Among the memorabilia in Bach's office: A special edition "Launch Team" Xbox, signed by Bill Gates. (Click for larger version.)

Robbie Bach may have been viewed at one point as a potential successor to Steve Ballmer as Microsoft's chief executive -- but Bach says he never aspired to the job, and he and Ballmer have never discussed it.

That was one of the insights we gleaned from the Microsoft Entertainment & Devices Division president during a wide-ranging interview in conjunction with the news that he'll be retiring after 22 years with the company. Among other topics, Bach explained why he's leaving, discussed his post-Microsoft plans, defended the company's prospects in the mobile phone industry, addressed the canceled Courier project, and described the upcoming Project Natal release as a "midlife kicker" for the Xbox 360 console business.

Continue reading for edited excerpts from the interview, which we've broken into four parts for easier navigation.

Part 1, below: Why Bach is leaving after two decades
Part 2: How Project Natal could impact the Xbox business
Part 3: Lessons learned, and thoughts on Microsoft Courier
Part 4: Did Microsoft spend too much developing Xbox business?

Follow-up: J Allard on Microsoft's culture of reinvention

Q: I've read the official reasons for you deciding to leave. So let's hear the real one.

Robbie Bach: (Laughing) No, this is one of those things where you look at where the business is, you look at where you are in your personal life, and you make decisions about what you want to do going forward for the future.

And for me our business right now, you know, we're having a great year in E&D. You can look at us, we're going to -- through the third quarter we're on track to have our best year financially we've ever had. We've got a great set of product stuff coming with Natal, Windows Phone 7, and we've got Kin out in the marketplace. There's actually like four or five other things -- new version of Mac Office, a new version of our embedded operating system. So, it's a big year for us from a product perspective. So, from a business perspective we're in a very good position, and the team is set up to continue to drive successfully forward.

And from a personal position, you know, I've been here 22 years. I've been fortunate enough to work on some really big initiatives, you know, Office, work on Xbox, to work on things we're doing in the phone space, building our retail business. So, those are all really exciting things.

So, I've been doing sort of the, 'OK, where am I, where is the business? The business seems like it's in a good position. So, it's an opportunity for me to step back. And when I step back, I say, look, I love what I do, I love the business, I love the company, but there's other things I want to do going forward. I've got personal things I want to do, we've got family things we want to accomplish, I've got things I'm doing with the Boys & Girls Club and some other organizations that are important to me. And it's really tough to try to do all those and do the 100 percent work that I want to do here. With the business in a good shape with a good leadership team, now seemed like the logical time.

Q: It's actually interesting -- it sounds like a lot of the same reasons that J Allard has decided to leave. And you two basically built the E&D business, started it together. Is it pure coincidence that you're leaving at the same time?

Bach: It is pure coincidence, and it's one of those funny things. Because J and I have been talking about his situation for a while, and, of course, I haven't been talking about my situation with him. And I've only been able to talk about my situation with Steve.

It wasn't until Thursday that I made the final decision. So, we've been going back and forth trying to say, hey, how does this work, what do we think about that, while I've been having conversations with J about the fact that he was going through the same space.

So, that's just a little bit of serendipity that comes into all of these things, but the two things aren't connected. It just happened we've both been fortunate enough to be involved in some great businesses.

Q: As you said, lots of strength to look at in the E&D business, from Xbox to a bunch of other things, Xbox Live and Windows Phone 7 is clearly something that a lot of people are excited about.

At the same time, if someone were to pick apart the business, they'd look at the Windows Mobile market share and say, that's been sliding, in anticipation of Windows Phone 7 perhaps and also in the face of competition. Where is that business in your mind, and did it at all play a role in your departure?

Bach: Well, the business is certainly going through a transition, and we're going through a transition from what was an old model and an old approach to what we're doing in the phone space to a completely different model and completely new approach.

The business right this minute is right in the midst of that transition where the old business has lost some share, and we've got to keep working at that, but the new business has such amazing promise in terms of what we see happening from a product perspective, and what we think is going to happen with consumers.

So, when I think about it, I can see all of it. Now, obviously that doesn't show up in the financials, it doesn't show up in the market share yet, because we haven't shipped the new product, but I can see the roadmap and path going forward there, and I feel incredibly good about what the team has built and the strength of that team and what they can do going forward.

So, it's one of those funny things where it depends on what metric you look at. If you just were to look at just market share, you'd say, hey, we still have some challenges. When you look at what I see in the products going forward, the engagement we're getting from OEMs, the engagement we're getting from operators, I have real optimism and think the business is in a very good space.

And it certainly has nothing to do with one way or another my evaluation of what to do, other than I have confidence in where we're going. If I felt like there was an area where, ooh, gosh, I don't feel confident, you know, I care a lot about the company, and I want to make sure we've got that addressed, and I feel like we're in very good shape on that front.

Q: So this was your decision to make?

Bach: Yes.

Q: This is not something where you were asked to leave?

Bach: No.

Q: Under the new structure, Andy Lees and Don Mattrick will report directly to Steve Ballmer. So, there will be no person replacing you as president of E&D.

Bach: That's right. What we'll do is Andy and Don will go to work directly for Steve starting July 1. There will be some pieces that will work for Don within that. I will continue to manage the rest as we figure out the transitions for some of the rest of the businesses, and in particular some of the support functions, our entire retail sales organization, and a number of other areas. So, I will stay very engaged on the business through this fall.

I spend a lot of time working with our operator partners, both on the Mediaroom business and on Windows Mobile. I plan to continue that, and spend a lot of time working with the senior management and some of our key retail partners. I'll continue to work on that, and figure out the migration paths for how we're going to manage all that.

And the way these things work, I make a decision (to retire) on Thursday, we have to announce on Tuesday, and you can't -- you can't figure all those things out in four days.

Q: Is that because it's a material decision?

Bach: Yeah. Section 16 officer, and you have four working days in which to announce that. So, once I make a final decision, I can't then make a decision and then go discuss with people what we're going to do. There's a certain set of things you can put in place, but then you have to announce. So, there's a lot of specifics of things that I've involved in that we have to figure out.

Q: Obviously it would be Steve's decision about whether or not to fill that president's role.

Bach: Sure.

Q: But I'm sure you had some input into it.

Bach: Sure.

Q: Why not fill that?

Bach: I think the biggest thing is we have two senior leaders who are really ready to drive the business and to drive it at the most senior level in the company. You know, Don -- Don has more experience -- this is the irony of it. Don works for me; he has more experience in the entertainment space than I do, right? I mean, I've been at it 12 years, he's been at it 23. So, he's really experienced in this space. He's built a strong team, has got a great strategy going forward, and I feel really good about him.

And Andy has as much experience at the company as I do. He's been here 20 years. He's worked on a bunch of different businesses. He's worked intensively with our field organization, which is important for the mobile space, because it's both a consumer and an enterprise sale. So, he's very well-positioned to lead those businesses.

So, the biggest thing is you'd say, well, you'd backfill Robbie if you thought you needed to backfill Robbie, but, in fact, we've got a strong enough team and a bench that we can actually progress those guys forward.

I think the other thing is it's just a reflection of the fact that we have two very big scale business opportunities in front of us, at different stages in their lifecycle, but the entertainment space is a big-scale opportunity, the mobile space is a big scale opportunity, and Steve should have visibility for those.

Part 2: How Project Natal could impact the Xbox business
Part 3: Lessons learned, and thoughts on Microsoft Courier
Part 4: Did Microsoft spend too much developing Xbox business?