has delivered some good results, especially in large corporations. Thomas G. Stemberg, the CEO of Staples Inc., points to an incident last fall when Staples was struggling to get Microsoft Internet technology to handle large volumes of visitors to its Web site. Frustrated, he sent an E-mail to Ballmer, who responded immediately and dispatched a small army of 20 Microsoft field engineers to Staples' headquarters. Within a week, the problem was fixed.

Ballmer's new organization is designed to replicate that level of customer obsession on the product-development side. And thanks to his own ad hoc efforts, it's got a running start--at least with a handful of large customers. Ford Motor Co. Chief Information Officer Bernard Mathaisel reports that when he agreed to buy Microsoft's E-mail products two years ago, he asked the company to make changes assuring its products could handle a network of 165,000 workstations. Ballmer, who headed sales at the time, took the problem straight to the company's product development teams. ''They've delivered on every one of them,'' Mathaisel says.

Now, Microsoft has to learn how to connect better with the tens of thousands of corporate customers who aren't as big as Ford. At clothing retailer Burlington Coat Factory Warehouse Corp., CIO Mike Prince complains that Microsoft has made little effort to reach out to him and get him interested in its server software. ''Microsoft has never really tried to win me over as a customer,'' says Prince. ''Nobody has ever sat down with me to get my mind-share.''

That's just one warning sign of how difficult it will be to turn Vision 2 into reality. There are plenty of other potential pitfalls. Now that the product development groups are more independent, there's the possiblity that they'll start heading off in conflicting directions. What if the idea of renting applications from a Web site catches on? Will the company's Web-site managers advocate that even at the expense of undermining the company's retail sales of Office? ''There are going to be some bumps along the way,'' says David F. Marquardt, a longtime Microsoft board member and venture capitalist with August Capital in Menlo Park, Calif.

Ballmer says bumps are inevitable. But if Microsoft stays focused on customers, it may well end up running as fast as the Net whippersnappers. ''Let's say this is V-2,'' says Ballmer, shortening Vision 2. ''We're gonna tune up. We'll have a V-3 if we need to. We'll have a V-4 if we need to. We're just gonna keep working it and working it and working it.'' Being relentless, it seems, is one thing that isn't changing at Microsoft.

By Michael Moeller in Redmond, Wash., with Steve Hamm and Timothy J. Mullaney in New York

Building Microsoft 2.0

Eight new divisions, each having unprecedented autonomy, aim to free Microsoft from its bureaucratic morass

BUSINESS PRODUCTIVITY GROUP
Headed by: Robert Muglia.
What it does: Develops applications like word processing. Its target: knowledge workers.
What's new: The unit took over responsibility for the company's Windows CE operating system for handheld computers.

BUSINESS & ENTERPRISE DIVISION
Headed by: Brian Valentine.
What it does: Aims to bring Windows 2000 to corporate customers.
What's new: The spin-off of consumer Windows efforts into a separate group lets this organization focus on businesses.

HOME & RETAIL DIVISION
Headed by: Robbie Bach.
What it does: Handles games, home applications, children's software, and peripherals.
What's new: These products are no longer afterthoughts. It's a self-contained development group with its own sales staff.

DEVELOPER GROUP
Headed by: Paul Maritz.
What it does: Creates development tools that are used by corporate programmers.
What's new: It's a step down for Maritz, who formerly ran all of software development. But also signals the importance of tools for corporate computing.

CONSUMER & COMMERCE GROUP
Headed by: Brad Chase and Jon DeVaan.
What it does: Links merchants and customers via the com
pany's MSN Web portal.
What's new: This is a recast of Microsoft's Interactive Media Group, which lags AOL.

CONSUMER WINDOWS DIVISION
Headed by: David Cole.
What it does: Makes the PC easier to use for consumers.
What's new: Working on a new version of Windows that will combine the stability of Windows 2000 with new ease-of-use features for computing novices.

SALES & SUPPORT GROUP
Headed by: Jeffery Raikes.
What it does: Focuses on customer segments like corporate
accounts, Internet service providers, and small business.
What's new: John Connors replaces Deborah Willingham, who headed corporate sales.

MICROSOFT RESEARCH DIVISION
Headed by: Nathan Myhrvold.
What it does: Conducts basic research on everything from speech recognition to advanced networking.
What's new: Myhrvold is no longer a part of the company's executive group--a loss of power.

'I'm Trying to Let Other People Dive in before I Do'

Steven A. Ballmer's explosive temper is legendary. Back in his bad old days, before being appointed Microsoft Corp.'s president nine months ago, Ballmer would shout himself hoarse if a lieutenant didn't do his bidding fast enough. His motivational techniques drew heavily from Attila the Hun. When he directed the company's Windows product group, he put the fear of God into engineers by bellowing at them and pounding a baseball bat into his palm. And don't forget his outburst last May after the Justice Dept. sued Microsoft for antitrust law violations. ''To heck with Janet Reno!'' he blurted out.

Today, you'll find a tamer Ballmer. Since he took over running Microsoft's day-to-day operations, the 19-year veteran has worked hard to fashion a leadership style that's diplomatic rather than bullying--more Eisenhower than Patton. He still has the booming voice, but what he does with it is more constructive. ''I'm trying to temper myself. I don't think I've mellowed. But I try to redirect my energy,'' he says, bursting into a raucous laugh. The difference is obvious to people who know Ballmer well. ''He's certainly changed. He's calmer,'' says Microsoft board member Jon A. Shirley.

The fact is, Ballmer, 43, is coming into his own as Microsoft's president--and putting his mark on the company to boot. Since Ballmer got the job, he hasn't been content just to make the trains run on time. He's spearheading the effort to reshape Microsoft (MSFT). He dreamed up a plan--which he calls Vision Version 2--for energizing employees, focusing them on customers, and broadening their outlook far beyond the narrow confines of the PC and Windows.

WILD CHEERS. It's quite a different role for Ballmer. He has long played loyal sidekick to Chairman William H. Gates III. The two met as undergraduates at Harvard in 1973. Both were math whizzes, but Ballmer was more outgoing. He managed the college football team, the Harvard Crimson newspaper, and the student literary magazine. Ballmer also was more firmly rooted in day-to-day tasks than the absent-minded Gates. Once, after Gates left his dorm door and window open to weather and burglars when he departed for Christmas vacation, a watchful Ballmer battened down the place for him.

Gates eventually dropped out of Harvard to form Microsoft. But he didn't forget Ballmer. In 1980, he coaxed his pal to leave Stanford business school to join the fledgling company and whip into shape its chaotic business operations. The offer: A $50,000 salary and 7% of the company--a stake now worth nearly $20 billion. Later, Gates called on Ballmer to goose delivery of Microsoft's crucial Windows operating system. Then he relied on his friend to build a sales organization to compete with IBM in large corporate accounts.

Ballmer was always the passionate heart of the company. He led wild cheers at company meetings--leaping around on stage like a burly Mick Jagger. On a dare, he once dove into a pond on the company's Redmond (Wash.) campus in November. Charismatic as he was, Ballmer always remained in Gates's shadow. Now Gates is sharing the limelight. ''Of the upper management at Microsoft, Steve's the one that gets it,'' says a former company executive.

Not only does Ballmer get it, but he's doing something about it. As part of Vision 2, he hopes to transform a culture where he and Gates made too many decisions themselves. Now, he's pushing authority down into the ranks. And he's more inclined to listen to subordinates before he speaks. At a review of the Consumer Windows Div.'s product plans on Apr. 30, for instance, he made polite suggestions to managers, rather than quickly telling them what they ought to do. ''I see him coaching more than in the past--as opposed to pushing,'' says Bill Veghte, the group's general manager. Ballmer admits his biggest challenge is delegating. ''I'm used to diving in deeply,'' he says. ''Now I'm trying to let other people dive in before I do.''

Ballmer's getting atta-boys for his efforts. Gates praises the way he shepherded Microsoft's new E-commerce strategy. The company hopes to get 1 million businesses to use its software to create electronic stores linked to the MSN Web portal. ''I think it's a brilliant idea,'' says Gates. Others say Ballmer has notched up the level of teamwork in the company by forming a Business Leadership Team--14 managers who meet monthly to coordinate strategies across the operating units. ''Early days, but signs are good,'' says Paul A. Maritz, executive vice-president in charge of the Developer Group.

Ballmer appears willing to do whatever it takes to make Microsoft successful. And that includes giving up his beloved baseball bat. In late March, when marketing vice-president Deborah N. Willingham spotted him with the bat in a hallway and urged him to be careful, he handed it over to her. ''He was saying you're the leaders--the bat swingers. It's a new world,'' Willingham says. Ballmer still unleashes his famous temper now and then--but at least he isn't swinging a bat anymore.

By Steve Hamm in New York