Six challenges for Microsoft as the Satya Nadella era begins

Six challenges for Microsoft as the Satya Nadella era begins

Summary: Congratulations, Satya Nadella. You're the new CEO of Microsoft! What are you going to do next? I don't have any advice, but I think I have a pretty good idea of what's on the new boss's to-do list.

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Now that Satya Nadella has taken the reins from Steve Ballmer as CEO of Microsoft, he has just a few more hours before he has to stop the celebrating and getting-to-know-you interviews and get to work.

That’s not an enviable job. As Microsoft enters the Nadella era, it’s a sprawling company with some tremendously successful divisions and some fundamental challenges.

It's a given he'll stay with the devices and services strategy and the One Microsoft vision. Anyone who seriously thought that Microsoft’s board was going to choose an outsider who was willing to blow up Microsoft’s core businesses was, um, qualified to run for Mayor of Toronto.

It's a given Nadella will continue to push Windows Azure and Office 365, where he’s been instrumental in their impressive growth so far.

But what about the wobblier parts of Redmond’s portfolio? That’s where the rolling-up-the-sleeves part begins.

I’m not going to pretend that I have enough insight or experience to tell Satya Nadella how to run Microsoft. (And I’m always amused by my colleagues when the “18 Things Satya Nadella Must Do Now to Save Microsoft” phase begins.)

But I do think I have a pretty good handle on the challenges he’s facing right now. And my guess is that these items are all high on Nadella’s to-do list.

1. Calm down the "unlock shareholder value" crowd.

Early last year, the ValueAct Capital hedge fund took a $2 billion stake in Microsoft and began agitating for change. Along with other noisy activist shareholders, ValueAct says its goal is “to work constructively with management and/or the company's board to implement a strategy or strategies that maximize returns for all shareholders.”

Those are gentle, highly sanitized code words, of course. What “unlock shareholder value” really means is “sell off or spin off assets and give the cash to shareholders.” Which might be at odds with the long-term strategy of the company itself.

Nonetheless, ValueAct was persistent enough to earn a seat on the Microsoft corporate board, which it will occupy next month. They’ve probably got a backload of ideas they want to share.

So give them a fair listen. Have a full and frank exchange of ideas in the board room. And then make whatever changes seem appropriate without being panicked by a single shareholder whose holdings constitute less than 1 percent of all shares. (Hint: That’s not likely to involve spinning off Bing, which has an important role to play at the core of other products.)

2. Developers, developers, developers!

Everyone has seen the clip of Steve Ballmer doing that chant, right?

My, how time flies. That memorable moment was first uploaded to YouTube in 2006, more than eight years ago. 

Since then Microsoft's developer community have felt jerked around more than they've felt cheered, with a couple of high-profile shifts in development strategy (abandoning Silverlight was the biggest slap, but there have been others).

It’s an encouraging development that Scott Guthrie, famous for his red shirts and a love for developers that is more real (if less boisterous) than Ballmer’s, will be acting head of the server and enterprise group, reporting to Nadella. But developers need to be seriously wooed back to the Windows platform.

I hope Nadella has jotted down a note to himself: “Do not attempt to re-create Ballmer ‘developers’ video. Nothing good can come of that.”

3. Define the line between business and consumer.

The overlap between product lines in Microsoft is substantial. The work that goes into Windows and Office ends up in both the enterprise and consumer/soho versions of those two products. Trying to spin off either product into separate teams or (shudder) businesses is a recipe for chaos.

But there are certainly opportunities to paint a brighter line between the two sides of the house than we’ve seen so far.

The faster release tempo is a good thing for consumers, but makes IT pros nervous. That issue has to be reconciled. In addition, Windows on the consumer side needs to aggressively address the pricing issue. On consumer devices, the cost of a license is going to have to drop dramatically. If not to zero, then at least to a level where the price differential from devices that run Android/Chrome or other almost-free operating systems is clearly warranted by a solid value proposition.

And on the business side…

4. Clean up the licensing mess.

Enterprise customers experience real pain every day thanks to Microsoft’s unbelievably complex licensing rules, which are practically sadistic. Managing desktop and server and client access licenses is enough to make even the most diligent accountant break into a cold sweat and grab his security blanket. (See Gene Wilder in The Producers.)

I’m not sure it’s possible to rationalize the existing licensing schemes for on-premises software (Windows Server, Windows desktop, Office, and all the management tools and add-ons). But it is possible to enforce some sanity in the transition from licensed software to subscription services.

We’re already seeing signs of common sense in Office 365, where subscriber-based models are so much cleaner than the messy Office + Exchange on-premises licensing story.

And there’s progress in the cloud as well. Running a server in Windows Azure is already effectively Windows Server by subscription. You don’t need any server hardware or server OS licenses, just a Windows Azure instance that you can spin up (meter running) and down (you’re off the clock) as needed.

The next step is to move to that model for Windows-powered consumer devices. And although it makes perfect sense, that move won’t be easy. There’s obvious resistance from customers who prefer the control of "owning" local installations even when their software goes hopelessly out of date and becomes a security nightmare.

Figuring out the plan to get from clunky licenses to a subscription-based future will be a key challenge for Nadella.

5. Keep the hardware division growing fast.

The Surface division had a rocky start but seems to have recovered after those initial stumbles. The Nokia acquisition has the potential to bring in some hardware genius and sales that could scale up to 100 million devices a year in fairly short order.

So, you know, keep the Surface division growing at triple digit percentages for the next few years. Don’t piss off too many partners. Integrate the Nokia division without bloodshed.

Easy, right?

6. Focus, focus, focus.

One of the most amusing and disturbing anecdotes that Satya Nadella likes to tell about himself is this one, which he’s repeated several times now. (That means it’s a corporate-PR approved part of the official narrative.)

Many who know me say I am also defined by my curiosity and thirst for learning. I buy more books than I can finish. I sign up for more online courses than I can complete.

We can all appreciate that thirst for knowledge. Unfortunately, it’s the personal equivalent of a longstanding corporate flaw at Microsoft, which (sometimes) enthusiastically launches products before they’re ready, then loses interest or dramatically shifts gears a few years later. At this point in history, with cutthroat competition from every side, there’s little room for anything resembling dilettantism. Time to focus, man.

That’s my list. Anything you think I’ve missed?

Topics: Steve Ballmer: The Exit Interview, CXO, Enterprise Software, Microsoft

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94 comments
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  • heres one

    Listen and get feedback from customers!
    ArcaneAce
    • we got to admit

      we got to admit MS is listening recently. I think their longer cycles of releases makes it feel like not listening.

      They changed many things in XBOX One and windows 8 per customer feed back.
      Mac_Win
    • Feedback?

      When were we asked to give any feedback to Apple folks?
      sharadka
      • Apple feedback

        At http://www.apple.com/feedback/
        romad@...
        • Apple feedback

          http://www.apple.com/feedback/ > null
          jmundala1
      • And that was MS' mistake

        They tried to copy Apple's success by doing stuff Apple does, like shutting their ears off and going LA LA LA CAN'T HEAR YOU with customer and developer feedback. They did it with both Windows 8 and XboxOne; the former had a "fix" that was more of a token gesture with MS pretending they listened while doing nothing. The latter did have a sudden reversal... but that was only because Sony curbstomped them so bad on E3 that it was clear for everyone that the XboxOne would fail if they didn't backtrack on that issue. The key difference is competition; had MS strong competitors on the desktop OS, Win8 would have never forced Metro upon its users.
        danixdefcon5
      • Um, all the time. Or have you forgotten the royal fit

        Apple users pitched when Cupertino dumped Save As in Lion? Or all the criticism Apple is getting for changing course on various things they said they would never do like small tablets, video on iPods, app development on the iPhone, etc. They changed course because of customer feedback.
        baggins_z
      • I have

        I want a sd card slot on my work phone (stuck with iPhone even though I hate it)
        notrozer
    • Listen, but don't be beholden

      If you ask people what they want, they'll ask for a new version of the same thing they have. There would have been no cars, just faster horses.
      Michael Alan Goff
      • True genius lies in knowing when

        to listen to customer feedback and when to ignore it. You know you have it right when your product sells really well and is popular. You know you have it wrong when you hear nothing but complaints and have flat sales for months and months and months.
        baggins_z
      • LOL, faster horses

        The horse lobby was so powerful that in some States in the US, in the early days of automobiles a driver was required to pull off the road and disassemble the automobile if he/she encountered a horse coming along the road.
        WhoRUKiddin
  • "... I don't have any advice ..." ... WOW!!

    A technology writer which does not use the "XXX things that YYY must do", but humbly states "I don't have any advice". Color me impressed!
    financegozu
    • And then proceeds to tell MS

      what they need to do in the rest of his article.
      baggins_z
    • Challenges, not advice!

      That's just like what an Indian politician has to say: "No, I don't have any ambition!"
      chakr
  • A couple of things you missed:

    1) Nads need to put on 7 stones in weight.

    2) He needs to start shopping for clothes at golf outlets.

    3) Allow MS developers freedom to think.
    Alan Smithie
  • developers developers

    Prices should be slshed for developers. APP Counts are very important these days for any eco system, free dev programme are more imp.
    Mac_Win
    • There are free dev tools

      the Visual Studio Express tools are quite functional. I actually use them from time to time when I want to run a slightly lighter VS.
      Mac_PC_FenceSitter
      • I have to agree with Mac_Win

        Visual Studio Express is a "lighter" version of Visual Studio. To compete in today's world of mobility, if they make the price of admission much, much lower for the robust dev tools, they'll get more traction.

        One can say what they will about Android and the apps that exist (and we know some of you will). That is opinion. What is fact is that for Android EVERYONE gets access to the same tools to develop with, EVERYONE has access to the same SDKs with no special privileges given to partners and No ONE has to pay for them. That's why Android caught up to iOS as quickly as it did. Keep the smug "but we don't have junk apps in the WP Store" attitude and the WP Store with it's "quality" apps will be just like WebOS.

        I hope MS does change their policy. I learned to develop using MS tools but because of the cost of developing for MS vs Android along with not knowing when they're going to drop a platform out the blue, I have no desire to go back anytime soon.
        tallbruva
        • What robustness is missing in the light tools?

          There's good refactoring support, good debugging, step in, step out support, breakpoints, an output and immediate window. Database explorer is there, as is Solution explorer.

          The object browser is missing, but the .NET SDK is better than that for looking stuff up anyways. The only other big absence is "delete all breakpoints."
          Mac_PC_FenceSitter
  • No consumer benefit in subscription-based OS licensing

    I don't see any benefit on the consumer side in moving to a subscription-based licensing model for the Windows operating system, because the current model is just fine for most people: Today, they get an operating system license along with every hardware purchase (PC, Tablet, Phone, etc.) and this already includes a few years of support through software and security updates which is enough if you take into consideration that the average consumer usually doesn't upgrade a device to a newer version of Windows. Part of the reason for that is the fast pace hardware and software evolves: People rather get new hardware (along with a more current Windows version, with a longer support period) than a new operating system, and that's just fine. Now moving to a subscription-based model only makes things more complicated: Instead of just buying and using the device, it's no longer possible without a subscription account: You are forced to register and give away sensitive personal data (bank account/credit card information) to Microsoft, whether you like it or not. Therefore, the only benefit I can see is not on the consumer but on the provider side: If an individual needs a subscription account to use Windows, it's an effective way to reduce piracy and keep track of invididual software usage. But that's of no value for people who buy hardware with genuine software licenses and who simply want to "own" these licenses as anonymously as possible. Software subscription is being sold as the way to go, and the easiest one, which has only benefits, but in reality it's just the perfect assurance for providers to charge people fees on a regular basis.
    sevenacids