Satya Nadella: Can a data geek solve Microsoft's consumer puzzle?

Satya Nadella knows Microsoft in the abstract. But can he expand his knowledge of the cloud and server businesses into consumer and retail?

Satya Nadella is a spider.

Throw out all the negative connotations usually associated with the term. Instead, focus on what a spider does: It sits at the center of a web, stroking and sensing the minute vibrations that run up the hundreds of strands, analyzing their meaning and what they reveal about the external world.

For the last several years, most if not all of the data that flows through Microsoft's services business--which fans out, like a web, to over a billion connected devices--has flowed through Nadella's cloud services and the analytics software that monitor and control them. It's Nadella who's kept Microsoft's own data centers online. And it's he who's assisted partners; overseen the languages and development environments; made sure app developers have had the tools they need; and ensured that Skype, Bing and Xbox Live are up and running.

Although Nadella had been considered the heir presumptive last week, on Tuesday Microsoft made it official, naming Nadella chief executive. Bill Gates, the company's founder, will step down from his role as chairman, ceding the position to director John Thompson. Gates will now devote additional time to the company as technology adviser.

So what will Microsoft look like under Satya Nadella? Nadella's somewhat staid, stay-the-course philosophy probably indicates a conservative tack: In the short term, he'll likely follow the direction set by retiring chief executive Steve Ballmer. "We have picked a set of high-value activities as part of our One Microsoft strategy," Nadella wrote in a letter to employees. "And with every service and device launch going forward we need to bring more innovation to bear around these scenarios."

Nadella knows data, and that will be his strength in his new role. At Microsoft's Worldwide Partner Conference last year, Nadella described data as the "foundational, fundamental driver of your business activity." Nadella probably knows exactly how many users use Office 365, as well as the bandwidth demands that the Halo franchise puts on Xbox Live.

But does his understanding go beyond the abstract--how educators and digital publishers work with Office and Microsoft Azure, or what makes an Xbox game great? If you're Paul Polman, chief executive of Unilever, you may not be expected to know how your customers use Noxema. But this is Microsoft, where founder Bill Gates notoriously ripped apart products before they hit the market. Can Nadella do the same, or will he turn Microsoft into Google North?

In his letter, Nadella set forth his mission statement: "We are the only ones who can harness the power of software and deliver it through devices and services that truly empower every individual and every organization," he wrote. "We are the only company with history and continued focus in building platforms and ecosystems that create broad opportunity.

"Qi Lu captured it well in a recent meeting when he said that Microsoft uniquely empowers people to 'do more,'" Nadella added. "This doesn't mean that we need to do more things, but that the work we do empowers the world to do more of what they care about--get stuff done, have fun, communicate and accomplish great things."

Put simply, Nadella is a data-driven geek, now thrust out into the messy world of marketing and customer relationships. And if you doubt that, check out the video below.

Help still needed

Of the many candidates supposedly up for the Microsoft CEO post, Nadella is one of the few (the only?) with no CEO experience. Managing a business of Microsoft's complexity and current strategic position would be a challenge for anyone, although with Gates' help, the transition may be manageable.

"Let's be clear: There is no one Microsoft CEO candidate who will be great at everything. There has never been," said Patrick Moorhead, principal at Moor Insights and Strategy. Nadella is a "very experienced and successful guy in the software space," Moorhead says, but questions whether the new CEO can confidently navigate Microsoft's consumer challenges: Windows, Surface, and wringing profits from Xbox. "This is a big job for him," Morehead says.

Moorhead called Nadella an "executor" of the Ballmer plan, rather than a strategist. With Gates serving as a de facto mentor, it's likely that Microsoft is in good hands. But just don't expect Nadella to deviate too far from the course.

"A leadership transition is a delicate balance between continuity and disruption.The most important thing for the Microsoft board right now is to make sure that Satya Nadella is fully supported without being hamstrung," said Ted Schadler, an analyst for Forrester, in an email. "Bill Gates leaving and Steve Ballmer staying on as a board member would accomplish that."

In an interview, Schadler said that Gates' implicit backing will give Nadella the political cover he needs to go further. "I think the push to the cloud is the best [move], and I think Nadella is going to push that faster," he said.

Nadella should get a honeymoon period of about six months to a year, according to Moorhead, although one management consultant who declined to be named (for work done with Microsoft, or may do in the future) said that Nadella will probably receive three quarters, depending on how Microsoft fares. Gates will probably be seen by Wall Street as a Jobs-like figure that can return Microsoft to glory, the consultant said, offset by Nadella's relative inexperience.

David Mitchell Smith, a Gartner fellow and vice president, agreed that Microsoft won't look dramatically different in the short term. "It was a good choice, not a perfect choice," he said of Nadella's appointment a CEO.

Smith said that Nadella would have to beef up his expertise on areas where he was less experienced, namely mobile and the consumer business. Although Microsoft has turned to Julie Larson Green (now executive vice president of Devices and Studios), as well as Tami Reller (executive vice president of marketing), the analysts I interviewed recommend that Microsoft look outside the company at some fresh, new blood.

Where are the moonshots?

Microsoft investors were relatively nonplussed by the deal, sending shares up just 19 cents, about half a percentage point. Microsoft's stock price nearly touched $38 on Monday, however.

That may be because Wall Street views Nadella as a rather uninspiring choice, without the vision or leadership to really add to Microsoft's product portfolio. In some ways, this is a rather short-sighted perspective.

Microsoft's moonshots are right under its nose: helping to grow Bing into a true rival for Google--a task Nadella never accomplished--while Google works to minimize the value of reactive search, making it proactive with technologies like Google Now. Microsoft needs to get its house in order in the mobile space, fitting the massive Nokia piece into its organization. Microsoft must then get its house in order in the mobile space, providing coherency across its mobile services, while continuing to develop a coherent apps ecosystem.

Forrester's Schadler said that one of Microsoft's strengths is understanding and addressing both sides of the customer: as a businessperson, and as a consumer as well. In his view, Microsoft should (and will) continue addressing the "person," with products ranging from Office 365 to the Xbox One. Perhaps that implies a future wearables push.

How much leeway will Gates give his protege? How far will Nadella be willing to deviate from the course? Gates, like Jobs and other CEOs, built Microsoft as much from his gut as from a spreadsheet. Ballmer was reportedly dismissive of new ideas unless he received data showing that they could work. Nadella appears part of the modern breed of managers--someone who argues for change only if the numbers back it up.

However, the narrative that Microsoft is crafting around Nadella appears to be one of curiosity. "I fundamentally believe that if you are not learning new things, you stop doing great and useful things," Nadella wrote in his letter to employees. He says he's here to "change the world". But if he does so, history says he'll do it one careful step at a time, rather than in a big leap of faith.

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