Need to Know: Satya's Microsoft

Need to Know: Satya's Microsoft

Devices and services is here to stay

After six months of speculation and rumors, Microsoft this month finally announced that it had selected Satya Nadella as its next CEO, replacing Steve Ballmer. But who is Satya Nadella, and are there any clues –in his decades of experience at the software giant or otherwise—to suggest whether he'll toe the line on "devices and services" or plot a new path for the world's largest maker of software?

A cursory examination of Mr. Nadella's resume shows that he hails from Hyderabad, India, has serious education credentials—including an engineering bachelor's degree, a master's in computer science, and a second master's degree in business administration—and worked at Sun Microsystems before joining Microsoft in 1992. But this early experience will almost certainly have less impact on his leadership tendencies than will his two decades at Microsoft.

During this time, he experienced firsthand both the firm's epic crest of the Windows 95 wave and the subsequent falls to antitrust rulings and faster-moving competitors in new markets. That's important because the new Microsoft—the reimagined Microsoft, if you will—is seeking to establish itself anew in a computing world that's driven by highly mobile devices on the client side and online services on the back end, the modern equivalents to the PC and server computing products that Microsoft previously rode to fame and fortune.

Also important are his experiences with an amazingly wide swath of Microsoft during his 22 years at the company. Starting off as a program manager in Windows Developer Relations, Nadella then moved on to the firm's interactive TV (ITV) and digital rights management (DRM) efforts and later joined the Commerce Platforms Group as general manager, where he led the development of Microsoft Commerce Server and BizTalk Server. He was senior vice president of research and development for the Online Services Division (Search, MSN, and Advertising), then vice president of the Microsoft Business Division (Office).

Where he really found his footing, however, was with the Server business. Nadella became president of Server & Tools in early 2011 and pushed the business to move from its on-premises roots to cloud services. This culminated in the release of the so-called "Cloud OS," which wasn't an actual product per se, but rather an ad hoc collection of on-premises and cloud-based solutions that corporate customers could combine as needed to create their own cloud infrastructures, be they private, public, or some combination. With Microsoft's transition to devices and services, Nadella moved into a new executive vice-president role of the Server & Tool division's successor, called the Cloud & Enterprise Group.

What we can gather from this experience is straightforward: Nadella isn't just a believer in devices and services; he's responsible for one of Microsoft's most obvious internal success stories with regards to making this transition. And it's highly likely he will use that success as a guide to helping the rest of Microsoft successfully navigate this change as well.

As the highest-profile internal candidate for CEO, Nadella was a highly-requested interview subject throughout the latter part of last year. And while we might take his comments about Microsoft's future direction with a grain of salt—certainly, a top-level Microsoft executive would profess nothing but loyalty to the firm's stated mission and strategy—he did certainly have a lot of interesting things to say.

Cloud computing is here to stay, for starters.

"I think everyone's going to be in the cloud," Nadella told Gigaom last October. "[But] no one's going to be exclusively on one public cloud; that's the dichotomy. You may have a private cloud and a public cloud."

He believes in consumer-driven IT and the Bring Your Own Device (BYOD) trends, too, and was an early proponent of the Windows Intune cloud-based device management service.

"Our goal is ... making it easy for end users to use their devices that they have to be able to access corporate information and for corporations to be able to have controls that allow them to give per device and user access," he said. "That's the future that we build for, not the old model of IT procures and provisions but the model where end users procure and IT governs. That's the model that I see."

And he's driven the former server parts of Microsoft to deliver for the cloud first, then figure out which parts can later be delivered to those that still require on-premises solutions. "Microsoft has no SQL Server developers," Nadella told Forbes, somewhat provocatively. "We have only Azure developers. But every 12-18 months we reverse engineer [the code] into a product we can sell."

But Microsoft's transition from enterprise servers to online services is straightforward. Less successful, of course are devices.

In recent years, Microsoft has made a credible stab at the PC market with its new Surface business, but sales are relatively modest. The firm is about to complete a massive acquisition of Nokia's handset business, and while the firm has made steady progress with its Lumia lineup of Windows Phone handsets, it didn't grow fast enough to keep Nokia solvent as a standalone business. And Microsoft is also buying Nokia's non-Windows Phone handsets, including the Asha line of feature phones and the Nokia-branded entry-level phones.

It's not clear how or even if Microsoft can use these products to up-sell customers to Windows Phone. And it's not clear whether these businesses will be more successful under Microsoft's control than they were under Nokia's.

While an implicit part of the "devices" aspect of Microsoft's new direction relates to third-party devices—that is, Microsoft software and services running on top of Apple iPads, Android devices, and the like—Nadella believes that the firm must also make a Windows push in handsets and tablets.

"I think we will be a player [in these markets]," he's said.

Of course, the biggest question mark with Nadella is his understanding of the consumer side of the business. While he's paid lip service to Steve Ballmer's contention that consumer and business go hand in hand—you don't just have a consumer email service or a business email service, for example, you have both—Nadella has also spent the past several years thinking solely about the enterprise side of things. "I live and breathe ... the enterprise," he said last year.

"On the enterprise side, we're playing offense," he said in one of his more telling comments about the gulf between Microsoft's enterprise and consumer offerings, as the insinuation here—correct, I think—is that Microsoft is in effect playing defense on consumer. But in a pragmatic sense, it's fair to say that a radically different product like Windows 8, which aims for both the traditional PC desktop and new tablet and hybrid PC designs, is a bit of a tough sell to Microsoft's customer base. It's perhaps not fair to expect such a thing to achieve "desktop PC scale" quickly, he's said.

Given all this, many have questioned whether Microsoft should focus solely on its enterprise efforts—which represent about two-thirds of the company's revenues—and abandon money-losing efforts like Bing and Xbox. While I happen to believe this is a prudent course for Microsoft to take, Nadella's experiences suggest the firm will do otherwise.

And the "devices and services" mantra is devices and services, not devices or services. Bing is a big bet in consumer services, one that can be accessible from a variety of mobile devices. And Xbox is a big bet on the living room, an area where no firm—not Apple, not Google—has gotten much of a foothold. A victory there would provide Microsoft with a second front, after the PC, from which to take on the Android and iOS consumer devices hegemony.

So, no, Nadella doesn't have a lot of consumer experience, especially not recently. But Steve Ballmer didn't have a technical or engineering background, and he ran Microsoft for 14 years.

What Nadella has done, right up front, is present himself as a forward-leaning free-thinker who has already achieved great success with a part of the company, a success he now wishes to bring to the rest of Microsoft. In short, his introductory communications with Microsoft and the outside world were brilliantly crafted, something we don't typically associate with this firm.

"Our industry does not respect tradition, it only respects innovation," Nadella said in a prepared statement at the time of his CEO announcement. "The opportunity ahead for Microsoft is vast, but to seize it, we must move faster, focus, and continue to transform. I see a big part of my job as accelerating our ability to bring innovative products to our customers more quickly."

He's also worked to restore the word "software" to a conversation that had veered perhaps a bit too far toward devices and services for some customers. As I wrote recently in "Getting Past Devices and Services," Nadella repeatedly used the word software in his formal introduction to employees. It's a word Microsoft officials haven't used much since announcing the devices and services shift.

"This is a software-powered world," Mr. Nadella wrote in his open letter to employees. "Microsoft uniquely empowers people to 'do more' . . . This is the core of who we are, and driving this core value in all that we do, be it the cloud or device experiences, is why we are here."

Microsoft's devices and services strategy is controversial in some circles, but it represents an important understanding of how the world the firm does business within is changing and will do so with or without it. But at a high level, this strategy has generally alienated certain customer types in the same way that a radical product such as Windows 8 has more specifically alienated certain customers as well.

Ultimately, both suffer from the same issue, a perception that Microsoft is changing things too much for some customers. The industry might not respect Microsoft's past, but Microsoft should, even as it moves forward with new innovations.

Microsoft's continued on-premises offerings and the hybrid deployment solutions that combine on-prem and cloud-based infrastructure in useful ways are both unique—something that Microsoft's competitors cannot offer—and respectful of the needs of Microsoft's installed base.

But when Microsoft releases a product such as Windows 8, or speaks about revolutionizing its business into devices and services, many see those changes as disrespectful of the past. So each can be changed—Windows 8, at a low level, with specific changes that address customer concerns, and devices and services at a higher level with an explicit acknowledgment that software plays a key role in each—without actually veering from the original vision of either.

These are the sorts of changes I expect to see under Mr. Nadella, not a broad strategy change—a continuation of the strategy that started under Mr. Ballmer and will come to fruition, in part, under the watchful gaze of Microsoft's first CEO, Bill Gates, who is now serving as special advisor to Satya Nadella. The broad strokes are all in place. Now it's just about the execution.

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