The problem for Microsoft has never been making money; Steve Ballmer proved that beyond a doubt. Rather, the company's historic challenge (other than avoiding Justice Department dismembering) has been to convince investors that a fast- (or slow-) follower business model deserves increasing valuations. Put another way, Microsoft has tried to increase its own value by following with its own versions of innovations like smartphones and tablets. Wall Street's clear answer to date has been "No."
That was before the world got much more complicated.
One of my unspoken rules is never to publish what you can read elsewhere. So, having read a good part of the total press coverage on Nadella last week, I'll do my best not to repeat things you may have read elsewhere — with the exception of doing a deeper dive into the importance of mobile and cloud, his two main corporate interests, according to comments made to employees this week.
Here, the lesser-examined aspects of what Nadella faces as he takes on this new role, and Microsoft's biggest challenges, now that he has been selected:
1. The New Power Structure.
Nadella's selection came amid several other announcements, all of which initiate the first of several future steps in a new power structure at the company.
Veteran observers will recall how Bill Gates, upon leaving the CEO position, became Chief Software Architect under Ballmer. Last week, we saw a reprise of that tactic, bringing Gates back as a Technical Advisor. While he has said this will be a one-third-time-plus job, I am guessing that's on Gates' clock, where a 40-hour week is "half-time."
And, relatively new board member, John F. Thompson, will move from running this search to taking over as board chair, theoretically providing some additional power cover for Nadella during this shift. (One of the larger problems in the search — other than the made-to-fail tactic of pre-announcing candidates who then got better offers at home — was the question of how to work with Ballmer on the board and Gates as chair.)
I want to note that I do not know Nadella personally, although I hope to repair that soon. But it is important to make mention here of the importance of his personality (as is true for all tech companies) in making this new arrangement work.
It is not likely that an outsider would have agreed to, or been comfortable with, this structure.
The most positive benefits of it are retention of corporate institutional learning and skills, at-hand assistance for Nadella in what will likely be the weakest part of his game (running a major international firm) and complete continuity from day to day, with no surprises.
Some of this is also perceived by investors as a negative, which will be Nadella's primary challenge, just as it was Steve Ballmer's.
One of the more interesting questions that flows from the power structure changes just made: What will Nadella contribute to these changes? He seems prepared to make more restructuring announcements, and a key issue will be how these play to his strengths in enterprise, or corporate-level sales, and to the company's needs in consumer technology.
2. Today's Money.
Nadella is coming from running a high-performing section of the company (enterprise and cloud, servers and tools), with both revenue and profit growth. Picking him as CEO means the company need not fret over keeping these fires burning.
3. Satya the Engineer.
Having a tech person at the top of the company has to be great news for everyone. Steve Jobs once made the comment that tech company founders are tech guys, and the companies end up being run by sales guys (think Apple's John Sculley or Steve Ballmer). But it seems universally true that long-term successful tech companies have trained engineers at the top, supported by first-class operating people. The team of Bill Gates and Jon Shirley comes to mind, with too many other examples to mention.
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