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When he's excited--and he's easily excitable--Microsoft Chief Executive Steve Ballmer has a habit of saying things at least three times for emphasis.

"Windows, Windows, Windows" was the call to battle of the mid-1980s to popularize the company's now-ubiquitous operating system. Now, Ballmer has a new rallying cry as Microsoft seeks to establish its .Net Web services technology: In a widely seen video leaked to the Web, a sweat-soaked Ballmer stalks the podium at a Microsoft conference and, with evangelical fervor, chants "developers" no fewer than 14 times.

"I give speeches and I get excited about them," he said recently, in a rare moment of understatement.

Such rabid enthusiasm is classic Ballmer, whose name in industry circles is almost synonymous with over-the-top performances that seem even more outrageous when contrasted with the usually bland presentations by most companies in the business. But to see Ballmer merely as an overzealous cheerleader is to miss his equally prodigious business savvy and market sense, former employees and longtime observers say.

For years, Ballmer's public identity has been linked inextricably to his best friend and alter ego, the analytical and technocratic Bill Gates--so much so that one former employee quipped, "Together, they're the best chief executive in the business." Today, as Ballmer settles in for his third year running the world's largest software maker, the qualities that separate him from Gates are becoming clearer, and perhaps more valuable, than ever.

In many ways, Ballmer's combination of intellect, passion and a keen understanding of public relations may make him a better CEO for the 21st century version of Microsoft than Gates, who has been the company's public persona for two decades. Ballmer will need those skills as he faces a trio of new challenges that will define Microsoft for years to come: how to live with government oversight; how to repair the company's reputation as an industry bully to forge new alliances; and how to motivate more than 45,000 employees, including many stock-option millionaires, to tackle new challenges.

"Steve is contagious, exuberant. When you walk out of a meeting with Steve, you have to almost be a corpse to not be fired up," said Naseem Tuffaha, a "product evangelist" with Microsoft for six years and now CEO of Web services company Fidesic. He is quick to point out that it was Ballmer--not Gates--who recognized the market potential of Web services and was the first to discuss publicly the concept later to be named .Net.

"Steve was talking about it back then," Tuffaha said. "He got it, latched onto it, and attacked it with a characteristic vigor."
 

Ballmer's "intellectual horsepower is...really impressive in different ways" from Gates', said Rob Horwitz, who was recruited by Ballmer out of the Massachusetts Institute of Technology to work on an early version of Windows. "Give him an example of a business--not even a business he has experience in or knows anything about--and he can do a back-of-the-envelope calculation to figure out what the margins are and where they make money and where they lose money, and he'll be no more than 5 percent off."

Long arm of the law
This market acumen is a powerful tool that Ballmer uses to keep senior managers sharp, especially as he tries to keep the rank and file focused on the tasks at hand and to move beyond the distractions of government antitrust actions that have threatened to split Microsoft in two. By some accounts, the Justice Department's case has taken a significant toll on the company and its management and will continue to do so.

Ballmer acknowledges that the case has affected morale within Microsoft. "The number of people affected by the lawsuit in the senior ranks or the junior ranks, from a deep morale perspective, I don't think was high. But nobody wants to be sued by their government," he said in a recent interview with CNET News.com.

Now the challenge will be maintaining Microsoft's legendary hard-charging edge while staying on the right side of the law under a proposed settlement.

If the agreement stands, one huge change at Microsoft will be the establishment of an independent, three-person technology-oversight committee installed at Microsoft's Redmond, Wash., headquarters. That committee will have access to the Windows source code--the closely guarded genetic makeup of the company's prized operating system. Presumably, the oversight team will have permission to grill any Microsoft employee, examine code, and read any internal product-planning documents.

"The agreement is a clear set of restrictions and regulations on how we work, which we did not have before we signed the settlement," Ballmer said. "So I can't say that frees us up; it does not free us up. It restricts us, very clearly."

Other changes are already taking place within the company. In November, Ballmer sent a memo to Microsoft employees outlining measures they must take to avoid potential antitrust conflicts. For example, Microsoft's business development groups and the company's legal team are supposed to have frequent consultations.

Ballmer seems resigned to the new governance and is clearly agitated by assertions by competitors that Microsoft was let off the hook. Some, like streaming media company RealNetworks, called the proposed settlement a "reward, not a remedy."

Some of Ballmer's harshest remarks are directed at Sun Microsystems, often identified by Microsoft executives as the company's fiercest rival. When the settlement was announced, Sun issued a statement saying it merely "reinforces the status quo and will do nothing to restore competition and innovation in the marketplace."

Ballmer countered only half-jokingly that "you are never going to make Sun happy. If we got broken up, Sun would say, well, they weren't broken up hard enough."

Mending fences?
Despite such talk, Ballmer knows that Microsoft needs to partner with many of those same competitors for .Net and other business software plans to succeed. "We understand based upon the fact that our industry didn't rally to support us that we need to change the way we interact and relate to our industry," Ballmer said at the company's annual meeting in November.

While many speculate that this mea culpa was driven by the unexpectedly harsh criticism of Microsoft during the three-year antitrust case, others believe that Ballmer is laying the groundwork to drive the company's corporate software sales, where partnerships with other companies are key. Analysts see the challenge as equal to or even greater than Microsoft's scramble to recover from its slow start to join the Internet revolution in the mid-1990s.

"Partners are a really big part of that and mean a lot in enterprise sales," said Horwitz, who co-founded Directions on Microsoft, a research and consulting firm based in Kirkland, Wash. "That's because companies buying enterprise software systems to run business functions aren't just deciding on a single product, but on a group of products which must function in unison."

For example, Compaq Computer executives say their relationship with Microsoft has already become stronger with Ballmer at the helm because he gets along well with Michael Capellas, the computer maker's CEO. The cooperation has helped the launch of key Microsoft products, such as Windows CE and Windows XP.

"He's a good operational guy, and I think execution has improved under Steve," said Michael Winkler, executive vice president of Global Business Units at Compaq, which is Microsoft's largest Windows customer among PC makers.
 

Industry veterans say Ballmer is exactly the right man to drive such partnerships and to keep them healthy--unlike some earlier executives who served as Gates' right hand, such as Mike Maples, an executive vice president who left in 1995, and Jon Shirley, former chief operating officer and now a board member.

"There has been a maturing process at Microsoft over the years," said Will Zachmann, an industry analyst with Meta Group who has followed the company for nearly 20 years. "Maples and Shirley were outsiders and didn't know the Microsoft culture or were as close to Bill as Steve."

Technology never sleeps
Ballmer's mettle will be tested once more as Microsoft expands its reach beyond its PC operating system stronghold. In just the last few months, the company has introduced three major products--XP, the Xbox gaming console and MSN 7.0--as well as its key .Net initiative. Microsoft is also gearing up to retool its SQL Server database and to begin a new corporate software project based on its acquisition of Great Plains Software--a developer of applications for small to midsized businesses--which closed in early 2001.

The company is slowly shifting away from the shrink-wrapped software business and into the services realm--a move that analysts say represents a major evolution for the company and for the high-tech industry in general. But many have questioned whether Microsoft's promised .Net services are overly ambitious, as the company has already been criticized for outages and security lapses.

As if all of those challenges weren't enough, Ballmer also must corral Microsoft's geometrically expanding organization. As Microsoft grows, Horwitz noted, "it gets harder to reach as deep, and there's going to be a limit to anyone's capability at some point."

That's where Ballmer's larger-than-life personality may become most visible. "Since Steve has become president and CEO, employment at Microsoft has doubled. It's already a different company than when Bill was CEO," Tuffaha said.

"So who is going to be the guy to keep this together? Microsoft needs the right strategy, but that alone is not sufficient," he added. "They need someone to explain that strategy to 50,000 people. That's where Steve comes in. Bill appeals more to the mind. Steve appeals to the heart."
 

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