Microsoft

PROBLEMS AT MICROSOFT

Once the dream workplace of tech's highest achievers, it is suffering key defections to Google and elsewhere. What's behind the losses?

WHEN MICROSOFT CORP. hired computer scientist Kai-Fu Lee away from hardware maker Silicon Graphics Inc. in 1998, the move underscored how thoroughly the software giant dominated the computer industry. Not only did it monopolize PC operating systems and hold an edge in Web browsers, but it was also vacuuming up the world's brightest technologists. Lee's expertise was in speech recognition, considered one of the next big leaps in computing. With people like him flocking to Microsoft's labs, it seemed that the digital world's reigning champion had a lock on the future.

Things didn't turn out that way. In July, Lee bolted from Microsoft for Web search king Google Inc., and once again his personal journey is emblematic of a shift in computing's balance of power. These days it's Google, not Microsoft, that seems to have the most momentum. Microsoft sued to stop Lee from working for the upstart, citing his noncompete agreement. But on Sept. 13 a state judge in Seattle ruled that Lee could work for Google, with some restrictions, pending a January trial. Microsoft said it was happy the judge limited the type of work Lee could do. Yet when court adjourned, Lee smiled broadly and threw both arms in the air. "I feel great," he said outside the courtroom. "I can't wait to start work tomorrow morning."

Contrast that with how Lee felt about Microsoft. During the two-day hearing he painted a distinctly unflattering picture of the company's inner workings. Lee, who opened Microsoft's research lab in China in 1998 and moved to headquarters in Redmond, Wash., two years later, fretted over what he saw as repeated missteps. In court he detailed how the more than 20 product-development centers in China tripped over one another, duplicating efforts and even fighting over the same job candidate. Lee called the company...