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Will Nadella Shake Up Microsoft More Than Expected?

By Thor Olavsrud, CIO
February 05, 2014 01:21 PM ET

CIO - Microsoft yesterday named Satya Nadella to succeed Steve Ballmer as the third CEO of the software giant. The decision followed a protracted search process in which a number of other high-profile executive names had bubbled to the surface, including Ford CEO Alan Mulally, former CEO of Nokia Stephen Elop and former Skype CEO Tony Bates.

"The fact that there was a five-month search for Ballmer's replacement, which included more popular names, most likely means that Nadella was also not Microsoft's first choice."

The response has been lukewarm to the board's decision to go with 22-year Microsoft veteran Nadella, a native of Hyderabad, India. The common sentiment seems to be that Nadella will continue the policies of his predecessor and won't shake things up the way an outsider might have.

Some Doubt Nadella's Willingness to Make Strategic Changes

"Yankee Group has previously suggested that Microsoft hire someone from outside the company, a person unburdened by the internal politics, with a fresh perspective and a drive to change the stalling business of the software giant," says Boris Metodiev, senior analyst with the Yankee Group research firm. The company instead went for the safe option, choosing a Microsoft veteran who has been heading its fastest-growing division, cloud services, as well as its enterprise group."

"It is hard to imagine that Nadella will embark on any major strategic changes, which was probably expected with the appointment of a new CEO," Metodiev says. "The fact that there was a five-month search for Ballmer's replacement, which included more popular names, most likely means that Nadella was also not Microsoft's first choice."

But while Nadella has spent two decades at Microsoft (most recently as executive vice president of Cloud and Enterprise), he can claim a lot of the credit for quietly reshaping Microsoft from within--from a software company to a services company--and allowing it to weather the sharp decline in its PC-focused business as well as it has. Windows Server, System Center, Visual Studio, SharePoint, SQL Server, Dynamics, Windows Azure and Outlook 365 all fall within Nadella's purview.

Nadella Helped Build Microsoft Commercial Business

"Technology journalism and analysis is so tightly focused on consumer and mobile markets that it has largely ignored Microsoft's remarkable success in business software and services," says industry analyst Steve Wildstrom of Techpinions.

"The enterprise, and to a very significant extent, small and medium business, remain Microsoft territory. Tablets, mostly the iPad, are gaining ground, but business is still overwhelmingly PC country, it is likely to remain so, and it runs on Windows and Office," says Wildstrom "Corporate mail and collaboration is largely Exchange and SharePoint, SQL Server has a big chunk of the mid-range database business and Dynamics has been coming on strong in CRM, ERP and analytics."

Wildstrom suggests that rather than a weak move that will keep current Microsoft strategy in place, the decision to go with Nadella is about reinforcing strength. After all, Microsoft earned an operating profit of $14.3 billion on revenues of $29.7 billion in the six months that ended on Dec. 31. Microsoft's commercial operations, of which Nadella's Cloud and Enterprise group comprises the lion's share, accounted for 55 percent of those sales and 66 percent of those profits.

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