Heir Apparent At Microsoft

Annie Marie Musselman for The New York Times

Eric Rudder, a rising star at Microsoft.

May 25, 2005
A Front-Runner at Microsoft, but There’s No Race Yet
By STEVE LOHR

REDMOND, Wash. – The path to the top at Microsoft is not for the timid. Anyone hoping to make the ascent must be able to match wits with two of the most formidable and combative intellects in corporate America: Bill Gates, Microsoft’s co-founder, and Steven A. Ballmer, its chief executive.

Eric Rudder, a senior vice president, demonstrated that skill not long after he arrived at Microsoft. In 1992, Mr. Rudder, then 25, had a confrontation with Mr. Gates, recalled Brad Silverberg, a former senior Microsoft executive. The dispute centered on some now-forgotten technical matter in the Windows desktop operating system.

"Bill, you’re absolutely, totally wrong," Mr. Rudder said, according to Mr. Silverberg. "And here’s why."

After hearing him out, Mr. Silverberg said, Mr. Gates conceded the point, saying: "You know what? I guess you’re right."

Careers at Microsoft are built on such episodes, proof of the right stuff. Yet more is required to climb up the executive ladder, notably a deep understanding of technology and a deft grasp of business.

"And you have to deliver, you have to be in charge of building products that generate huge growth in revenues and profits," observed Michael A. Cusumano, a management professor at the Massachusetts Institute of Technology who has studied Microsoft for years.

No one recently has delivered more than Mr. Rudder. For two years, he has led Microsoft’s fast-growing business for server products – the software powering computer networks behind everything from Web pages and e-mail to corporate back-office systems.

There is no heir apparent at Microsoft. Both Mr. Gates and Mr. Ballmer are only 49, and neither has suggested that he wants to step aside soon. Yet by putting Mr. Rudder, 38, in charge of a business earmarked for near-term growth, they singled him out as the likely front-runner among the next generation of leaders.

"Bill and Steve see a lot of themselves in Eric," said Mr. Silverberg, who is now a venture capitalist.

Mr. Rudder’s group has grown at 15 percent to 20 percent annually for the last few years, reaching $10 billion a year in sales. It has become Microsoft’s third big business by expanding at roughly twice the pace of the more mature desktop divisions, the Windows operating system and the Office software package. Microsoft’s server group has posted faster growth than the software businesses of big corporate rivals like I.B.M. and Oracle, and has not suffered much so far from Linux, the popular free operating system.

Someday, Microsoft’s fledgling divisions could also be big and profitable, like its Xbox video game consoles and software, and its MSN e-commerce Web sites and search. Young executives from those groups, and others, are also in the running to head the company someday. They include Steven Sinofsky, a senior vice president leading the Office business; Chris Jones, a vice president guiding Windows development; Yusuf Mehdi, a senior vice president in charge of MSN; and J Allard, a vice president who heads the Xbox team.

But Mr. Rudder’s server division is the first real winner in Microsoft’s strategy to move beyond its desktop stronghold.

That success reflects an evolution in Microsoft’s corporate culture and the way it must compete in the future, especially in newer markets where the company is not dominant.

Put simply, Microsoft is moving beyond its heritage as an often insular place focused entirely on shipping and selling software products. That mentality struck many corporate customers as a Microsoft-knows-best arrogance. In fact, the company’s surveys of customer satisfaction showed a declining trend for five years until 2003, when the trend reversed.

Microsoft remains first and foremost a technology product company, but one that is far more open to outsiders – and Mr. Rudder’s group, by most accounts, has led the way. Corporate customers are brought in to help with product designs early on. Engineers are now routinely dispatched to the field to see how customers use technology and what they want.

More than a thousand engineers and product managers in Mr. Rudder’s unit have started blogs in the last couple of years to explain what Microsoft is doing and to field comments and criticism from customers and programmers outside the company.

"It’s a huge cultural shift for us," said Simon Witts, a vice president who is a 14-year veteran at Microsoft.

To spend more time with customers himself, Mr. Rudder decided to move to Paris for a year, starting last August, along with his wife and their two children, a 10-year-old daughter and an 8-year-old son.

As someone who came up through the technology side of the business, spending his career at the suburban Seattle headquarters, Mr. Rudder said he felt the need to spend more time in the field, seeing things through the eyes of Microsoft’s sales teams and their corporate customers. He has traveled to dozens of countries throughout Europe, the Middle East and Africa.

"I wanted to encourage our people to spend more time in the field," Mr. Rudder explained in an interview while on a trip to Microsoft headquarters here. "So I felt I should lead by example."

The brainpower and competitive zeal valued at Microsoft were evident long before he arrived at the headquarters here in 1988. Growing up on Staten Island, Mr. Rudder had an aptitude for math and science, owned a Commodore home computer and did some programming on an I.B.M. minicomputer in high school. At Brown University, he did not plan to major in computer science initially, but he was lured by the challenge. A computer graphics course had the reputation for being both fascinating and the toughest undergraduate course at Brown.

As a student from a public school attending an Ivy League college, Mr. Rudder recalled, he was determined to test himself in that class. "It could have been marine biology," he said.

At Microsoft, Mr. Rudder found an environment suited to his skills and temperament. He became a product manager, building software and heading teams of engineers working on networking technology, Windows and programming tools.

In 1997, Mr. Gates picked Mr. Rudder as his technical assistant, a sign he was being groomed, and he served as Mr. Gates’s aide for technology strategy until 2001, the longest tenure for anyone in that job. Mr. Rudder was then placed in charge of the strategically important software tools business at a time when developers were flocking to Java as the programming tool of choice for the Internet era of open communication and data sharing, instead of locking up information inside a supplier’s proprietary technology.

Microsoft’s alternative is its .Net programming tools, which are linked to Windows but embrace Internet and Web technologies. The .Net strategy was a technological answer to market imperative and customer demand. "We needed to link things together and work with other vendors," Mr. Rudder explained. "And we had the model with the Internet."

Mr. Rudder kept the tools business when he took charge of the server division in 2003. Today, Microsoft’s .Net has closed the gap with the Java programming environment, called J2EE, which is backed by the software companies including I.B.M., Sun, Oracle and BEA Systems, and according to some surveys has pulled ahead of Java.

Bret Rupe, a chief architect for information technology at Weyerhaeuser, has been impressed by the changes at Microsoft. "We want suppliers who play well with others," he said. "Microsoft has really moved away from its proprietary view in the last few years." Assured by that trend, Weyerhaeuser, a big lumber and paper company, decided 18 months ago to increase its investment in Microsoft’s server software in its data centers.

Mr. Rudder himself has adopted a somewhat more accommodating style lately, colleagues say, shedding a "never give an inch" mind-set that could stifle contributions from others. His future at Microsoft will hinge on how the company fares against the challenge of open-source software, which is distributed free and is improved by cooperative networks of programmers.

Windows and Linux have both done well in recent years because both systems run on machines using low-cost microprocessors from the personal computer industry – and corporations are increasingly adopting these servers to cut costs.

Still, Linux poses a real long-term threat to Microsoft. In most markets, Microsoft has adopted a high-volume, low-cost strategy. Yet open-source software is an "up from the bottom" phenomenon, a very different kind of competitor for Microsoft.

Mr. Rudder and his lieutenants marshal a series of arguments as to why "free" software is not free at all, once maintenance and support costs are included.

They point to the vast Microsoft "ecosystem" of millions of programmers worldwide and hundreds of thousands of companies who use Microsoft product and tools.

Linux and its open-source cousins, analysts say, could yet batter Microsoft’s profit margins and growth. "Revenues may not go to zero but they can certainly stop growing," said Mr. Cusumano, the M.I.T. professor. "That’s the nightmare for Microsoft, that happening sometime over the next 10 years."

Finishing off a boxed lunch, Mr. Rudder gave no hint of any such qualms. He is a true believer in the proposition that Microsoft’s best days are surely ahead, and any suggestion to the contrary is emphatically dismissed.

"Microsoft is a growth company, absolutely," Mr. Rudder declared. "The opportunities are unlimited."

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