Microsoft's Nadella is on a mission to make Windows matter again

Satya Nadella, a 23-year veteran of Microsoft, celebrates his one-year anniversary as the third-ever chief executive of the company on Wednesday.Getty Images

If former Microsft CEO Steve Ballmer saw Windows as a cash cow that just needed to be milked, Satya Nadella seems to view the software as a workhorse straining to pull the company out of its rut.

Nadella, who celebrates his one-year anniversary Wednesday as Microsoft's third-ever chief executive, has been working quietly and steadily to convince developers and consumers that the world's biggest software company -- and its Windows operating system for computers, tablets and smartphones -- is once again relevant.

He's got a tough sell.

Nadella, who's spent the last 23 years at Microsoft, knows that the company's days as master of the tech industry are long gone. Now he's trying to make it relevant by pushing Microsoft into the age of mobile computing. For Nadella, it's a question of "renew" or die.Sure, almost 90 percent of all personal computers run some version of Windows. But by 2016, over 2 billion people -- or more than a quarter of the world's population -- will have a smartphone, according to eMarketer. And where does Microsoft stand in one of the fast-growing technology arenas in the world? In the shadows, with its Windows software for mobile devices holding a paltry 2.7 percent share of the market, well behind Google's Android and Apple's iOS offerings.

"You renew yourself every day. Sometimes you're successful, sometimes you're not. But it's the average that counts," Nadella said at the LeWeb conference in Paris, one month before being named CEO. "If you deal with scale where you stop innovating, then that's death .... We've had great successes with Windows, we've had great successes with Office. But it's just a question of what we do next."

What Microsoft did next was take a page out of Apple's and Google's playbooks -- emphasizing apps, not operating systems. But while those companies focus on making it easy for users to share information across devices, Apple and Google still force app developers to write one set of code for computers and another for mobile devices.

With Windows 10, the next version of Microsoft's operating system, due this year, developers are being promised the ability to write to a single code base. That could be the lure Microsoft needs to convince developers who want to write just once and create the apps that look and feel the same across computers, tablets and smartphones, regardless of what software powers the device.

"The best possible repeat of history for [Microsoft] would...be a place developers go to," said Gartner analyst Merv Adrian. Microsoft also needs to be "a company whose developer tools are perceived as being useful to everyone, not just on their own platforms."

The workhorse is plodding steadily forward.

Microsoft has begun offering pieces of its flagship Office software suite on competitors' devices, as in the case of Outlook for iOS. The company hopes that the more people use Microsoft products, the more willing they may be to pay for access to them everywhere.Josh Miller/CNET

To see the plan in action, just look at the pricing shakeups since Nadella took over. Microsoft last month announced that Windows 10, due later this year, will be a free upgrade for a majority of PC users. And Microsoft made its flagship Office software available at no cost to every iOS and Android user while also extending free licensing of its Windows Phone software to any manufacturer of Android devices with a screen smaller than nine inches.

If you don't want to use OneCloud, Microsoft's cloud storage service, you can use rival storage service Dropbox. Just last week, Microsoft made its Outlook email application available -- again, for free -- on iOS.

It sounds like craziness has taken hold in Redmond, Wash. But there's a method to the madness of offering all that free stuff. Microsoft hopes people will pay the annual subscription fee for Office 365 so they can use the cloud versions of Outlook, Word and PowerPoint on their Macs or PCs. That's become especially attractive as employees shift their activity between corporate and personal devices.

"The one attribute that characterizes Nadella's first year on the job is a steady hand," said Roger Kay, an analyst at and founder of market intelligence firm Endpoint Technologies Associates. Kay believes Nadella has exhibited an ability to strongly communicate Microsoft's roadmap.

That includes his take on the video game business. Instead of jettisoning the Xbox business as some investors have demanded for years, Nadella put more weight behind it.

One of Nadella's first organization shakeups last year was to make Phil Spencer, former head of Microsoft's game development arm, in charge of the entire Xbox unit. The result has been a huge boon to Xbox sales as Spencer steered the division toward more serious gamers and away from mass-market consumers in what was a botched attempt to take over the living room. Last fall, Microsoft extended its gaming commitment by buying Mojang, maker of the popular Minecraft game, for $2.5 billion.

Under Nadella, Microsoft is accelerating some of its more outlandish technology, like its HoloLens holographic headset.Microsoft

Mobile hardware also is key to Microsoft's turnaround. After acquiring Nokia's handset division in April 2014 for $7.2 billion, Microsoft now takes in around $2 billion in revenue each quarter from sales of Lumia smartphones. Last quarter, Microsoft shipped more than 10 million units. And while that's paltry compared to the 74.5 million iPhones Apple shipped in the holiday quarter, the relatively stable business does more good than harm for the company as a whole, analysts say.

"Microsoft is going to stay in the phone business as long they're not cratering," Gartner's Adrian said. "Not because they want to get to No. 1 or No. 2 in the phone business, but because as a market participant they learn a lot that extends to the rest of the company." Microsoft, for instance, can apply what it learns in the consumer market to the enterprise space -- and vice versa.

A Microsoft comeback is not a given. Such turnarounds are rare in the tech industry. "Change won't happen overnight" has become a common refrain among both Microsoft fans and skeptics. That's because the company's business has long relied on a small set of core sales drivers -- namely, the software and services it sells to businesses. That enterprise focus earned Microsoft more than half of the company's $86 billion in sales last year. Now it's the buffer Nadella needs for his turnaround efforts.

"Microsoft has a little bit of time. Yahoo had Alibaba financing all of [CEO Marissa] Mayer's experimentation while she figured out what she wanted to do with the company," Kay said. "Microsoft has their own built-in Alibaba, which is the commercial side."

"Ballmer didn't have a sense of where Microsoft should go."

Roger Kay, analyst, Endpoint Technologies

But time is running out. Microsoft stock has dropped 15 percent since the company's not-so-stellar earnings report last week, erasing almost $40 billion in shareholder value. Longtime Microsoft analyst Rick Sherlund, of Nomura Securities, downgraded the company's stock, forecasting tougher times ahead for the company.

"We reduced estimates to reflect a significantly more challenging transition ahead, with difficult comparisons ahead for traditional Office and Windows," Sherlund told investors on January 27. "Our bigger concern is that with more difficult year-to-year comparison still ahead over the next two to three quarters and the stock near its high, there is little room in the shares for disappointment."

Disappointment could become the norm if Nadella can't change a company known for its inability to capitalize on industry-defining trends. Just look at smartphones, tablets, subscription music and TV services, social networking, mobile messaging ... the list goes on.

"Ballmer didn't have a sense of where Microsoft should go," said Kay. Nadella, with his steadier hand than the famously bombastic Ballmer, might have a better chance of changing the software behemoth's course.

Nadella knows the outcome for Microsoft if he can't renew the business.

After gaffe, Microsoft CEO says he was 'wrong' on women's pay

Microsoft CEO Satya Nadella says he now wants to lead the industry on diversity.James Martin/CNET

Microsoft CEO Satya Nadella inadvertently shined a light on gender inequality with a public blunder on Thursday. During an event focused on women in tech, he suggested women shouldn't ask for raises but rather trust that the system will take care of them.

"It's not really about asking for the raise but knowing and having faith that the system will actually give you the right raises as you go along," Nadella said in the interview, which was at the Grace Hopper Celebration of Women in Computing in Phoenix. "And that, I think, might be one of the additional superpowers that quite frankly women who don't ask for raises have."

"Because that's good karma," Nadella continued. "It'll come back because somebody's going to know that's the kind of person that I want to trust. That's the kind of person that I want to really give more responsibility to."

Though Nadella's statement has caused an uproar on social media and among gender equality advocates. Vivek Wadhwa, an outspoken author and academic on diversity in the tech world, said the gaffe may actually bring more gender equality to the industry.

Wadhwa corresponded with Nadella on Friday morning. The CEO told him he regrets his statements and now wants Microsoft to be an agent of change in regard to gender disparity in the tech industry.

"He said that he just gave a wrong and terrible answer to the question,'" Wadhwa told CNET. "He wants to now lead the industry on diversity."

Shortly after his statement on Thursday, Nadella took to Twitter to apologize, saying, "Was inarticulate re how women should ask for raise. Our industry must close gender pay gap so a raise is not needed because of a bias." He also penned an email to his employees to say he "answered that question completely wrong" and that "men and women should get equal pay for equal work." He added that "If you think you deserve a raise, you should just ask."

Nadella's remarks come just days after Microsoft released its diversity statistics. The tech giant follows Google, Facebook, Twitter and other companies in divulging data on the gender and racial breakdown of its employees. According to Microsoft, women now comprise 29 percent of its worldwide workforce, which is up from 24 percent over the past year. As far as racial data, 60.6 percent of its world staff is white, 28.9 percent is Asian, 5.1 percent is Latino and 3.5 percent is black. These numbers are similar to most other tech companies that have published diversity statistics.

Women and people of color in the tech industry also tend to receive lower pay than white males. Women in technology earn $6,358 less than their male counterparts, on the average, and women with at least one child earn $11,247 less than everyone else, according to a report released last month from the American Institute for Economic Research.

"While we appreciate Microsoft CEO Satya Nadella's quick apology and admission that his advice to women in tech was flat-out wrong, we're disheartened by the fact that systemic sexism still exists, as women in tech work hard to make strides toward economic security," Teresa C. Younger, Ms. Foundation president and CEO, said in a statement sent to CNET. "Microsoft and the entire tech industry must ensure that women are recruited, promoted and compensated fairly -- receiving the same opportunities as men."While the tech world is often criticized for its lack of diversity and income equality, Nadella's remarks and subsequent apologies have sparked additional conversation about the topic. Gender equality advocate organization Ms. Foundation for Women has called on Nadella to follow up his apology with concrete actions and to "fix the sexism bug at Microsoft."

Like Ms. Foundation, Wadhwa is known for criticizing top tech companies and venture capital firms for their lack of gender diversity. He has famously gotten into virtual tit-for-tats with venture capital titan Marc Andreessen and Twitter CEO Dick Costolo. Andreessen blocked Wadhwa on Twitter after Wadhwa questioned him about bias toward white males with his fund's investments. And, after Wadhwa criticized Costolo for having few women in management at Twitter, Costolo called Wadhwa "the Carrot Top of academic sources."

However, Wadhwa said he strongly believed Nadella when Nadella said he wants to be a part of the solution.

"I believe that Satya is as supportive of women as I am and know this will make him much more sensitive to the problems that women face," Wadhwa said. "I expect a lot of good to come from this mistake -- with him becoming a role model for other CEOs in fostering equality and diversity."

Microsoft's Future

BY ADITYA KUMAR SAROJ
Windows 8, and now the newly released update of Windows 8.1, the most dynamic PC and tablet operating system by Microsoft, which never really got off after a whole lot of hype it had created since 2011. Microsoft has a new man at the top, but with the same old products, except the fact that he will have Microsoft Mobile (the new name of Nokia) under his control. With Bill Gates pulling his hands away from Microsoft, for his philanthropic works, there is going to be a lot of pressure on Satya Nadella. No one really knows how Microsoft is going to survive in this Apple-Samsung-Google world (with little space for Sony and few others).

"Every aspect of Microsoft's business is being fundamentally transformed because of data," said Nadella at a presentation in San Francisco. "You have to build deeply into the fabric of the company a culture that thrives on data."

This comment from Nadella suggests that Microsoft again wants to prove to the world that it's not the hardware but the software that will again bring the IT revolution in this world, and Microsoft wants to be a part of it.

But what really is going to be the tech giant's future? Stay tuned to PlayBlox! for the next part of 'Microsoft's Future'.

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.

It's Mulally vs Nadella

Anupam Saxena, November 29, 2013

In the search for the company's CEO, it looks like Microsoft's board is also looking at Alan Mulally, Chief Executive Officer of Ford Motor and internal executive Satya Nadella (executive vice president of Microsoft's Cloud and Enterprise group), as top prospective candidates in its list for hopefuls, according to a new report.
 
Tony Bates, another internal candidate who was also the former Skype CEO, and Stephen Elop, former Nokia CEO, are still on the list, but are not at the front when it comes to be in the running for the Microsoft top slot, according to a report by Bloomberg, that cites people (who chose to be anonymous) familiar with the developments. It also quotes the same people as saying that 'preferences remain fluid and other people are being considered and could emerge as front-runners.'
 
However, Microsoft and Nokia spokespersons declined to comment on the matter. A Ford spokesman also refused to comment.
 
Recently, Microsoft chairman and co-founder Bill Gates had informed that the company's board had met on November 18 to discuss CEO candidates, and had even met with a number of them, at Microsoft's annual shareholder meeting in Bellevue, Washington. .
 
Microsoft aims to reach a decision on the new CEO before the end of this year but the announcement could be pushed to early next year, according to the Bloomberg report.
 
The report also cites people who have knowledge of a document prepared by the Microsoft board for the CEO search as saying that it describes the ideal candidate as, "one who has an "extensive track record in managing complex, global organisations within a fast-paced and highly competitive market sector; track record of delivering top and bottom line results. Proven ability to lead a multi-billion dollar organisation and large employee base."