Nadella and Bill Gates: A dream team for Microsoft

Along with the appointment of India-born Satya Nadella as its CEO, Microsoft also announced on Tuesday that its charismatic cofounder Bill Gates would step down from his ceremonial post of board chairman to "devote more time to the company" and to support Nadella "in shaping technology and product direction".

The move is particularly interesting because Microsoft is not only trying to empower Nadella to carry out his vision — he has the backing of Gates — but also seeking to assuage fears over his lack of experience in the consumer space. The idea seems to be that Nadella will take care of the enterprise side of the business, which makes money for Microsoft, while Gates can pitch in with inputs on consumer-related products, like Windows Phone, where Microsoft is faltering.

Last week when reports emerged that Nadella is going to be Microsoft CEO, Patrick Moorhead, founder of Moor Insight & Strategy, told TOI that he would need a strong "lieutenant who gets consumer market". On Tuesday Nadella may not have got a special lieutenant but he definitely got a wingman in the form of Gates, who is considered a technology visionary. Gates also thoroughly understands consumer market and was the driving force behind the success of Windows.

In a video posted at Microsoft website on Tuesday, Gates explained why he was coming back, even though the company was not exactly calling it a comeback. He said it was Nadella who asked him to spend more time at Microsoft. "I am thrilled that Satya has asked me to step up, substantially increasing the time I spend at the company. I will have over a third of my time available (to) product groups and it will be fun to define this next round of products working together," he said.

Although Nadella was discussed as possible CEO since Steve Ballmer's announcement five months ago to retire, there was speculation that Microsoft was looking for an external candidate because it wanted a fresh approach to its business. But in the end the Microsoft board decided to play it safe and handed the reins to a man who has been with the software giant for the last 22 years and who knows the company inside out. Nadella is also familiar with the company's cloud and enterprise business - he was head of the cloud and enterprise group - which is a key revenue area for Microsoft.

"Microsoft is one of those rare companies to have truly revolutionized the world through technology, and I couldn't be more honored to have been chosen to lead the company," said Nadella. "The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly."

As head of the company's cloud and enterprise business, Nadella looked after a division that had annual revenue of $19 billion. Microsoft generates around $78 billion in revenue in a year and is currently facing a number of challenges in the market, where Apple and Google have emerged as more exciting and innovative technology companies.

Investors at Nasdaq gave a thumbs up to Nadella. Hours after the Microsoft announcement, company shares were trading at a price that was marginally up. The while the jump was not significant the fact that investors were not dumping shares in the wake of the announcement can be taken as a positive sign for Nadella.

In its early report on Nadella's appointment Forrester Research, which is usually bullish on Microsoft, took a cautious approach. Introducing the report titled The 10 Questions New Microsoft CEO Satya Nadella Must Address, it said, "Nadella inherits a company fighting to reinvent itself in the age of the customer. Microsoft's all-important enterprise customers see that the company is making progress on this transition — but big gaps remain in mobile computing and enterprise applications."

While Nadella's master plan for Microsoft remains unknown, in his letter to employees he hinted at the direction he intends to take. "Our industry does not respect tradition — it only respects innovation. This is a critical time for the industry and for Microsoft. Make no mistake, we are headed for greater places — as technology evolves and we evolve with and ahead of it. Our job is to ensure that Microsoft thrives in a mobile and cloud-first world," he said.

Cloud computing is an area where Microsoft is competitive due to its Azure platform, which has become quite popular with enterprise customers. But mobile remains an area of concern.

Merv Adrian, research vice-president at Gartner, said that Nadella has skills and expertise to successfully handle the challenges. "I think Nadella is a very good choice by Microsoft. He has a great record and has been one of the best Microsoft executives in terms of performance in the last one decade," he said. "I believe Microsoft is trying to regain the leadership position in technology industry. This is why they are also giving Bill Gates a bigger role, which is encouraging. Gates is perceived as a visionary. The fact that Nadella is comfortable with a bigger role for Gates is also encouraging."

Other analysts shared the sentiments, though with some caution. "Nadella is a safe choice, he has served in a variety of roles since joining the company in 1992... The bigger positive for investor sentiment will likely be from Gates moving to his new role as technical advisor from ahairman, allowing for him to devote more time to supporting Mr. Nadella in product and technology decisions," RBC analyst Matthew Hedberg wrote in a note.

FBR Capital Markets analyst Daniel Ives also sounded a bit cautious in his note to investors. "The main issue around Microsoft is its need for innovation and a set of fresh new strategies to drive the next leg of growth, in our view, as we continue to believe the company faces tablet cannibalization, slower-than-expected Windows 8 adoption, and headwinds in its Windows/Office franchises given challenges in the PC market. With that said, we believe Nadella's prior roles (within Microsoft) position him as a strong technical leader with a broad set of knowledge around Microsoft's massive product portfolio," he said.

Vishal Tripathi, a principal analyst with Gartner India who has watched Microsoft for the last seven years, believes that the company has no option but to fight it out in both enterprise and customers. "In the coming days, boundaries between enterprise and consumer space are going to be blurred," he said.

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