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“It’s not a retirement, it’s a reordering of my priorities,” said Bill Gates on Thursday, as he announced he was stepping back from day-to-day involvement in the company he founded.

But few doubt that his handing over of the position of Chief Software Architect to Ray Ozzie is a major changing of the guard for Microsoft, the world’s biggest software company.

Mr Gates will officially step down from the post in two years’ time and remain as chairman, but Mr Ozzie, who joined Microsoft as Chief Technology Officer in April last year, will be working alongside him in the interim and his influence is already substantial.

“When Ray Ozzie was brought in as the heir apparent, you knew the clock was ticking and it was just a matter of Bill being comfortable with Ray taking over,” says Rob Enderle, analyst with the Enderle Group.

“He had been signalling he was tiring of this day-to-day stuff, he had indicated he wanted to retire at 55 and go off and do other things.”

Ray Ozzie is seen as an industry visionary and created the Lotus Notes e-mail program.

His growing influence became apparent last November when Bill Gates passed on authority for its most significant strategic change in five years to his subordinate.

In a leaked memo to senior staff, Mr Ozzie said the company had failed to achieve leadership in key technologies and its business would be under threat if it failed to respond quickly and decisively.

He is seen as an industry visionary and created the Lotus Notes e-mail programme.

The memo spelt out where Microsoft has failed to lead in internet technologies it has pioneered – lagging in developing the Ajax group of tools to allow live and dynamic updates of web pages and in advancing in search.

“We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position,” he said.

“While we’ve lead with great capabilities in Messenger and Communicator, it was Skype, not us, who made VoIP [[voice over internet protocol] broadly popular and created a new category.”

Microsoft has responded with its Windows Live raft of “Web 2.0” products and there will be more innovations including better search in its Windows Vista operating system, shipping on new computers from January.

Ten years earlier, it was Mr Gates issuing the call to arms when he warned of an internet tidal wave that the company had to find a response to. In his book, The Road Ahead, he explained how the internet and technology would revolutionise the world.

Echoing that and emphasising his change in priorities, he said:

“The road ahead will let me take on new challenges while keeping my connection to this great company. The road ahead for Microsoft is as bright as ever, the dream of what software can do is just beginning.”

He thanked Steve Ballmer: “I couldn’t ask for a better business partner or a better friend,” and Mr Ballmer returned the compliment, calling him “the greatest philanthropist of all time.”

“We will continue his tradition of thinking big and executing even bigger.”

There was speculation before the press conference that Mr Ballmer himself could be stepping down, but he is carry on, aided by Mr Ozzie and Craig Mundie, as chief research and strategy officer.

Nevertheless, Mr Ballmer is seen as having a natural successor in Kevin Turner, recruited from Walmart last August to become Chief Operating Officer.

“He appears unready to step down yet, but it’s very possible we could be on that track as well,” said Mr Enderle.

“This is a significant changing of the guard. They have had some pretty significant problems and this is a recognition that there need to be changes throughout the company.”

Mr Ballmer will stay put for now and see through the introduction of Windows Vista.

“”We knew that we would have to be transparent with the public on any changes,” he said on Thursday.

“Few realised that we have nearly doubled in size in the last six years. Bill and I are confident that we can complete this transition in a smooth and orderly way.

“This is a natural step in a process of leadership growth that has already been underway for a number of years.”

Additional reporting by Kevin Allison in San Francisco

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