MICROSOFT’S NEW GUARD
The original Pirates of the Silicon Valley are exiting stage left, with new leaders stepping up to the plate. Perhaps the biggest change is taking place at Redmond, where Steve Ballmer stepped down to make way for Satya Nadella, as Microsoft’s new CEO.
Skeptics will have you believe that Microsoft may not be the all-powerful force of yore. But the CEO hot-seat for the tech giant can still make a good claim for being the one of the biggest jobs in the tech industry. Over 1.25 billion PCs are still in operation across the globe running one version of the Windows operating system or another. One in seven people use Microsoft Office. More than 200 million licenses for Windows 8 have been issued and 50 percent of Fortune 500 companies use Windows Azure, Microsoft’s enterprise cloud computing platform and infrastructure.
Over the course of the 2013 fiscal year, Microsoft posted revenues of US$77.85 billion and an operating income of US$ 26.76 billion. Amongst the main business units within Microsoft, Servers & Tools as well as the Business Division were responsible for a fair chunk of the earnings. They respectively brought US$ 5.502 billion and US$7.231 billion in revenue.
The products that Nadella was tasked with handling before making the step up to CEO were Windows Azure, Windows Server, SQL Server, System Center and other parts of Microsoft’s Business and Server offerings. With the technical know-how born from his schooling in electrical engineering and computer sciences, Nadella was responsible for building and growing the cloud-based architecture that now underpins multiple Microsoft services including both Xbox Live and Bing.
Armed not just with technical knowledge, Nadella also has an MBA from the University Of Chicago Booth School Of Business giving him the necessary credentials in running a corporation as well. To boot, he has also spent over two decades at Microsoft becoming embedded in the culture and ethos of the company. But for all his qualifications and characteristics, Nadella was not the new “CEO in waiting” after Steve Ballmer publicly announced his intention to step down earlier. He was just one on a list of potential candidates that Microsoft’s board of directors was considering.
Once chosen though, Nadella how has the challenge of ensuring a ( hopefully) smooth transition into the post- Ballmer era. As only the third CEO in Microsoft’s history, there was not much precedent for him to refer to as guidance. But the transition, up till now, seems to be progressing without a hitch.
In his first email to employees, Nadella adopted a humble approach tailored to ensure that the boat wasn’t rocked. But more importantly, the new CEO appears to be taking charge and ensuring that all relevant parties are on board with his leadership.
The Controversial Choice
One of the other names on the shortlist for the position of the new Microsoft CEO was Stephen Elop. The former Nokia chief was instrumental in the deal brokered by Redmond to acquire Nokia’s mobile business. Since then, it was all but given that Elop would return to a high-ranking position at Microsoft.
After missing out on the top job, as is common within corporate circles, it would not have been out of the ordinary for Elop to walk away to new pastures. Just look at Marissa Mayer’s departure from Google to take over at Yahoo as CEO. However, Elop stayed put at Microsoft, with Nadella tapping him to become the new Head of Microsoft’s Devices and Studios. The role comes with the responsibility to manage a large chunk of Microsoft’s hardware products and development, including Xbox, one of Microsoft’s few successes in recent years.
Microsoft’s Entertainment and Devices division brought in US$1.915 billion in revenue over the last fiscal year, but stacked up an overall loss of US$110 million. But while products like the Xbox game console might lose Microsoft money, they are still among the most easily recognizable products for the tech giants. The intangible and non- monetary effects of branding and visibility definitely make the worthwhile. We are just entering a new phase of the console wars, with the Xbox One going up against Sony’s PlayStation 4.
Unfortunately, the man Microsoft put in charge of introducing the world to the Xbox One, Don Mattrick, fumbled his lines while on stage. The backtracking over possible feature sets and the community’s reaction to them meant that the Xbox One started off with a slight handicap while Sony quickly capitalized on market demand with the hot-selling PlayStation 4 console.
But what Elop and Nadella must realize is that the battle for console supremacy still has close to a decade to go before starting anew. The Xbox One is definitely not out; with a lower pricepoint and superior motion sensor in the form of the Kinect, the Xbox One has the tools available to claw itself back into ascendancy. Industry pundits have issued calls for the Xbox division to be dropped. But the truth is that the Xbox gaming console is probably the only Microsoft product that has managed to garner a cache of cultural relevance over the past decade.
As head of Microsoft’s Devices and Services, Elop will also be in charge of Surface tablets as well as Windows Phones delivered in conjunction with the newly-acquired Nokia. Some may question the prudence of appointing the man who saw Nokia fall from its perch as the biggest player in the mobile industry to one that was playing catchup, to be in charge of Microsoft’s tablets and smartphones. But it is also inconceivable that Nadella, as the new CEO of Microsoft, won’t pay attention to such an important product category.
Bringing Back Gates
Perhaps one the most significant shuffle of the decks comes in the form of Bill Gates stepping down as Chairman and taking up the role of Technology Advisor. Over the past years, Bill Gates attention has waned from Microsoft and moved over to philanthropy. However his efforts with the Bill and Melinda Gates Foundation show that even at the age of 58 he has the passion, drive and business acumen to make an impact.
Getting Bill Gates out of the boardroom and back to the front lines is a crucial step. With years of experience in the tech industry, which he helped mold if not create, Bill Gates’ experience can be a vital asset in helping Nadella shape Microsoft’s new tech landscape.
On paper, Microsoft has all the tools to be ready for a post-PC world. In fact, the direction for the Windows 8, Windows RT and Windows Phone operating systems is geared towards promoting further coherence and inter- operability between the multiple platforms. Unfortunately, the implementation and development of the products has lacked finesse. This was acknowledged with the release of Windows 8.1, which sought to take the operating system back to its PC roots away from the homogenous, one OS to rule them all vision of the initial version.
Recent developments seem to suggest that Microsoft will have to take a more measured approach with its smart devices going forward largely due to the Nokia X initiative. The Nokia X smart phones, unveiled at Mobile World Conference 2014, are shocking since they are the first devices from the Finnish manufacturers to run a fork of Google’s Android OS. But instead of being purely Android devices, the handsets came with a large array of Microsoft services.
The hope is to get users who do not already own smartphones to make the switch, use Microsoft’s services and eventually upgrade to a Lumia device. In essence, the Nokia X products are meant to be feeder devices that lead to a growing user base for the Nokia Windows Phones. Nadella must realize that Microsoft cannot translate its clout in the industry to overnight success in the smart device sector. Wresting control from Google and Apple is going to be a long and arduous process.
Evolution, Not Revolution
Nadella is taking over as CEO of Microsoft at an extremely interesting time. It hasn’t even been a year since Ballmer introduced his “One Strategy, One Microsoft” vision for the company. Ballmer sought to get the multiple divisions of Microsoft behind a single strategy to deliver an integrated experience to the world. On top of that, there is the matter of the US$7.2 billion Nokia acquisition. Both decisions have set the course for Microsoft for the near future.
But this does not mean change is completely impossible. Coming back to his first letter to Microsoft employees as CEO, Nadella stated that “Our industry does not respect tradition – it only respects innovation.” Over the course of his work with Microsoft, Nadella has shown that he is able to change the way Microsoft traditionally does business and bring it more in line with the modern modus operandi. For proof, just look at the selection of open source software including Linux available on the Microsoft Azure platform. Would Ballmer be promoting Linux, a direct competitor in the Server and Enterprise realm, through one of Microsoft’s own products?
From his words, Satya Nadella seems to have a clear idea on the direction he wants to take. “Our job is to ensure Microsoft will thrive in a mobile and cloud-first world.” Note that this statement excludes any mention of Windows or Office. Whether the PC market is dying or just saturated, Nadella is intent on taking Microsoft beyond. And according to him, the future is in the cloud.