Microsoft's Strategic Reinvention: Gates, Innovation, and Growth

Bill Gates Returns to Software Development

Work has become less stressful for Bill Gates. Once CEO of the almighty Microsoft, Gates passed that post to his friend Steve Ballmer and spent nearly two years serving as Chief Software Architect — a role he created — while also retaining a seat on the board. The antitrust cases and the relentless pursuit by those trying to find Microsoft's Achilles heel had taken a significant toll on him. Lackluster stock performance and the loss of experienced, knowledgeable employees to hot start-ups proved extremely frustrating for the former CEO. The Harvard dropout whose superior technical skills had propelled him to fame and fortune in the blink of an eye had lost his youthfulness and zest for software development once the dirtier aspects of the business surfaced. Having stepped away from that side of the business, Gates returned to where he found the most enjoyment: software development.

The Clouds Over Microsoft in 1999–2000

Microsoft disappointed investors with below-expected returns in the late 1990s. Despite the fact that the NASDAQ was experiencing extraordinarily high returns, Microsoft's stock seemed unresponsive to the boom occurring in the sector. The emergence of Oracle, Sun, Cisco, and EMC as high-performing stocks left investors questioning Microsoft's relevance. The company also suffered from a "brain drain" as employees sought out hot new start-ups. To add insult to injury, Microsoft was ordered to break up due to monopolistic business practices.

By 2002, however, a new beginning had arrived for the sleeping giant. The stock had recorded a 62 percent increase that year, while stocks of Cisco and similar high-tech companies were down an average of 34 percent. Additionally, it was expected that the court of appeals would reject the order to disband the company.

Microsoft's Strategic Paradigm Shift

Microsoft's leadership claimed the company was reinventing itself and would pioneer the post-Internet era. Previously, Microsoft had largely reinvented the wheel — analyzing leading competitor products, making improvements, and marketing the results as its own. Those days were nearly over. A new paradigm had replaced these practices, one centered on creativity and innovation.

At one point, Microsoft's vision had been to place a computer in every home and on every desk. With that mission accomplished, the company shifted its focus to "empower people through great software — any time, any place, and on any device." The new goal was to move beyond the World Wide Web and provide Internet services for cellular phones, PDAs, and beyond, so that everyone could be "connected" anytime, anywhere.

One notable development in this direction was HailStorm, a platform whose first program, Passport, made the Internet experience quicker and easier for users tired of entering the same information repeatedly. According to the source article, Passport "provides an online repository for all sorts of personal information and privileges that you can tap into from any computer with a Web browser: contacts, credit card accounts, calendar, computer appearance preferences, file space for documents, clearance to use online versions of productivity applications, an electronic ID card, and more."

Microsoft also shifted its focus toward a large but underserved market: small business. No formidable applications existed for this segment, and no single clear market leader had yet emerged. Microsoft's answer was bCentral, an e-commerce hosting package for small businesses. For $25 per month, users received website and e-mail services, as well as a shopping-cart setup for e-commerce transactions, credit card clearing, and customer management.