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Microsoft Chiefs Talk Past, Look To Future

It wasn't exactly a formal hand-off, but Bill Gates and Steve Ballmer shared a stage Tuesday night in what could be regarded as a symbolic transition of power as Gates gets ready to retire from his full-time job at the software giant.

The two men appeared together at the Wall Street Journal's "All Things Digital" conference in Carlsbad, California, where they were interviewed onstage by conference co-hosts Walter Mossberg and Kara Swisher.

Earlier in the evening, I had an opportunity to talk with Gates about his fondest memories at Microsoft.

"We got to dream about a software industry and the greatest tool of empowerment ever - the personal computer - and be part of creating that in terms of the platform and the applications," he said.

When I asked about the high points, he said "Windows 95 was a nice milestone." He also spoke highly of Microsoft SharePoint Server software, but didn't mention Vista.

Looking to the future, he told me "the day that the tablet (PC) is mainstream, that will be a fun day."

Gates and Ballmer were college friends at Harvard before Gates dropped out to form Microsoft. Ballmer graduated and went on to Stanford business school until Gates recruited him in 1980 while Ballmer was living in what he described as a "flea-ridden room in Palo Alto (California) for $100 a month."

Together they built one of the most successful companies of all time, but shortly after Ballmer joined the company he told Gates that he wanted to add 18 employees to the payroll. Gates, ever mindful of the bottom line, objected. "I didn't ask you to leave business school to bankrupt the company," he told his new colleague.

Clearly, that never happened. "Income always stayed ahead of hiring," said Gates. "I never had to say to Steve, 'you have to stop.'"

"We are one of the few companies, to this day, that keeps enough cash on hand to pay payroll if we didn't get paid for a year," Gates said. To which Ballmer added: "We take all our risks technologically, why take a lick of financial risk?"

Although Gates will step away from his day-to-day responsibilities soon, he'll remain Chairman of the Board and Microsoft's largest stockholder. Ballmer will continue as CEO, a title he's held now for eight years.

Both Gates and Ballmer were asked about the success, or lack thereof, of Windows Vista, with Walt Mossberg asking if Vista was a failure or a mistake.

"It's not a failure and not a mistake," responded Ballmer. "With 20/20 hindsight, there are things we would do differently." Ballmer said Vista has sold 150 million units so far, but he did say that business customers will be able to request a "downgrade" to Windows XP after the company stops selling XP in June - obviously a response to the fact that many customers prefer XP to Vista.

After talking about the past, the two looked to the future, including the release of Vista's successor, currently being called "Windows 7.0".

Rather than just talk about the upcoming operating system, which is expected late in 2009, they brought up Microsoft Vice President Julie Larson-Green to demonstrate Windows 7.0's "multi-touch interface," which allows users to use one or more fingers on the screen to manipulate photos and other objects.

She showed it off by using two fingers to paint a stick figure - a rather unimpressive demo, and then showed how easy it is to use two fingers to expand or contract the size of a photograph. This might have been impressive, had it not looked almost exactly like what millions of people have been doing on the iPhone for nearly a year.

In conversation later in the evening, Steve Ballmer told me that Windows 7.0 had a lot of other very impressive features, which prompted me to ask why they chose one that everyone in the room had seen before, thanks to Apple. He reminded me that Microsoft had shown off a similar interface more than a year ago when it demonstrated its table top PC.

Still, most people at the conference I spoke with agreed that the Windows 7.0 demonstration was underwhelming.

Gates and Ballmer also touched on the attempted Yahoo acquisition. Ballmer said that Microsoft has not made a follow-up bid to acquire Yahoo, though he said he, "reserves the right to do so." He said he had hoped to acquire Yahoo to, "accelerate our online and advertising strategy, but we were going to be financially disciplined; we walked away."

He did acknowledge that Yahoo and Microsoft are still talking about "other things," likely some type of advertising business relationship.

While much of the evening focused on technology and business, what really came across was a relationship between two very powerful guys who, together, built an extremely powerful company.

"The key thing was doing it together," said Gates. "Two heads working on something."

With Gates stepping down, Ballmer will now have to carry on without Bill in a nearby office. But, as Gates said during the evening's events, he won't be far away, and he will be available to advise Ballmer whenever called upon.

You can bet Gates will be happy to help. He might no longer be getting a paycheck from Microsoft, but with double-digit billions of dollars of company stock, he has a pretty strong interest in the health of the company he co-founded.
By Larry Magid

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