Microsoft goes with the cloud

In selecting Satya Nadella to head Microsoft, the company’s board opted for a 22-year veteran and someone who has led its cloud computing efforts. Microsoft took six months in the search process, ultimately coming up with someone intimately familiar with the corporate bureaucracy.

The New York Times had this story by Nick Wingfield:

Microsoft on Tuesday announced that Satya Nadella was its next leader, betting on a longtime engineering executive to help the company keep better pace with changes in technology.

The selection of Mr. Nadella to replace Steven A. Ballmer, which was widely expected, was accompanied by news that Bill Gates, a company founder, had stepped down from his role as chairman and become a technology adviser to Mr. Nadella.

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In Mr. Nadella, Microsoft’s directors selected both a company insider and an engineer, suggesting that they viewed technical skill and intimacy with Microsoft’s sprawling businesses as critical for its next leader. It has often been noted that Microsoft was more successful under the leadership of Mr. Gates, a programmer and its first chief executive, than it was under Mr. Ballmer, who had a background in sales. Mr. Ballmer, 57, said in August that he was stepping down.

The Economist story detailed how the appointment fits into Ballmer’s reorganization and emphasis on services over devices:

Two months before he said he would relinquish his job, Mr Ballmer unveiled a reorganisation of the giant firm’s business structures, accounting and management, declaring that Microsoft would henceforth be a “devices and services” company. Since then much of the talk about Microsoft—apart from gossip about who might succeed Mr Ballmer—has been about devices. Microsoft is buying Nokia’s ailing mobile-phone business, which is by far the biggest maker of smartphones that use Microsoft’s mobile operating system. The firm’s Surface tablet, despite encouraging results last quarter, has not sold well. Its Xbox entertainment console, however, has gone like hot cakes.

The appointment of Mr Nadella, a software engineer who has been at Microsoft for 22 years, is a reminder that services—especially the ones the firm sells to businesses—are every bit as important as consumer devices, and probably more so. Microsoft is not only battling Apple and makers of devices that run on Android, Google’s mobile operating system, as computing shifts from the personal computer to the smartphone and the tablet. The software giant is also fighting to retain business custom, as enterprise computing also becomes mobile and shifts from desktops and corporate data centres to cloud software and remote servers.

Under Mr Nadella’s leadership, the old “server and tools” division increased revenue by 9% in the year to June, to $20.3 billion (more than a quarter of total revenues), and operating income by 12.8%, to $8.2 billion, making it the best performing of the company’s big divisions. Mr Ballmer’s reorganisation makes comparisons since then difficult, but the new “commercial” segment saw revenue climb by 10% in the six months to December.

The Wall Street Journal story by John Kell and Shira Ovide said that Nadella would likely continue Microsoft’s current course, calling him a “safe choice”:

The appointment of Mr. Nadella, who is 46 years old and leads the Microsoft division that makes technology to run corporate computer servers and other back-end technology, is considered a safe choice. It comes after a lengthy search during which the company considered a long list of external and internal candidates.

Mr. Nadella, who will also join the company’s board, said his selection marked a “humbling day” and vowed to reinvigorate Microsoft’s role as a leader despite stiff competition in markets such as mobile devices and what the industry calls cloud services.

“Our industry does not respect tradition—it only respects innovation,” he said in a letter to employees. “The opportunity ahead will require us to reimagine a lot of what we have done in the past for a mobile and cloud-first world, and do new things.”

Little in Mr. Nadella’s public history at Microsoft, however, suggests he will break from the company’s pattern as a fast follower, rather than a trend setter.

“As Microsoft continues down the right lane of the highway at 55 mph with its new CEO in hand, the fear among many investors is that other tech vendors from social, enterprise, mobile, and the tablet segments continue to easily speed by the company in the left lane of innovation and growth,” wrote analysts at FBR Capital Markets.

The Bloomberg story, written by Dina Bass and Peter Burrows, led with the news of John Thompson taking over as chairman from Bill Gates:

With Microsoft Corp. (MSFT:US)’s appointment of John Thompson as chairman to replace co-founder Bill Gates, the world’s largest software maker is looking to the veteran technology executive as the main outside voice in its new leadership structure.

Thompson was the lead independent director heading the board’s search for a new chief executive officer, resulting in the appointment of Microsoft insider Satya Nadella to replace Steve Ballmer, the Redmond, Washington-based company said in a statement today. While the naming of Thompson and Nadella, who were already involved in Microsoft’s transition, signal continuity, it’s also the biggest break in the company’s history as the Gates-Ballmer duo who have been in charge for more than three decades step aside.

The former CEO of Symantec Corp. (SYMC:US), Thompson, 64, is stepping in at a crucial point as Microsoft remakes itself to better compete with rivals including Apple Inc. (AAPL:US) and Google Inc. (GOOG:US) In picking Thompson, the board is betting that he’ll be able to use his experience running a security-software company to help turn around Microsoft.

“Thompson’s going to be a major voice for the company,” James Staten, an analyst at Forrester Research, said in an interview. “They wouldn’t have made him chairman, if he didn’t have strong opinions about how to drive the company forward. And Satya is looking for strong partners on the board.”

Making changes at a company the size of Microsoft can seem nearly impossible. It’s hard to change the culture and shift directions. Nadella has a lot of work to do, particularly on the consumer side of the business. Whether he can innovate and keep investors happy will be critical to his success.