FORTUNE — Legends are tough acts to follow, especially when they leave a mess behind. Just ask Steve Ballmer. Ever since joining Microsoft in 1980, Ballmer has toiled in the shadow of Bill Gates. Gates is the one remembered as the legend who turned Microsoft into a formidable software colossus and who retired to spend his fortune on making the world a better place. When he retired, it was Ballmer who was left to manage Microsoft, its aging software monopoly, its years of battles with regulators and its early, sometimes misguided responses to the Internet.
Here’s an interesting statistic. Apple (AAPL) may exceed Microsoft (MSFT) in market value, but the better performing stock over the past quarter century is still Microsoft. Since 1987, Apple’s stock has risen 4,300% while Microsoft’s has risen a staggering 5,700%. Most of Microsoft’s gains, of course, came during Gates’ tenure. Since 2000, after Ballmer took over as CEO, Apple’s stock has risen 2,500%. Microsoft’s? It’s still half of what it was after Ballmer took over.
Much of that is Ballmer’s fault. But not all. Ballmer became Microsoft’s CEO two months before the dot-com bubble burst, when many stocks had irrationally high valuations. And Ballmer was left facing the messy fallout of the monopolistic reign of King Bill. Ballmer was left to manage an operating-software colossus whose demise, in retrospect, seemed all but assured. The rise of the web made PCs less central to the tech industry, and Microsoft couldn’t control the web as it had PC operating software. Any attempt to extend its iron grip to the Internet was met with regulatory pushback. And web initiatives like MSN Search and Hotmail showed operating losses year after year.
Meanwhile, several hundred miles down the coast in Silicon Valley, a new crowd of fast-growing startups like Google (GOOG) seemed united in trying to weaken Microsoft. And as cloud computing took off, PC’s were destined to become less central to computer programs used by consumers and businesses.
Ballmer pushed into other areas of growth, such as server software and the Xbox, offsetting the slower growth rate of Windows and Office software. More boldly, in 2009, Microsoft began developing Windows 8, but instead of the usual Windows upgrade, Windows 8 would work with PCs, tablets using ARM chips and share many components with Windows Phone 8.
Windows 8 isn’t a reboot as much as a clear break from the Windows that Gates created — which is to say, a break from the Microsoft that Gates built. Ballmer even steered Microsoft into new waters by unexpectedly stepping into the device business with the Surface. A tablet-PC hybrid, the Surface showed what Windows 8 was capable of. It showed that Microsoft could be a player in the era of cloud computing.
Above all, it showed that the company founded by Bill Gates now belongs to Steve Ballmer.
To drive the point home, Ballmer said in a letter to Microsoft shareholders last month that the company is making a “fundamental shift:” It now sees itself as a “devices and services company.” That declaration was widely seen as an admission that Microsoft is becoming more like Apple, making not just the OS that powers devices, but the devices and services that go on them. That is also evident in the retail stores Microsoft is setting up and the app stores it’s creating as well.
The fundamental shift Ballmer speaks of isn’t corporate hyperbole. The Microsoft of the late 1990s wouldn’t recognize the Microsoft of 2012. Because, as Ballmer acknowledged, Microsoft has capitulated to a business model created by its greatest rival. It’s not an industry leader, it’s a follower now. It’s not anything like the monopolistic bully it once was. It’s as friendly to open standards as it’s been in its 37-year history.
Now that Ballmer has fully stepped out of the shadow of Bill Gates, will he succeed? That’s the big question. As CEO, Ballmer has certainly made his own share of missteps. The corporate culture inside Microsoft is often said to be fragmented, disorganized and sometimes cutthroat. And for every modest success Microsoft has seen (Bing searches account for a quarter of the total market), there is a disappointing setback (Windows Phone 7 has seen its share of the smartphone market shrinking). For every Kinect, there is a Zune.
None of those products, however, will matter as much as Windows 8 will. So far, the new software is winning mixed-to-positive reviews, although some users seem confused by the new interface. Much hangs in the balance: The success of Windows 8 will largely determine whether Steve Ballmer’s Microsoft can become a leader in the cloud economy, or whether it’s just a kinder, gentler — but impotent — successor to the company Bill Gates built.