Is Ozzie’s Exit Good or Bad for Microsoft in Cloud Race?

Microsoft chief software architect Ray Ozzie’s plan to retire, announced yesterday in a memo by CEO Steve Ballmer, marks the end of a five year tenure during which Ozzie helped steer the company to a cloud computing model and helped develop Windows Azure.

Details about when Ozzie will leave the company have been vague. Ballmer wrote only that Ozzie will “remain with the company as he transitions the teams and ongoing strategic projects within his organization” and that he will “be onboard for a while.” During that time, Ozzie will also focus on Microsoft’s entertainment-related businesses, wrote Ballmer.

Where Ozzie is going from here is unknown and Ballmer said he has no plans to replace him. But what will Ozzie leave behind in Redmond? And what effect will his exit have on Microsoft’s image?

Industry analysts agree that Ozzie had a powerful impact on Microsoft’s shift toward cloud computing. Ozzie’s “Internet Services Disruption memo” from 2005 is widely seen as an inflection point in Microsoft’s history where the company decided to build more advertising-supported services and software. The resulting products include Windows Live services, online versions of Exchange and SharePoint, Office Web Apps and, of course, the Windows Azure platform-as-a-service.

Ray Ozzie has decided to step down.

But analysts disagree about the impact Ozzie’s departure will have on Microsoft itself. Ozzie’s exit can be seen as a sign that Microsoft failed at trying to replace Bill Gates, or as a sign that Microsoft’s cloud offerings are in a strong enough place that Ozzie felt confident leaving.

Or perhaps Microsoft doesn’t even need a chief software architect. After all, there are no plans to replace him.

For veteran tech analyst Roger Kay, president of tech research firm Endpoint Technologies, it’s a big problem that Microsoft finds itself without a chief software architect. And worse, Microsoft just lost the man who was supposed to replace Bill Gates.

While Gates was able to “work his magic at a key moment in history” and “nobody could fill his shoes,” Ozzie’s departure does reflect Microsoft’s inability to hold on to the best and brightest, Kay says.

“Microsoft will have to move adroitly if it is to convince people that it can still lead in technology innovation,” says Kay.

Wes Miller, a VP at independent research firm Directions on Microsoft, agrees that the loss of Ozzie will have a negative effect on Microsoft’s image. In a year rife with executives leaving Microsoft, Ozzie will be the biggest loss.

“This year has definitely brought a significant number of executive departures,” says Miller. “You have Bill Veghte, Mike Nash, Stephen Elop, J Allard and Robbie Bach. But of course with Ozzie being the Bill Gates-selected replacement for Bill Gates, it says something.”

Yet Miller also contends that by letting Ozzie go, Microsoft is saying that it has confidence that Windows Azure and its other cloud services can thrive without him.

“I think Ozzie and Microsoft are making a statement that the company is moving forward into the cloud platform realms, and have built a strong offering in Azure,” says Miller. “So as far as cloud technology innovation, I don’t think Ozzie’s exit will have a negative effect.”

Although Ballmer stated there are no plans to replace Ozzie — a decision that will only put “more weight on Ballmer’s shoulders”, says Miller — veteran Microsoft Watcher and ZDNet blogger Ed Bott wonders in a blog post if the company truly needs a chief software architect.

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Aside from the fact that Ozzie, who is an intellectual wizard but an introverted man, was almost “invisible as a public face of Microsoft,” writes Bott, “maybe it’s a good thing that there are no plans to fill the role.”

Why? Bott contends that most of Microsoft’s disappointments have come from the company focusing too much on big ideas with an overemphasis on architecture and not enough attention paid to actually building the product.

“Maybe Microsoft needs more skilled builders, not another architect,” writes Bott.

Shane O’Neill covers Microsoft, Windows, Operating Systems, Productivity Apps and Online Services for CIO.com. Follow Shane on Twitter @smoneill. Follow everything from CIO.com on Twitter @CIOonline. Email Shane at soneill@cxo.com.