Bill Gates, Version 38.0

MICROSOFT'S CHAIRMAN - once a workaholic, apolitical bachelor - is now engaged, taking stands on issues and raising questions about his goals.

The Bill Gates celebrating his 38th birthday today is in many ways a far different Microsoft chairman from when he turned 37.

Twelve months ago, the newly crowned richest person in America prided himself on being rigidly apolitical, a freewheeling bachelor, a workaholic who had never taken more than a week's vacation at one time. A roll-up-the-sleeves executive, closely involved in the day-to-day management of Microsoft, Gates was likely to show up at a meeting with pinstriped executives wearing a wrinkled shirt, open collar and chinos.

Today Gates, despite a net worth approaching $7 billion, is second richest to Omaha investor Warren Buffett, whom Gates in 1991 told to unload some "peaked" stocks. Buffett's response was that he'd gotten to where he was - now worth $8.3 billion - by ignoring such advice.

Breaking his political agnosticism, Gates stepped into the Initiative 601/602 fray with abandon, coming out against the statewide anti-tax measures on next month's ballot. Then he joined the Clinton administration's pro-NAFTA ranks, going so far as to write an op-ed piece for the Washington Post on the free-trade agreement. He is expected to meet with President Clinton during the APEC conference, next month's meeting of Pacific Rim leaders in Seattle.

Gates became engaged in March to former Microsoft product manager Melinda French; rumor has them headed for the altar in January at a remote Hawaiian island. In August, Gates took three weeks off for an African safari with French and five other couples. Tending toward modest business suits, he is seldom seen in his old programmer's attire and even keeps his hair comparatively trimmed.

Like the software he made famous, Gates continues to upgrade to new editions, confounding skeptics who say he and his company have run out their string. Nevertheless, Version 38.0 is provoking renewed speculation about his future goals, his role in the high-tech industry and Microsoft's direction.

The political involvements, wedding and Gates' imposing Medina waterfront estate, where French's closer involvement has revised blueprints and slowed construction, have distracted the chairman from his first love - Microsoft - those close to the company say. The diversions may also have muted his role as a visionary for high tech, where QVC's Barry Diller, TCI's John Malone and the MIT Media Lab's Nicholas Negroponte have at least for the moment eclipsed Gates.

Then there's the antitrust investigation into Microsoft. Having convinced two Federal Trade Commission members of his cause, enough to deadlock the commission on whether to pursue court action against Microsoft, Gates now faces a Justice Department inquiry.

Growth rate plunges

Coincidental with Gates' outside attentions, the company's growth rate has dropped precipitously from its traditional doubling every two years to a by-any-other-measure enviable 20 to 25 percent annually.

Microsoft also is losing key staff - by design in some instances and default in others. Since early in the year the company has been reducing or reassigning staff in several key areas under a general belt-tightening of 5 percent. Microsoft executives have denied a reduction in overall head count, however.

Microsoft's high-flying stock has "stabilized." Currently trading at around $80, Microsoft shares reached as high as $98 over the past year.

"If you've been there for five or more years, you've wrung about all the money out of Microsoft you're going to get," is the way one recently departed product manager put it. Microsoft has paid lower-than-standard wages in return for generous stock options, which made numerous programmers and managers joining the company in the late 1980s millionaires on paper.

Some managers and development teams have been encouraged to look for other jobs in the company as their product phase - shipping either a new or upgraded program - cycled out. Others, growing frustrated with increasing layers of middle management and corporate procedure, have opted to leave voluntarily and start new enterprises.

When Microsoft was a smaller company, Gates himself frequently intervened to keep valued but frustrated employees such as star programmer Doug Klunder and public-relations chief Marty Taucher from leaving. Klunder left and returned, eventually authoring Microsoft Money, then left again. Taucher heads corporate communications and the always-strategic events group.

With about 14,500 employees, Microsoft has grown too big for Gates to maintain such a hands-on role. Along with excess hires, key contributors have gone out the door, unnoticed.

"The best and the brightest, which Microsoft went out of its way to hire, are feeling stifled," said the CEO of a longtime Microsoft software partner. "A lot of them are just counting the days till their (stock) options mature."

Looking to firm's future

As he enters year 39, Gates must face a shaky economy, slimming software margins, declining computer sales and question marks about Microsoft's future, related to its popular Windows computer interface and Microsoft's role in the emerging Data Highway.

Gates was unavailable for interviews for this story but has been quoted in recent articles as confident of the company's future. He points to several key strategies:

-- Windows. Sales of 200,000 units have been attributed to Windows NT, its corporate upgrade, since its mid-summer release. Gates has not publicly confirmed the number but said he is happy with NT sales so far. Computer Reseller News reported that most of the 200,000 units were shipped within the first month, and "distribution sources said sales tapered off sharply after that."

NT's clouded success has left some analysts wondering whether Microsoft will be able to make an impact on the strategic computer-networking market as corporations integrate mainframe data with desktop computers.

"Our research suggests that despite Microsoft's current dominant position in the market for desktop computers, the company is vulnerable to current industry shifts such as the emergence of enterprise-wide computer networks," First Boston Corp. vice president Paul Johnson told a recent hearing of the House Judiciary Committee. "We do not believe that Microsoft will continue to be the dominant vendor in this market as it develops in the next few years."

-- Office. Microsoft also has billion-dollar hopes for an upgrade to its Office suite of programs, including its flagship software Excel and Word. The latter is expected to be shipped in early November, with Excel following toward the end of the month.

Analysts predict that strong Office sales in the traditionally robust holiday season will carry Microsoft to its biggest quarter ever, boosting it by 25 to 30 percent over the previous year's sales. Those estimates are based on Word and Excel shipping in time to have an impact on the quarter's sales.

-- Microsoft Home and Microsoft At Work. The newly named Home line includes two strong compact-disc titles, the Encarta encyclopedia and Cinemania, a movies guide, as well as screen savers, games, creativity and productivity software.

More is on the way. Gates likes to point to the company's CD-ROM work as an example of a technology widely doubted when Microsoft embraced it in the mid-1980s, but which is on the verge of exploding in the marketplace.

Microsoft At Work, a technology integrating fax machines, photocopiers, scanners, telephones and other office equipment with desktop computers, is quietly adding product after product to its list. A new Lexmark printer is the latest to be announced.

-- Data Highway. Gates has approached talk of interactive TV offering games, shopping, movies-on-demand, teleconferencing and other techno-treats with cautionary realism. But it's a subject he's been involved in for some time.

At a July 1987 meeting, years before QVC and Viacom even thought about making overtures to Paramount, Gates told 600 New York computer hobbyists about "a machine that produces full-motion video with a quality better than your TV set. Using that machine, you'll be able to interact with your TV. You'll be able to call up whatever sports clips or movie scenes you want to see, have the machine remember what it's quizzed you about before, and so on. You'll also be able to play games where you pick the characters that will be involved, and you control what happens to them in the video."

Although Microsoft is investing as much as $50 million to $100 million in research and development related to the Data Highway, the chairman doubts it will have an impact on Microsoft sales for several years.

Microsoft has been working with Intel and General Instruments on a TV cable set-top box for managing the vast array of options expected with interactive TV. Gates also has talked about starting a pilot project with US West locally. But deals with Hollywood broker Michael Ovitz, and a venture dubbed Cablesoft with TCI and Time Warner, have failed to jell.

Analysts say Gates may have to alter or abandon his longstanding policy of insisting on healthy per-unit or percentage-of-sales royalties to persuade telecommunications giants to buy into Microsoft technology.

It all adds up to a full plate for computerdom's most visible executive. And despite his broadening interests, Gates keeps a withering work schedule.

He spent much of the past 10 days on the road promoting Office in key markets. And tomorrow morning, tonight's birthday celebration notwithstanding, he will be at the Hyatt Regency in Bellevue for the 8 a.m. introductions at Microsoft's annual shareholders meeting.