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

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.
Written by Mary Jo Foley, Senior Contributing Editor

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.

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