Twice a day for forty days, Goliath, the champion of the Philistines, sought out contenders from the Israelite army to fight in single combat. The Israelites, however, were too afraid to challenge him. David, upon hearing that Saul would promise a reward to any man who could defeat Goliath, accepted the challenge. David declines Saul’s armor and faces Goliath with a sling and five stones. Upon exchanging valiant remarks, David hurls a stone from his sling as hard as he could, and hits Goliath right in the forehead, allowing him to then slay the champion. Microsoft’s search for its new CEO has been somewhat of a similar battle. It needs a leader to slay what is the future of the technology industry: cloud services and mobile devices. More and more consumers are working on the move now, and the glory of the portable-PC is quickly fading.
This is where Satya Nadella comes in. Earlier this February, he was announced as Microsoft’s newly selected CEO. Nadella’s success marked the end of months of rumours that had several names being considered for the position, including Alan Mullay, Hans Vestberg, and others.
Nadella’s experience and background are enough to make him qualified for the job. He is an engineer with degrees in electrical engineering and computer science. He also received his MBA at the University of Chicago shortly after he started working for Microsoft. Nadella has worked at Microsoft for 22 years in total. Perhaps more importantly, though, he has played a pivotal role in leading Microsoft’s operations in the rapidly expanding market for cloud computing.
Cloud Computing and Microsoft
Cloud computing is, in it’s simplest form, the ability to secure and allocate computing resources via a network. It allows network-based software and hardware access and control, rather than “real,” on-site computing resources. As is suggested with the term “cloud,” it is the highly transferable, accessible, and mobile offering of services and products without the boundaries of physical resources. Typically, there is a location that hosts these services “in the cloud” so that other users (buyers) do not have to. The major players of cloud computing, for both businesses and consumers alike, are Google, Microsoft, and Amazon, with market share allocated in that order. As the market continues to expand, Nadella’s experience developing and running this growing aspect of Microsoft’s business was no doubt one of the foremost reasons for his candidacy for the CEO position.
Nadella’s mission is to steer the company towards heightened profitability by setting up new businesses. He sees it as his responsibility to set a course through what he calls a “cloud-first, mobile-first world.” As of now, the company is doing fairly well in the cloud computing business. It is hosting more and more businesses each year in its own data centres, and has been selling a growing amount of software as a continually updated online service. Revenue from this past quarter for cloud services has doubled since last year, sitting at roughly $600 million USD.
Out with the Old
Nadella is already setting the stage for Microsoft’s transition. Rather than a traditional press conference, Nadella spent his first few weeks introducing himself and taking questions from Microsoft’s vice presidents and managers, already demonstrating that he would be operating differently from his predecessor. He was calm and collected while answering questions from the media, and at the end of the press-webcast stated, “if you have to get back to a meeting because it’s more interesting or important, please…” This is a complete departure from Ballmer’s “rally the troops” and passion-oriented business persona, to a more subdued leader, who is showing that is he here to help, listen, and take on ideas. Experts say that this may be key to Microsoft’s future as it must let go of past successes and missed opportunities, and transition into new businesses. This is an important cultural shift as the firm matures.
Though Microsoft has been struggling in terms in new product markets, it is still a major leader in the tech industry. Its revenue for six months to December was $43 billion USD, up 15 percent from last year. Its net income was $11.8 billion USD, up 8.8 percent, and its cash totaled $84 billion USD. It still has a strong market capitalization of $300 billion USD, but has lost market share in emerging sectors, and been slow to react to the rapidly developing environment of the tech sector.
The Mobile Struggle
Perhaps most notably, and despite several revised efforts, the firm is still lagging in the mobile phone sector. Windows Phone ranks third behind Google’s Android and Apple’s iOS. Though the company reported some improvement in revenue from last year, its tablet platforms are considered to be all but a complete flop, and its recent purchase of Nokia’s mobile-phone division may not be enough to overcome the advantage held by rivals Apple and Google. Overall, the company has failed to win over customers with their mobile phone products, and analysts fear that this may seriously hurt the firm in the future.
As both businesses and consumers continue to rely more heavily on mobile computing solutions, it becomes more and more essential for firms to adapt to this stream of business. Analysts at Forrester Research Group say that in order to reconcile this dilemma, Microsoft should hire product developers to create apps for Microsoft to draw in more consumers. This is especially true as more independent vendors than ever are creating apps for iOS and Android. Forrester also explained how it might be in the company’s best interest to start creating apps for its Microsoft Suite programs – including Microsoft Office – considering these are still prominent in traditional business operations, and can be used for tablets.
Nadella seems to already be aware of this. At a financial analysts meeting in September this past year, he described how Microsoft’s mobile device management software has to handle devices that run on Apple’s iOS, Google’s Android, and Microsoft’s Windows Phone equally.
He also explained that the new direction for the company is writing software for the next wave of mobile devices, instead of focusing on the production of smartphones. Though he professed enthusiasm for Microsoft’s devices and the Nokia deal, he still thinks the company should steer away. In an in-house interview on February 4th, he said, “today we have a particular definition of mobile which is perhaps skewed towards the mobile phone.” He added, “if you think about how everything we do at home or at work is going to be digitally mediated…[it is] all going to be changed by software.” He is explaining here that taking the route towards providing software for mobile devices as opposed to producing them could significantly increase the company’s profitability.
For mature companies that have already hit their peak, there is a need for an analytical leader rather than a driving and expressive leader like Ballmer, especially when prevailing profitability trends point downward. Microsoft needs to start their “second wave of thinking” instead of riding on the success of its Windows operating system for personal computers, which, while stable and profitable, is eroding in terms of scope. This requires both diligence and patience, which was always the style of Bill Gates, and Nadella as well. From what we’ve seen so far, Nadella is on the right path. After months of deliberations, analysts seem to agree that Microsoft has made the right choice in its new CEO. Perhaps Nadella is the David that will slay what is Microsoft’s struggle for innovation. In the end, only time will tell.