Reading between Microsoft CEO Nadella's lines: On courage, subscriptions and unique value

Reading between Microsoft CEO Nadella's lines: On courage, subscriptions and unique value

Summary: CEO Satya Nadella dropped a few possible clues about where he and Microsoft may be going during his first earnings-call outing. Here's my attempt to read between the lines.


Microsoft's third quarter fiscal 2014 earnings will be more memorable for the fact that the company's CEO was on the earnings call than for anything about the earnings report itself.


My ZDNet colleague Larry Dignan has the breakdown by the numbers: Earnings were $6.97 billion, or 68 cents a share, on revenue of $20.4 billion, roughly flat with a year ago.

Nadella spent an hour on the analyst call on April 24 talking Microsoft strategy and answering Wall Street analyst questions. That's something former CEO Steve Ballmer did very, very rarely. But Nadella sounded as if he plans to make this a regular thing.

Nadella didn't drop any bombs during his first analyst-call appearance. Instead, he made a few phrasing choices that are open to interpretation.

On courage: "What you can expect of Microsoft is courage in the face of reality, we will approach our future with a challenger mind set," Nadella told analysts. I've seen some assuming this means "Ahoy! Bad news ahead." (Others assumed we would or should all recognize a quote from Nietzsche.) I myself, see it more as Nadella & Co. admitting that Microsoft has some serious challenges, ranging from only three-plus percent market share in phones, to a slow (re)start in the tablet space.

On the cloud subscription model: "We're well on our way to making that transition in terms of moving from pure licenses to long-term contracts and as well as subscription business model," Nadella told analysts. But he didn't share anything new about when, whether and how Microsoft will move to a subscription model for Windows, as some are expecting.

On what's next re: Nokia: Microsoft's acquistion of Nokia's handset businesses closes officially tomorrow, which is April 25. On today's call, Chief Financial Officer Amy Hood said this is "about four months later" than was assumed when Microsoft and Nokia announced their deal, so "business results have also changed." When Microsoft reports Nokia results, those results will no longer be part of Devices & Consumer (D&C) licensing (which is where Nokia licensing payments go now); instead they will be in D&C hardware.

"For Q4, we will clearly show the impact of the ending of the commercial agreement, Nokia's ongoing operations and any one time integration and severance cost," Hood noted. Does that mean layoffs? Just a hit from integration costs? No further elaboration here.

On Microsoft's 'unique' value proposition: Nadella already has established a few favorite buzzwords and phrases, just a few months into his CEOship: Mobile first/cloud first; ambient computing; data culture. But the one that currently has me most intrigued is "uniquely."

"To drive in this (new) world, we will continue to zero in on the things customers really value and Microsoft can uniquely deliver," he told analysts today. Maybe I am reading too much into this, but he did use the "U" word a handful of times.

"As we look to the future, what are the set of experiences across devices, some ours and some not ours, that we can power through experiences that we can create uniquely?" Nadella asked. He didn't elaborate, but my guess is this could be a reference to Microsoft providing cross-platform capabilities like device management, single sign-on/authentication, the true Microsoft Office experience and the like, across various computing platforms.

On how he is approaching the CEO job: Nadella talked about the importance on planning and executing continuously. He noted he was open to making changes to plans based on changing circumstances.

Nadella spoke of the "need to continuously build some new capabilities." He noted that "when you think about mobility first, that means you have to have a really deep understanding of all the mobile scenarios from everything from how communications happen, how meetings occur, and those require us to build new capability."

He said some of this would be done "organically," and referenced Microsoft's purchase of Nokia's phone business as an example of that. And he also mentioned "how different it is now to think about Windows as one family, which was not true before."

Nadella mentioned again today another of his new catch phrases: A cloud for everyone, on every device. If anyone is still wondering whether it's still really a Windows-first world at Microsoft now, those thoughts should be banished. Nadella's Microsoft seems more realistic, and is hoping to wedge its way in by getting users to try any Microsoft device, software or service, with the hope that more usage, if not love, may follow.

Topics: Leadership, Microsoft, Windows


Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • What MSFT should do 'uniquely', it won't do

    LISTEN TO THE CUSTOMER. This is what it has not done in 12 years of our complaining about all the bad changes which make life dysfunctional for its customers: removing good features in prior versions of OS and MS Office, changing the interfaces in both to make us scratch our heads and retrain our employees to the tune of billions of dollars.. so we don't upgrade.

    Uniquely, MSFT has burned us over and over and over again. Else, we'd not have stayed on XP, not have stayed with MS Office 2003 and prior, so they would not have been in a bad political position, requiring them to support both, for so long. Had instead, MSFT 'uniquely' made the changes such that genuine improvements under-the-hood were to be had, WITHOUT MANGLING THE INTERFACE -- had it 'uniquely' done this, we'd have readily upgraded, and MSFT wouldn't be facing the bad press it 'uniquely' faces, now.

    Returning to those familiar interfaces and features, restoring the backwards-compatibility, and 'uniquely' finding a way to pass on the later genuine improvements in later OS and MS Office3, is what MSFT needs to do now. Else, all we know is that it will 'uniquely' make our lives miserable, over and over and over. Past is prologue, and the prologue is NOT good.

    All the above should be patent to anyone. That we the customer keep on being ignored and even thrown under the bus repeatedly -- for 12 years! -- makes MSFT uniquely a company to avoid.
    • Business genius is knowing when NOT to listen to your customers

      When all your customers are driving horses and you have just invented a car, the best thing to do is ignore your customers.
      But when your customers are all driving cars and they all want you to introduce a fuel consumption gauge (and the rocket car you are working on is 30 years away), you better listen to your customers.
      Ian Easson
      • so...

        Keep seeing your comments, and I kinda love them. It is so true, the customer is not always right.

        I do think Microsoft has been on to something unique, a scenario of omnipresent technology that adapts to what you are doing and where you are doing it. I love the idea of having a tablet, attaching a keyboard and it becomes a laptop, and then docking it and there's your desktop. Or, with Windows 8, the dichotomy so many people criticize, is honestly a great way to allow that type of seamless transition to be viable. Perfect? No... But still a step towards a very fluid future.

        I think that fluidity is something only Microsoft has accomplished, while everyone else is still pretty fragmented. In one device, then on to the next, and on to the next. I think the "single device" idea is the future and its execution will only improve.
      • I've said this a number of times

        If it really is progress, it will be seen as such in due course.
        John L. Ries
      • humility is a wonderful quality

        definition of glib
      • Hide & Seek

        Another M$ model is released. Now where do I find it's steering wheel & controls this time?
        Nope, not in the back seat? try the boot?... Hey, here's a joystick tucked away in the glovebox re-named "Direction control" & the brake is now a button on the dash called "Momentum Reducer."
        Perhaps some of us object to needing to take driving lessons with each new car purchase?
        • Each new car purchase....

          XP reluctantly retired by many after how many years? And the pardigm of the desktop and start menu essentally carried over into Windows 7. Not radically differnt and at least 7 years old now.

          You haven't had to learn to drive over, but you have had to learn how to use the new navigation system, crusie control, power windows. Essentially, even with Windows 8, if you wanted to simply rely upon legacy applications and stick to the desktop, you could. You could still find programs as easily I dare say easier, than on the jalopy you just upgraded from.
          Mark Richey
          • Reluctantly?

            MS was trying to retire XP in 2007 in order to encourage people to upgrade to Vista.
            John L. Ries
    • Guilty

      I agree that MSFT have burned people and forced them into making the "stay with the old and familiar or jump ship" kind of attitude. But lest we forget the callous way that Apple just threw everything out the window in the 90s and started again from scratch. The backwards compatibility aspect of Wintel has always been a very, very important selling point. I still have XP machines at home, and the fact i can't install lots of stuff is I think an increasingly legacy of the Apple/Google era, where they don't give two hoots and will leave you in the lurch constantly. No thanks, that's not a step forward.
      • Agreed; backwards compatibility IS important

        I still encounter situations where MS-DOS applications are in use! And even some that are dependent on Netware! Not sure about the Netware stuff, but the MS-DOS certainly are not costing anything extra to keep on using so who can blame them.
    • Why Micrsoft Changed Office

      I don't know if you are familiar with the history, but the change in the Microsoft Office interface came about because of listening to customers.

      When Microsoft started surveying and interviewing customers about what it would like to see in the next version of Office products it found a very interesting pattern. What they discovered was that the vast majority of requests (80% for Word IIRC) were for features that were already in those products. What they had was not a feature issue but a usability/interface issue.

      That sent them back to the drawing board to come up with a new interface system, out of which (with user feedback) came the Ribbon interface. It was definately not loved by all at first, and it needed some work still. However, most people that used it came to like it and work better with it. I was put off by it myself, but found that I could be many times more productive with the ribbon system than before - especially in PowerPoint.

      As a side note, backwards compatibility is not always a good thing, especially when leaving that compatibility in place comes at the cost of security.
    • Communication is 2 way.

      I like the new interfaces, especially Office ribbon it was a huge improvement.
      Windows Server 2012 was also a massive step forward to managing the large numbers of servers in a data center.
      MS listens via many channels. Especially the beta programs. Are you really providing input?
      I'm not saying MS has done everything right but I do feel that a high percentage of the "Bad Press" is from people with minimal hands on experience with the new product & often a desire to promote alternate vendors solutions.
    • No Longer a Problem Here.

      Since XP's demise our extended family (8 computers) has gone straight from XP to Linux Mint & find it's interface far more user friendly than Windows 8.
      As we become more & more comfortable in discovering & using it's multiple alternative free applications I suspect microsoft will have a hard time in luring us back.
      • Of course you did.

        Probably took all of 30 minutes to do them all.
      • You Obviously...

        don't have "Windows Only" programs that are important to you and your family (and I am not talking about office type apps etc.)
    • brainout, you want MS and others to ignore us looking to move foward

      by catering to the handful of the stagnant?

      You want everyone else to suffer because you can't embrace going forward? With Windows 7 they gave you a free copy of 32 bit Windows XP virtualized, so that those using archaic 16 bit software compatible with XP can easily do so.

      And yet you complain that MS should cripple their OS by having that capability included natively into their 64 bit installs? That affects 100% of the users to satisfy a handful of users.

      Obviously your not a customer many people would want.
      • Apparently, there are lots of reactionaries...

        ...whether you're willing to admit it or not. But decide which is better for MS: a conservative Windows used by 95% of the computing population, or a cutting edge, ever changing Windows used by 25% of the computing population.
        John L. Ries
      • Sad That You Have The Biggest Mouth On ZdNet... Yet the smallest IQ...

        ... And you don't know the difference between "you're" and "your".

        Allow me.

        "You're" means: you are an idiot.

        "Your" means: this is your English lesson!
  • "we will approach our future with a challenger mind set"

    That's something I understand more as a will to move fast and innovate at a faster pace than anything else!
  • Nadella

    Can't help but like this guy. Intellectual, Optimistic, Practical, and shows Leadership in every aspect. I am excited for Windows future and have grown to love their recent advancements in products like the Surface 2, Windows Phone 8.1 and Windows 8.1. It's a great time to be using Windows, people may disagree, but there is no way you can convince to operate Android on a regular basis, or go back to the all so simplistic IOS.