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Microsoft stays in-house, taps Nadella as new CEO

Gregg Keizer | Feb. 5, 2014
Microsoft today ended its five-month CEO search where it began as it named insider Satya Nadella its third-ever chief executive.

Analysts and pundits have closely followed the twists and turns of the CEO selection process because Microsoft is at a crossroads, trying to catch up in mobile even as traditional PCs — the source of much of its revenue — have fallen out of favor with consumers and its bet on Windows 8 has so far failed. In 2012, Ballmer announced a strategic change-up, one that aspired to make the company a seller of devices and services rather than one that relied on its decades-long expertise in software.

From its most recent earnings statements, Microsoft has made little progress in that turn, as its highest-margin groups are those that sell software, and subsidize the money-losing or less profitable device-based groups.

In 2013, Ballmer reorganized the company and kicked off the $7.4 billion purchase of Nokia, moves that Nadella will back.

"Today we're focused on a broader range of devices," Nadella said in an email to Microsoft's employees. "While the deal is not yet complete, we will welcome to our family Nokia devices and services and the new mobile capabilities they bring us."

He will also continue the pivot to devices and services, as well as maintain the company's philosophy that it can serve two masters, consumer and commercial. "We have picked a set of high-value activities as part of our One Microsoft strategy," Nadella told workers. "And with every service and device launch going forward we need to bring more innovation to bear around these scenarios."

Choosing an internal candidate was always the easy, conservative choice, according to experts like Peter LaMotte, an analyst with Levick, a Washington, D.C.-based strategic communications consultancy. "It's important that they find someone who continues the brand perception of the company," LaMotte said in a November interview. "Imagine the problems if they bring in someone totally counter [to the brand]."

Nadella was not only already at Microsoft but is also a technically-savvy executive more in the mold of Gates than Ballmer, who started at Microsoft in sales. According to numerous reports, Gates was closely involved in the winnowing of candidates, and Nadella's choice, along with Gates' commitment to advise Nadella, confirms that.

To some, Gates was too involved, as many sell-side Wall Street analysts had hoped that others on the board would overrule Gates and bring in someone from outside. Those analysts pinned hope on someone with more experience running a major company, even if that meant they were not well-versed in software, someone who would shake up the company, perhaps sell off poor-performing assets, like Xbox, or even split the firm into consumer and commercial entities, all to boost the price of the stock, which has been mired for years.

 

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