Bill Gates: Where are his billions going?

It was already the most powerful charity in the world. And by a big margin. Last year it declared its assets at $35bn - more than the GDP of a medium-sized African country. It gave away $1.36bn in grants. And now it is to double in size - thanks to a massive donation from the world's second richest man.

The rich, F Scott Fitzgerald famously observed, are different from you and me (and not just because, as Ernest Hemingway waggishly riposted, they have more money). If you needed proof of that just put yourself in the shoes of yesterday's donor, 75-year-old Warren Buffett. If you had decided you were going to give all your money away, to whom would you give it? Here's one answer you probably wouldn't come up with. The second richest man in the world decided to give it to the richest man in the world - the Microsoft founder Bill Gates.

Buffett, widely regarded as the world's most successful investor - who had previously said his fortune would go to charity after his death - changed his mind and decided to give it away now. The bulk of his $44bn fortune will go to the Bill and Melinda Gates Foundation in annual instalments. It will be the biggest charitable gift ever. As part of the deal, Buffett will join the foundation's board, which will become a charity unparalleled in history, far larger than anything created by the great 19th-century philanthropists like Andrew Carnegie or the Rockefellers. The Gates Foundation has come a long was since it began, under a different name, barely 20 years ago. It was the offshoot off the iconic computer software company which Bill Gates had founded - with the dream of placing a personal computer in every home and business and through which he became the man who shaped the first half-century of the information age. In the intervening years it has given $2bn to education and learning projects and $4bn to fight diseases in the poorest countries, along with another $4bn on a range of other charitable activities in more than 100 nations around the world.

Bill Gates had long been intending to give away 95 per cent of his wealth before he died. "A very rich person," as Warren Buffett put it, "should leave his kids enough to do anything, but not enough to do nothing." Gates had always assumed that he would wait until he had retired to begin the redistribution of his wealth. But then, in 1994, his mother Mary Gates died of breast cancer.

On the eve of her son's marriage, years before - to a fellow Microsoft worker, Melinda French - Mary Gates had written to her future daughter-in-law. Mary and her husband William were respected members of the local community in Seattle where Bill was raised. Mary was a schoolteacher, a woman of character with a strong sense of civic duty. In the letter she talked about the great opportunities the two would have as a couple to improve the world - and the unique responsibilities that came with the extraordinary wealth which had fallen to them. It had lodged in Gates' mind, but his mother's death brought it a new resolution.

That same year he launched the foundation. One of the first two grants it made was to the Swedish Medical Center in Seattle, for a "cancer pain management" study. Initially funded with just $106m, given by Bill Gates personally, for the next two years it grew by $2bn. By the turn of the millennium Gates had begun placing large sums into it in the form of his own Microsoft shares and later the company's first dividends.

In the early years its grants were largely given within Seattle and North-west America. He gave to his old high school or the Seattle Art Museum, but before long Gates began a five-year philanthropic effort to put computers in every library in the poor parts of the United States. In addition he offered an annual $1m prize to the library devising the most innovative programme to give the public free access to information technology.

Not everyone was impressed. Gates was by then known for his aggressive business tactics and confrontational style of management. "Under Mr Gates' watch, Microsoft has done a lot of ruthless and sometimes sleazy things over the years," as the technology correspondent of The New York Times, David Pogue, has put it. Gates made a lot of enemies. Just Google "Microsoft +evil" to see the intensity of the animus, Pogue suggests. Giving 40,000 computers to libraries was seen by some as merely an effort to create a bigger customer base for Microsoft and get new users hooked on Internet Explorer as the browser of choice. Future generations of Microsoft market domination would be assured. Gates' raising of his philanthropic profile as his company battled the US courts' verdict that Microsoft was a monopoly that violated the law only made many more cynical.

But Gates soldiered on, insisting that he only wanted to do with the internet what the 19th century philanthropist Andrew Carnegie had done for books, leaving hundreds of libraries standing in small towns across the world. "You know, Carnegie was a pretty hardcore guy," he once said. "I'd be happy if I could think that the role of the library was sustained and even enhanced in the age of the computer." In any case, criticism began to dull as Gates' charitable net spread wider, offering scholarships to disadvantaged black students - his $1bn grant to the United Negro College Fund is still the biggest his foundation has ever given - and to a wider group of charities from which Microsoft could not be said to profit.

In 2000 he merged the two bodies he had set up - the Gates Learning Foundation, and the William H Gates Foundation , named after his father - and transferred a significant proportion of his personal Microsoft shares. Unlike most charitable foundations, which hold their assets in shares, he put most of the money into bonds which meant the foundation was not hit by stock market crashes - a fate which Gates' personal wealth did not avoid. (His fortune has been reduced from $100bn at one point to a mere $50bn today.) In 2004 when Microsoft decided to return $75bn in cash to its shareholders, Bill Gates put his cut - $3bn - into his charitable foundation.

Today, the foundation is administered from its nondescript Seattle headquarters - where there is no name on the building or door but where, inside, a giant map shows the progress of the campaign to give computers to libraries in every state. It is run by Patty Stonesifer, a former consultant to DreamWorks and senior vice president at Microsoft, where she masterminded the Encarta encyclopedia. She now runs the charity, though Gates and his wife still must approve all grants over $10m. Wealthy from her Microsoft years, Stonesifer takes no salary.

A team of programme officers, guided by committees of experts where necessary, process the thousands of applications for cash Gates receives every year. The priorities by which they decide are the level of need and the lack of attention the subject gets from other funders.

Gates is, one observer said, "ridiculously hands-on". "He wants to know everything about every grant, and knows immense amounts about microbiology and immunology," says Michael Specter, who interviewed Gates for The New Yorker last year. "He's one of these autodidacts who reads, reads, reads. He reads hundreds of books about immunology and biochemistry and biology, and asks a lot of questions, and because he's Bill Gates can get to talk to whoever he wants."

The geek who changed the world by dropping out of Harvard to write the operating system that became known as MS-DOS for IBM's new personal computer, has not lost his love for tedious detail. "That 1993 World Bank report was just super," Specter quoted him as saying. "I read it twice." He reads virology textbooks for pleasure. He has become, says Warren Buffett, a "walking encyclopedia of medical knowledge". He sends a constant stream of e-mails to the scientists at the foundation.

Health became the major focus of the foundation, not at Gates's behest but at that of his wife, not long after their first child was born. The couple - the only trustees of the foundation - now provide 17 per cent of the entire world budget for the attempt to eradicate polio. They have given $100m to help children suffering from Aids. In 2003 they donated $168m to fund research into malaria. In 2004 they gave $83m to help fight tuberculosis, a disease which kills nearly 2 million people a year. They have given numerous donations for vaccinations, culminating in January this year with a $750m contribution to the Children's Vaccine Programme - to fight diphtheria, whooping cough, measles and yellow fever.

For Bill Gates it is the technology of the diseases and the ideas to combat them which is the inspiration. The rock star campaigner Bono, with whom Gates shared the Time magazine Person of the Year award last year, sees that clearly. "This isn't some sort of well-meaning hippie stuff," he says. "Bill Gates is not into nice sentimental efforts or whimsical support for hopeless causes. It's all about results."

Gates himself testified to that when he appeared on the stage at Live8. "I believe that if you show people the problems and you show them the solutions they will be moved to act," Gates told the 3.4 billion people watching - more than half the population of the world. "I have learned that success depends on knowing what works and bringing resources to the problem."

What excites Gates most is the quest to find vaccines for Aids and malaria. The foundation is funding scientists at work on both. It is also paying for research to make "medical leaps". One such is the attempt to discover a chemical that would block malaria-transmitting mosquitoes from smelling, and therefore biting, humans.

It can do that because it is not bound by the economic and political restraints which encumber governments and pharmaceutical companies in such matters. "We are in this unusual position where we can spend one hundred million dollars on something we think might work and it can fail and nobody gets fired," Gates told The New Yorker. "Political institutions just can't handle risks like that." One such example is the work of Stefan Kappe, a young German parasitologist at the Seattle Biomedical Research Institute who is using genomics to destroy only those genes which are essential for the malaria parasite to grow in the liver. The project, he says is too conjectural for conventional funders. "The Gates people know it's far out. But sometimes far out works."

There are many in the aid world who are critical of Bill Gates. Focusing on next-generation research, they argue, is not the best use of the money. There are low-cost solutions - like providing bed nets and insecticide - which would produce immediate effects. Others argue that building up health infrastructures - clinics, nurses wages and basic drugs - are what would make the biggest improvement to the lives of the poorest people in the Third World. "The trouble is that all that is not as sexy as Aids-vaccines and giving injections to kids," said one prominent aid worker. "But with plain old bed nets, sprayed with insecticide, you can get rid of half the malaria deaths in Africa."

Gates has responded not by abandoning his high-tech approach but by giving more money to fund the low-tech solutions, too. He recently gave a $35m grant to Zambia to fund nets, drugs and insecticide for a pilot project with a target to cut deaths by 75 per cent within three years. "We need to prove that children don't have to die," Brian Chituwo, the Zambian health minister, said. "And with this money I think we can." The world can expect more initiatives, not fewer. Last month Gates announced that he is gradually to bow out of his day job at Microsoft by 2008 to spend more time at the foundation. Again the cynics wagged their fingers. His announcement, they said, coincides with Microsoft's falling share price and troublesome new flagship product, Windows Vista.

Bill Gates shrugs. He will stay as chairman of the world's biggest software company, he hopes for the rest of his life. "I don't see a time in the future when I won't be the chairman of the company," he said. But meantime, each year his foundation will acquire another 5 per cent of Warren Buffett's fortune for as long as at least one of Gateses - Bill, now 50, or Melinda, 41 - remains active in it. And since Buffett's investment company Berkshire Hathaway has given its investors a compound annual return of 21.5 per cent, this would mean the value of his gift will steadily increase over time.

It will all be more money for the fight against diseases as malaria, Aids and tuberculosis. "Global health is our lifelong commitment," Gates says. "Until we reduce the burden on the poor so that there is no real gap between us and them, that will always be our priority. I am not so foolish as to say that will happen. But that's our goal.''

There is a huge job to do. Malaria alone is the single biggest killer of Africa's children. As many as three million, mostly under the age of five, die each year. Some estimate that there are more than five hundred million cases annually.

"It just blows my mind how little money has been spent on malaria research," Gates has said. "We can save many lives for hundreds of dollars each. What has prevented the rich world from attempting this? Do we really not care because it doesn't affect us? Is that what it is?"

As the years pass, Bill Gates, the merciless businessman with ambitions for world domination, is giving steadily way to Bill Gates, the compassionate scientist whose goal is to save millions of lives. The richest man in the world is becoming the greatest philanthropist of all time.

Great and good: the philanthropists' club

Andrew Carnegie

1835-1919

The Scottish-born radical, whose family emigrated to the United States when he was 12 years old, amassed a fortune from ironworks and steel rolling mills. Their products were in high demand because of the building of the American railways, and Carnegie built the world's first $1bn company. After retiring at 65, he devoted the rest of his life to giving his fortune away, focusing on projects aimed at improving public education. He built 3,000 public libraries in Scotland, the US and other English-speaking countries. He supported university institutes to promote technological innovation. And he made numerous donations for public buildings across the US and Scotland. In total, it is thought that he gave away $380m.

J Paul Getty

1892-1976

Born into a wealthy Minnesota oil family, his early ventures in the industry were subsidised by his father, but he was wildly successful and had made his first million by the age of 24. He almost retired then to become a West Coast playboy, but returned to the family empire and became one of the world's earliest billionaires.

Getty ploughed his fortune into collecting art and antiquities, which he regarded as a civilising influence on society, and opened the J Paul Getty Museum in Malibu, California, in 1954. Today, the Getty Foundation gives money to projects to promote and preserve the visual arts.

Henry Ford

1863-1947

The founder of the Ford Motor Company created the modern car economy. Having introduced factory assembly lines, he brought down the cost of cars at the same time as being able to pay his workers significantly more than his rivals.

He and his son, Edsel, created the Ford Foundation in 1936 to support projects such as the Henry Ford Hospital which he founded in Detroit. He eventually gifted most of his wealth to the foundation. It is still the largest charity after Bill and Melinda Gates's foundation, with about $12bn (£8.25bn) in assets, which it distributes to progressive causes such as pro-abortion groups and media watchdogs.

John D Rockefeller

1839-1937

Bill Gates is most often compared with John D Rockefeller, whose reputation followed a similar trajectory: from pioneering entrepreneur to greedy monopolist to benign philanthropist. His Cleveland-based Standard Oil grew through undercutting and then taking over his rivals, until it had become so big that the United States Supreme Court ordered it be broken up in 1911.

By this time, Rockefeller was devoting his energies to philanthropy, and had given away an estimated $550m by the end of his life. He had always paid a tithe, a tenth of his earnings, to the church. As his wealth grew, he funnelled money into universities, particularly colleges that promoted education for African Americans. His sanitary commission helped eradicate hookworm from the South.

WK Kellogg

1860-1951

The American industrialist Will Keith Kellogg made his name and fortune promoting breakfast cereal, and in 1906 he founded the Battle Creek Toasted Corn Flake Company, which went on to become modern day Kellogg's. He fretted, though, that "it has been much easier to make money than to know how to spend it wisely."

His donations backed the foundation of Kellogg College, Oxford, and he made land grants to several universities in the United States. He created the WK Kellogg Foundation in 1930 to distribute the annual income from a $66m donation of Kellogg stock. Its grants go to community projects in the US, Latin America and Africa.

William Hewlett

1913-2001

Met David Packard at Stanford University and spent $538m to found Hewlett-Packard in a California garage. The computer manufacturer went on to become one of the biggest in the world, worth $49bn (£34bn) at his death.

Hewlett's charitable giving began with donations to Stanford and other educational or industry organisations. Then he set up the William and Flora Hewlett Foundation with his first wife in 1966. It now has assets of $7bn, which it uses to tackle serious social and environmental problems.

Gordon Moore

1929-

In 2001, the founder of the microchip maker Intel made the largest-ever single donation to a university, endowing his Alma Mater, the California Institute of Technology, with $600m to keep it at the forefront of research and technology.

Intel is the world's largest manufacturer of microchips, and Moore's fortune is now estimated at around $4bn after he gave a "multi-billion dollar" gift to form the Gordon & Betty Moore Foundation in 2001. The foundation's concerns reflect those of the couple, particularly environmental issues, and some of its biggest grants have gone to protecting the habitat of wild salmon and towards saving the rainforests.