Microsoft goes internal for its next CEO with Satya Nadella

Microsoft has finally chosen its third CEO: Company veteran Satya Nadella. What does this mean for the future of the devices and services company?
Written by Mary Jo Foley, Senior Contributing Editor

Five months after the announcement that Microsoft CEO Steve Ballmer would be stepping down, Microsoft has appointed a new CEO: Satya Nadella.

2-4-2014 9-01-11 AM

Nadella's first day as CEO is today, February 4. Current CEO Steve Ballmer is out, effective immediately.

The choice of Nadella  is somewhat surprising, and in other ways, not.

Nadella -- believed to have been, all along, one of a small handful of alleged internal candidates for the Microsoft CEO job -- has been at the company for 22 years. As of 2011, he ran Microsoft's lucrative server and tools businesses. His official title, as of the July 2013 "One Microsoft" reorg, became Executive Vice President of Cloud and Enterprise.

Given Microsoft is remaking itself as a devices and services company, it's not too crazy that Microsoft's selection committee would choose a "cloud guy" to be the next CEO. The fact that the majority of Microsoft's revenues and profits come from enterprise software also make Nadella -- who also heads up the company's enterprise software businesses -- a seeming shoo-in.

Read: Microsoft CEO Candidate Nadella: Here's What Ballmer Taught Me

But... and there's always a but, right? Microsoft execs have said in the past that Microsoft's brass isn't content for Microsoft to become "just" another IBM. Microsoft also wants to be known as a devices and a consumer-savvy company. And on that front, Nadella has far less of a track record.

Nadella -- who has degrees in electrical engineering, computer science, along with an MBA -- also formerly led engineering for Microsoft's Online Services Division and its Business Solutions group (ERP and CRM). While Bing, one of the products Nadella has managed in the past, is a Web search engine, it's also a development platform and the back-end for Microsoft's big-data and machine-learning services and products.

Many on Wall Street have been in favor of Microsoft going outside in selecting its third CEO. But those of us who've followed the company for years know that outsiders don't have a very good survival record at Microsoft. Most of those tapped from non-Microsoft posts to take on high-level management jobs at the company in the past couple decades ended up leaving frustrated because they were unable to infiltrate the political (and sometimes, technical) hierarchy.

Many company observers believe Microsoft needs a fresh pair of eyes in order to get out of habitual development and marketing patterns, despite the fact that those patterns have allowed Microsoft to continue to turn in more than a few record earnings quarters. As Ballmer told me last year, Microsoft's brass believes that trends like bring your own device and consumerization of IT mean that no software/device/services company can ignore the consumer part of the market.

Nadella: Enterprise shepherd or disruptor?

Now that Ballmer will no longer be CEO, will that "we're not just an enterprise vendor" attitude remain?

A number of Wall Street investors have been advocating for Microsoft to sell off Bing and/or the Xbox unit and tighten its focus on more business-centric products and services.

When I spoke with Nadella in December 2013, he professed to be onboard with the One Microsoft reorg Ballmer had put in place. He seemed to be a firm believer in the need to keep Microsoft intact, maintaining both consumer- and enterprise-centric businesses as part of a mutually reinforcing whole.

Not everyone shares that view. Most notably, ValueAct's Mason Morfit -- who is expected to take a seat on Microsoft's board around March of 2014 -- is said to favor a strategy via which Microsoft's enterprise products and cloud services take center stage. Bloomberg has reported that ValueAct is believed to want Microsoft to jettison or scale back its efforts in consumer hardware like Surface, Windows Phone and Xbox.

Microsoft board member -- and new board chairman  -- John W. Thompson has gone on record stating he believes Microsoft needs to be a player in both consumer and enterprise

Microsoft also announced that on February 4 that Gates, previously Chairman of the Board of Directors, will assume a new role on the Board as Founder and Technology Advisor, and "will devote more time to the company, supporting Nadella in shaping technology and product direction." 

Ballmer will remain on the Microsoft board, a company spokesperson confirmed.


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