Six challenges for Microsoft as the Satya Nadella era begins

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.
Written by Ed Bott, Senior Contributing Editor

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?

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