Microsoft names Satya Nadella new CEO

Now the hard part begins.

After a six-months-long search, Microsoft has handed responsibility for its future to Satya Nadella, who replaces Steve Ballmer and becomes only the third chief executive in the company's nearly four-decade-long history.

In choosing, Nadella, the executive vice president of Microsoft's Cloud and Enterprise group, Microsoft has turned to a highly-accomplished executive in the mold of its co-founder Bill Gates, who reportedly held out for a candidate with sufficient technical gravitas to inspire -- and if need be -- change Microsoft's engineer-driven corporate culture. It also confounded the early handicapping in the CEO vetting process that the board needed to land an outside candidate to shake things up.

At the still relatively-young age of 46, Nadella oversaw one of Microsoft's fastest-growing divisions - the Cloud and Enterprise Group - which accounted for $20.3 billion in revenue and $8.2 billion in operating income during the company's last fiscal year.

Outsiders and colleagues credit Nadella with helping to move Microsoft's server and tools group to a faster, more agile development model - so they are no longer innovating on long, 18-month release cycles. At the same time, he's been a key player in forcing a shift in the business focus to the cloud and software-as-a-service. Brad Silverberg, who co-founded the venture investment firm Ignition Partners after a long and successful career at Microsoft, noted that Nardella had done "a remarkable job" moving Microsoft to the cloud, where its Azure service is now a strong rival to Amazon Web Services.

(Credit: James Martin/CNET)

The new boss walks into a job where there's lots to celebrate but also lots to worry about for a company still seeking to figure out its place in a post-PC world. Perhaps the most pressing question facing Nadella will be whether it's worth keeping Microsoft's different pieces together or recasting the company with fewer lines of business. But analysts familiar with Nadella say his track record is a promising harbinger.

"Satya Nadella is a tough, number-driven leader," said Forrester's Ted Schadler. "He is a visionary, has passion for change, is making it happen and knows what it takes to drive change in the unique Microsoft culture. An outsider would have a hard time accomplishing this coming in fresh. And time is of the essence."

There's a school of thought which suggests that Microsoft is simply too big to compete with slicker, faster-moving companies born in the Internet era. If Nadella buys into that worldview, he may decide to sell off the Xbox and Bing businesses as Nomura Equity Research's Rick Sherlund has argued. Earlier this year, Sherlund sketched out a scenario in which Microsoft sells Bing either to Facebook or Yahoo while shopping the Xbox business around to a consumer electronics company where it would make a better fit.

That's the Wall Street view, at least. Nothing new there as the Street has been down on Bing for quite some time. The online services division, the corporate organization where Bing resides, lost $1.3 billion last year. The year before, it lost $8.1 billion. But with Microsoft integrating its search technology into nearly all of its software and hardware as a service, Nadella may decide, like Ballmer, that there's a nice strategic fit here. Also, there's a good argument for keeping Xbox: It's a growth area with terrific upside. So why jettison the business just as it's realizing its potential?

Obviously, Nadella will have to sort through competing visions of the future, but he doesn't need to to rush his decision. The good news is that there's nothing immediately troubling the company's bread-and-butter business of Windows and Office and that's what pays the bills. Also, Windows Azure, the company's cloud platform, rates as an unqualified success now pulling in more than a billion dollars each quarter. And given Nadella's familiarity with Microsoft's enterprise business, the engine behind its earnings momentum, investors can remain sanguine that the new boss won't screw around with a winning formula.

Another challenge: Can Microsoft foster the sort of app ecosystem that Google and Apple have so successfully created? The bold decision to buy Nokia's device business opens a more direct front of competition against its two chief rivals. But jumping into the phone hardware business, a market where Microsoft has has uneven success, presents the new CEO with a fait accompli. Now it's up to Nadella to figure out how to make this latest division work with the rest of his newly-inherited tech conglomerate.Once the baton officially gets passed from Ballmer, who announced last August that he intended to leave the job within the following 12 months, the countdown will start. The new CEO still has to work out where to point Microsoft in a world increasingly dominated bytablets and software which resides on the cloud. The final statistics won't be ready until early next year but they're expected to show a further decline in PC sales in the fourth quarter of 2013 -- and that's not going to reverse, a troubling harbinger for the company's cash cow Windows monopoly.

Big questions and no easy answers.