After sustained reports surfaced yesterday that Microsoft is close to naming its third-ever chief executive, Satya Nadella, a 21-year veteran of the company, has been named the heir apparent by virtually every pundit.
Satya Nadella, a 21-year veteran at MIcrosoft, looks to be the heir apparent to current CEO Steve Ballmer. (Image: Microsoft)
Nadella, 46, currently serves as the executive vice president of Microsoft's Cloud and Enterprise group, the division responsible for some of the firm's fastest-growing services and most-profitable products, including the Azure cloud computing platform and SQL Server.
Before taking control of Cloud and Enterprises -- one of the new groups created when CEO-for-now Steve Ballmer shuffled the company last year in a massive reorganization -- Nadella led the Server and Tools Business division, which in 2012 was Microsoft's second-largest unit by revenue. Prior to that, Nadella served stints in the company's online and Office groups, notably as the one who led the rebranding of its search engine as Bing.
Microsoft has spent the last five months searching for a new CEO, a process kicked off last August when Ballmer abruptly announced he would retire within the next year.
Although outside candidates were early favorites -- including Ford Motor CEO Alan Mulally, who took himself out the race in December -- the board's focus increasingly shifted toward someone already at the Redmond, Wash. company. In November, for example, co-founder and chairman Bill Gates said the next CEO needed "a lot of comfort in leading a highly technical organization and have an ability to work with our top technical talent," words that were interpreted to point to not just a technologist, but one very familiar with the firm.
By some accounts, the return to insiders was not a choice, but forced on the board by its inability to land a technology executive -- largely because many passed on the job knowing that they would probably have Gates, as well as Ballmer, who was also just reelected as a director, looking over their shoulders.
Nadella has been rumored to be one of those top internal candidates since the search's start, usually cited alongside Tony Bates, once the CEO of Skype and now the head of business development, and at times accompanied by Kevin Turner, the COO and company's highest-paid executive. Also often reported in the running was Stephen Elop, the former CEO of Nokia who will return to Microsoft -- where he ran once ran the Office franchise -- after it wraps up the acquisition of the Finnish firm's handset business this quarter.
"This would be an enormous job for Nadella. He has experience, but I wonder if he has the amount of experience to take on a behemoth like Microsoft," said Patrick Moorhead, principal analyst with Moor Insights & Strategy, when asked his take, assuming Nadella is the guy. "He has had a lot of success in areas where Microsoft has done a real good job, like Server and Tools, but no experience in areas of major pain, like consumer."
Nadella also has his age going for him. At 46, he is just three years older than was Ballmer when he first sat in the CEO's chair in January 2000. Others often rumored to be in the race -- Bates, who is 46, Turner (48 or 49) and Elop (50) -- are in that same age range. Age came up during talk of Mulally taking the reins, with some wondering whether the 68-year-old was up to the challenge of running the broad, often bewildering, portfolio that makes up Microsoft.
Analysts and others have closely followed the leaks and anonymously-sourced news stories about the CEO selection because Microsoft is at a crossroads, trying to catch up in mobile even as traditional PCs -- the ultimate source of much of its revenue -- have fallen out of favor with consumers and its bet on Windows 8 has not paid off. In 2012, Ballmer announced a strategic change-up, one that aspired to make the company a seller of devices and services rather than one that relied on its decades-long expertise in software.
From its most recent earnings statements, Microsoft has made little progress in that turn, as its highest-margin groups are those that sell software, and subsidize the less profitable device-based group.
In 2013, Ballmer reorganized the company and announced the $7.4 billion purchase of Nokia, moves that Nadella, or anyone from inside, would almost certainly back, just as such a choice would continue the pivot to devices and services and maintain the company's faith that it can serve two masters, consumer and commercial.
"This notion that this is an enterprise product and this is a consumer product I think is not the way we will approach things," Nadella said last September at Microsoft's day-long conference with Wall Street analysts. "We'll think about these products as sort of meeting end-user needs and enterprise IT needs, and how to balance that."
Choosing an internal candidate was always the easy, conservative choice, according to experts like Peter LaMotte, an analyst with Levick, a Washington, D.C.-based strategic communications consultancy. "It's important that they find someone who continues the brand perception of the company," LaMotte said in a November interview. "Imagine the problems if they bring in someone totally counter [to the brand]."
Nadella's name has been repeated so often that his candidacy has taken on an element of certainty. That's not surprising: Not only is he already at Microsoft -- and boasts a much longer tenure than Bates, Turner or Elop, who came to the company in 2011, 2005 and 2008, respectively -- but he is also a technically-savvy executive more in the mold of Gates than Ballmer, who started in sales. According to numerous reports, Gates has been closely involved in the winnowing of candidates, and Nadella's choice would confirm that.
To some, Gates has been too involved.
Many sell-side Wall Street analysts have hoped that others on the board would overrule Gates and bring in someone from outside. Those analysts pinned hope on an executive with more experience running a major company, even if that meant they were not well-versed in software. That's one of the reasons why Mulally's name lingered so long, and why others, such as Qualcomm COO Steve Mollenkopf and Ericsson CEO Hans Vestberg, have been bandied about.
To Wall Street, an outsider would be more likely to shake up the company, perhaps sell off poor-performing assets like Xbox, or even split the firm into consumer and commercial entities, all to boost the price of the stock, which has been mired for years.
Whether it's Nadella, as everyone with a keyboard seems to believe, or someone else, the new chief executive will need to, as Gartner analyst David Smith said today, "Dig the company out of the hole it's dug for themselves" on a number of fronts.
"Job one is mobile and tablets," said Smith in an interview today. "Nadella, if it's him, or whomever takes the job, has got to do things differently. You have to believe that Ballmer was a big part of the decision making in the past, and many of those decisions have to be rethought."
Other than pushing mobile, which Microsoft has been trying to do with little to show for it, the new CEO must refocus on developers, a historical strength of Microsoft, and make some fundamental changes to Windows 8, the firm's flagship operating system, said Smith.
"And Nadella, again if it's him, has to bring in some talent who understands mobile and tablets," said Smith. "He doesn't have that experience. For all their talk, Microsoft is still a software company."
Previously, some suggested that if Microsoft picked an unproven insider -- like Nadella -- he or she would be tag-teamed with a more experienced executive, perhaps from the board. Those thoughts have been resurrected in the last 24 hours, as some reports claimed that Gates would step aside as chairman, either at the announcement of a new CEO or shortly after, with John Thompson, a former CEO of Symantec, appointed in Gates' place.
Thompson, who has been on the Microsoft board for two years, has led the CEO-search committee, and was the one who told investors late last year that a new chief would be named early in 2014.
Moorhead thought an arrangement like that would make sense if the partner had a background to fill the gaps in the background of the new chief. "Nadella will need to be augmented by someone with a lot of consumer experience and success," Moorhead said, echoing Smith.
There may be some logic to such an arrangement, or even in Gates downsizing his role on the board to assist the new CEO in a more hands-on manner. But the reality is that Nadella, for one, has run a big business: Server and Tools generated $19.4 billion in revenue during 2012, the last full year it was a separate division.
The final fiscal year of Gates' rule as CEO, all of Microsoft booked revenue of $19.7 billion, about the same as Nadella's outfit produced in 2012.
On Friday, investors seemed to applaud the news of Nadella's inevitable ascension to CEO, with shares up 2.4% by 2 p.m. ET, although the price was still down 3% from the last year's high of Dec. 4, 2013.
"Nadella's a fresh face, though not a fresh face in that he's an outsider," said Smith. "That's good news to enterprises, I think, because he has a good track record in the cloud, and done the right things in situations where they have not always done the right things. So people should be somewhat optimistic."
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is email@example.com.
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This story, "Cognoscenti Anoint Nadella as Next Microsoft CEO" was originally published by Computerworld.