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.

HWM (Singapore) - - FEATURE - TEXT // TEAM HWM ART DI­REC­TION // KEN KOH

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.

Smooth Tran­si­tions

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.

HWM

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