Steve Ballmer couldn't change Microsoft fast enough. During his 13-year stint as CEO, the company failed to get in front of major technological developments. It struggled to keep pace with the likes of Apple and Google in mobile and search and saw lackluster adoption of its first round of tablets. Ballmer created a sluggish corporate culture that pitted employees against each other, and he wasn't moving fast enough to right his wrongs. It was time for him to move on.
On August 23rd, 2013, the 34-year Microsoft veteran announced that he would retire within the year. The company's board set out on a highly publicized five-month journey to find its next leader. Ballmer's Harvard classmate and Microsoft co-founder, Bill Gates, would join the committee to find a replacement who could follow through on its mission to become a devices and services business in an increasingly fast-paced industry. Over the next five months, the board of directors, led by John Thompson, would narrow its pool of more than 100 candidates to just a few. As time wore on, speculation escalated and outsiders like former Nokia CEO Stephen Elop and Ford CEO Alan Mulally emerged as frontrunners in the glacial race. Meanwhile, rumors pegged internal candidates like former Skype CEO Tony Bates and EVP of Cloud and Enterprise Satya Nadella as possible contenders.
All of that speculation came to an end today when the board Nadella as the third CEO in the company's near 40-year history. Like Ballmer before him, Nadella is a company man, with more than two decades at Microsoft. He understands how the Microsoft of old works and has managed to lead its cloud and enterprise services to great success, but questions remain about his ability to lead the company into the future.
While Nadella's name has risen to prominence in the CEO search, he's flown largely under the mainstream radar during his time at Microsoft. He couldn't be more different from his predecessor in both demeanor and appearance. In fact, the only physical trait the two appear to share is a receding hairline. Where Ballmer is prone to wild outbursts of chest-pounding, skipping and wild gesticulation, Nadella's approach to public speaking is enthusiastic, but casual. Chances are, speculation about what drugs Microsoft's CEO is smoking will die with Ballmer's departure.
Nadella couldn't be more different from his predecessor in both demeanor and appearance.
The differences aren't just skin-deep, however. In selecting Nadella, the board is making a change many have said is necessary: a move toward a leader with a technical background. Born in Hyderabad, India, Nadella earned a bachelor's degree in electrical engineering from (that other MIT) Manipal Institute of Technology. He then went on to collect a master's degree in computer science from the University of Wisconsin Milwaukee and an MBA from the University of Chicago. By contrast, Detroit-born Ballmer earned a bachelor's degree in mathematics and economics from Harvard and after a two-year stint at Procter & Gamble, attended Stanford's MBA program only to drop out and begin his decades-long tenure at Microsoft. Ballmer was a businessman at a tech company. Nadella is an engineer with a business background.
When he joined Microsoft in 1992, Nadella had already gotten his feet wet in the tech industry at Sun Microsystems. In the years that followed, he held a number of enterprise-focused positions, leading efforts on search and cloud services. Under his leadership as EVP of Cloud and Enterprise, those segments have flourished. In its most recent earnings report, Chief Operating Officer Kevin Turner pointed to Microsoft's aggressive growth in these areas.
"Our commercial cloud services revenue grew more than 100 percent year-over-year, as customers are embracing Office 365, Azure and Dynamics CRM Online, and making long-term commitments to the Microsoft platform," Turner said.
Under Nadella's leadership, Microsoft has made a fundamental shift in the way it delivers its bread-and-butter products (namely Office and Windows) to consumers and businesses. With PC sales slipping and mobile computing gaining ground, Nadella oversaw a shift toward device-agnostic programs with the launch of cloud-based solutions like Office 365 and Windows Server 2012.
Under Nadella's leadership, Microsoft has made a fundamental shift in the way it delivers its bread-and-butter products.
Though Nadella's strength in software and business solutions is clear, that's only part of the equation in Microsoft's plan to become a device and services company. In late 2012, Ballmer penned a letter to shareholders, outlining a new strategy for the company -- one he later admitted to The Wall Street Journal, he was incapable of carrying out himself. He presented a plan in two parts that would see Microsoft developing software and services for a wide range of devices, and a series of devices to optimize its software and services. The plan emphasized consumer and enterprise technology in equal parts. Nadella has proven his ability to drive momentum behind the latter, but Microsoft's most visible struggles over the past few years have been in the consumer market. Just over three years since it launched Windows Phone OS, Microsoft runs a distant third to Google and Apple, owning just 3.6 percent of the smartphone market in 2013, according to Strategy Analytics.
Despite its struggles in consumer products, not all is lost for Microsoft. Its latest earnings report boasted a 13 percent increase in revenue in its consumer-facing products, with the Xbox One outselling Sony's PlayStation 4 in the US with 908,000 consoles in December 2013, and Surface sales more than doubling from the previous quarter. With the acquisition of Nokia's devices and services business, Microsoft is driving deeper into the hardware business. This is unproven ground for the new CEO.
Microsoft is driving deeper into the hardware business. This is unproven ground for the new CEO.
It remains to be seen if Nadella can continue to push both segments of Microsoft forward, but many argue it's not the present that's at stake. In order to remain a major player in this rapidly changing space, Nadella will have to lead the decades-old behemoth into new territory and ensure that it doesn't get caught sleeping on the next big technological shift. With Google gobbling up everything from a smart thermostat company to a maker of military robots, and wearable devices and the internet of things still in their infancy, what that shift will look like is still uncertain.
Judging from a discussion he had with Om Malik at Le Web in December 2013, Nadella is aware of the challenges he faces. Malik, speaking to the entrenched corporate culture at the company and the future of the technology business, asked, "Do you think Microsoft can overcome itself and embrace this future?"
"We have to. There is no other answer in this business than to say you renew yourself every day. And sometimes you're successful and sometimes you're not, but it's the average that counts. We wouldn't be here 30 years since our founding if we were not able to ride the new waves of technology ... The fact that we have the capability that allows us to go and hunt for the new concept is the key to this business and longevity," Nadella said.