The Gates $$$ Legacy (A Look At The Microsoft Money Machine)

Bill Gates
Bill Gates

Today's the day. Well sort of. Bill Gates will retire from Microsoft, kind of. He's leaving the day-to-day responsibilities to others. But not really.

Honestly, taking Gates out of Microsoft , or Microsoft out of Gates, is like trying take the Nestle Quik out of the milk after you've vigorously stirred in those heaping tablespoons.

So rather than buy into the hype, and trying to visualize a Microsoft "without" Gates, I thought I'd use this opportunity to look back at the Microsoft money machine under Gates. And under CEO Steve Ballmer as well. And as you might expect, this is very much a tale of two companies, two CEOs, two eras, and a crystal clear example of "timing is everything."

On a split-adjusted basis, Microsoft went public in 1986 at 8 cents a share. Had you put $10,000 into the initial public offering, it would have been worth $7.3 million when Microsoft reached its all-time high, as so many other companies did, at the height of the boom. If you didn't cash out then, your $10,000 that turned into $7.3 million would be worth $3.48 million today.

And that's where this gets a little dicey: If you plunked down $10,000 at Microsoft's IPO, Bill Gates, as CEO, turned your investment into $7.3 million. If you made your initial investment in Microsoft the day Steve Ballmer took over as CEO, your $10,000 would be worth, well, $4,700 today. Hmmmm: $7.3 million. $4,700? Yeeesh.

I get the whole law of large numbers, slower growth, timing, macro-economic conditions. But remember, during Ballmer's reign, we've seen the rise of Google (up 500 percent), the renaissance of Apple (up 500 percent) and Hewlett-Packard (from 2002's low of $11.67 to $45 today), the advent of Research in Motion (up 600 percent), IBM(flat during Ballmer's tenure as Microsoft's CEO), and hundreds of other tech companies innovating, growing and seeing market-caps grow dramatically. Oracle's off about 30 percent over the same period, and that's worth noting, but by and large, it's not as if Microsoft has been caught up in some big, broad tech downdraft. Microsoft continues to churn enormous amounts of cash, and is one of the most profitable companies in the world. But it hasn't been able to pass those rewards on to investors these past eight years.

But that doesn't mean Gates is a pauper. He'll leave Microsoft's day-to-day responsibilities with a net worth of $50 billion. He, co-founder Paul Allen and Steve Ballmer are worth a combined $82 billion. And lest you think investors have come up short these past eight years, consider that Microsoft has minted more than 10,000 millionaires among its rank and file since going public.

So Bill Gates rides off into the sunset of his Microsoft years, ready to embrace the sunrise of a new career as global humanitarian who has already given away $6 billion of his personal fortune. For Steve Ballmer, the pressure's on. Both his hands now firmly on the wheel as he buckles into the driver's seat of the world's largest software company facing competition today as it has never had to before. Not to mention the pressure he must be facing if he ever hopes to even come close to emulating the stock returns Gates made for investors while he ran the show. Good luck, Mr. Gates. Oh, and good luck, Mr. Ballmer.

(Send me a note about Gates' legacy, good and bad, as well as the biggest challenges Ballmer faces, and I'll post your responses in an upcoming blog!)