The news that Satya Nadella has been appointed CEO of Microsoft is not just a massive change for the company but the technology sector as a whole. Rarely do the most senior positions in the big West Coast tech behemoths change hands. Just think about Larry at Oracle, Benioff at Salesforce, Zuckerberg at Facebook or Larry and Sergey at Google. The last time we saw a shift like this was following the death of Steve Jobs at Apple which just goes to show the kind of change that would normally be required to precipitate such a dramatic move.
The fact that Bill Gates has also stepped aside as Chairman at Microsoft is perhaps even more significant. Given that a major concern from prospective candidates and the markets was that whoever became CEO would have the former founder looking over his shoulder. Of course Gates remains a major shareholder as does Ballmer but it provides some breathing room for Nadella. Perhaps demonstrating his smarts Nadella has given Gates a new role working on products which he should love and will distract him from other business issues.
Gate’s enthusiasm for this appeared obvious in his short video introducing Nadella. Although at this time we do not know what these new products will be and having the former founder involved at this level may create its own challenges. Who is going to really challenge Bill Gates in a product meeting? The merits of this appointment will be discussed in length over the coming days and weeks but in the end, only time will tell whether it was a good move.
Solid foundations to build on
Whilst their phone platform struggles, their cloud business shows strong growth. It is that cloud business which Nadella was running before becoming CEO. In fact Nadella began to promote cloud within Microsoft when he was running their Server and Tools division which shows a man with vision. If Microsoft is going to have continued success then cloud needs to be huge for them. That Nadella helped shape the cloud strategy and delivered results from it would have assisted his campaign for the new job.
Despite much talk to the contrary Nadella inherits a company which still commands a position of strength within its industry and the world at large. Many people do not realise just how influential and hence powerful Microsoft is and how far its tentacles reach. It has influence that Apple and Google can only dream about and perhaps even IBM fails to match. The waning of Windows dominance and the slow growth of Windows Phone has meant that publicly the company’s power is seen to be slipping. Nadella could address this by outlining Microsoft’s future strategy better than his predecessor. Whilst Ballmer restructured the company he did not articulate the reasons or the direction particularly well.
From the software development perspective Microsoft still owns the largest community of developers and partners of any vendor by some considerable margin. Windows is the dominant operating system that people use at work and at home. Visual Studio is in a class of its own amongst developer tools. Last year T-SQL, Microsoft and Sybase’s proprietary extension to SQL, was considered the most in demand programming language and amongst the top 10 there was C#, C++ and VB all languages affiliated to the Microsoft stable.
There may be trouble ahead
Any organisation the size of Microsoft is going to make some mistakes and theirs are well publicised. Most recently these have included issues relating to Windows 8 and the Xbox One launch. Both of these highlight a challenge that Microsoft has in moving towards being the company that it wants to be. That is an organisation that can sell not just to enterprise and organisations but the consumer. Windows RT was not bad in terms of the concept or the delivery but simply the name. Only a techie would think that naming a product RT was a good idea.
Microsoft makes a virtue of the technical knowledge of its workforce and not just those in technical positions. This can have problems when it comes to selling to the average Joe. RT is a classic example of this. Likewise the launch of Xbox One was more of a marketing err than a technical one. Most people acknowledge that Xbox is a great device but the launch event and messaging was mishandled. Again this is the sign of an organisation so fixated on the technical and so used to selling to a techie audience that they failed to understand the consumer and their concerns.
Nadella does not have consumer experience and therefore he is going to need to demonstrate that he can relate to this market. Something that Steve Jobs was excellent at and what has made Apple so successful. The question people are asking about Nadella is whether a man who has never run a company can run one the size of Microsoft. What they should be asking is can a middle aged man with a history in technology who has been running a cloud business understand the modern consumer? The team around him and who he brings in will be critical in addressing his own areas of weakness.
There are other stakeholders outside of Microsoft that Nadella will need to address, primarily the shareholders and parts of the Microsoft ecosystem such as partners. Both of these groups continue to have concerns and shareholders (who wanted a CEO from outside of Microsoft) in the form of ValueAct have recently forced their way on to the board. However rankled partners and unhappy shareholders are nothing new for Microsoft or any similar company of their size. Fighting those battles is what CEOs are there for and we will see how Nadella fairs.
It is worth remembering that both Gates, Ballmer, the board and new Chairman John Thompson are there and have experience of dealing with these issues. One should not assume that because the investors complain about something that they are right. Ballmer has delivered increased profits and most recently record sales. You might not think it from listening to institutional investors. Only recently investors were unhappy that Apple delivered record sales so they are not typically a content bunch. They will no doubt to continue to argue for killing off products, splitting up the company and driving more profit. Innovation unfortunately sometimes takes longer that the current financial cycle to deliver results.
What does the Modern Microsoft look like?
Like Microsoft in 1975 many of the modern tech giants were founded by people in their youth. The recent clear out of many of the familiar names at the top of Microsoft should help. Nadella has Ballmer to thank for that, given how unpopular and controversial some of those moves were at the time. Microsoft needs not just new leadership but new blood coming into the company that truly understand the needs and wants of consumers (the iPhone, Facebook, Twitter and beyond generation). That is if Nadella plans to covet the consumer market as his predecessor began to. Whether Nadella can find and attract the right type of new talent will be a test of his abilities.
Of course there is a balance as Microsoft also has to serve its large number of business customers and the tech community. However these stakeholders are increasingly being driven by the needs of the consumer. In many ways this is because individual choice about technology is exerting increasing pressure on organisations through BYOD, BYOA and Shadow IT. Nadella’s success with Microsoft’s cloud business, which is an area that all vendors are struggling with, points to a man that can address the business, IT and developer markets.
The future Microsoft will look different in some ways to the old and within the company this has already been recognised. Much recent criticism has been based on the idea that Microsoft still sees itself as it did 10 years ago. For example the issue of the Windows OS. The move into cloud means that even within Microsoft Windows is no longer viewed in quite the same way. When they talk about “the platform” today they no longer necessarily mean Windows, at least not the desktop.
Whereas in the 80s and 90s controlling the desktop made Microsoft powerful the future looks different. The UI whether that be on the desktop or phone or tablet is no longer as important as what lies behind it and that means backend systems, increasingly the cloud. A look at recent product launches shows support for non-Microsoft operating systems and frameworks within Azure; Office running on non-Windows devices; and tooling support for building apps that do not run on Windows. However the Windows revenue stream will still need to be replaced and that means significant growth in their cloud business. This is where Nadella comes from and so he should be strong in this area.
There will need to be new products and perhaps existing products could provide stronger revenue streams. Kinect is an example of a product that is perhaps yet to fulfil its full potential. There is talk of a completely new operating system (not Windows) and there could be a move into application specific appliances similar to Oracle and IBM.
Microsoft recently rebranded as a “devices and services” company. It has been interesting to hear Nadella talk a lot about software but not so much about devices. If he is less sold on the devices idea, then the recent acquisition of Nokia and the fragility of Surface sales may prove challenging. The long term future of these products may be in question.
Now we wait
Nadella will have a great understanding of Microsoft and how it works from his 22 years there. He has proven success in different areas and his role in their cloud business which will be critical going forward put him in the right spot to succeed Ballmer. His internal brand is said to be good as he’s liked and respected within the company. CEOs typically finish more unpopular than they start and so starting from a good place is always helpful. Microsoft is a giant company with a very wide range of interests and so there will be difficulties and that’s why those around Nadella will be critical to his success.
Until proven otherwise there will continue to be concerns about how suitable Nadella is for the big chair at Microsoft. Often the man who comes after a giant struggles to fill that man’s shoes and Nadella is certainly following two of the biggest in Gates and Ballmer. Tim Cook at Apple is a recent example of this. However it is difficult to see how the CEO of Ford would have been a better choice.
There is too much currently in motion at Microsoft (Nokia, Windows 9 and so on) that Nadella will have to deal with for us to judge him in the short term. For now I would suggest that its business as usual until Nadella proves otherwise. Reassuring as this may seem in the short to midterm, it is the business as usual that may concern most in the long term.