Microsoft’s board has chosen longtime company executive Satya Nadella to guide the once-dominant software giant into the future after faltering in recent years amid the rise of mobile computing and as competitors Google, Amazon.com and Apple increasingly threaten its relevance.
Nadella will assume the role of chief executive officer and join Microsoft’s board immediately.
The company also announced that Bill Gates, formerly board chairman, will assume the title of founder and technology adviser, which Microsoft said will allow him to devote more time to the company and to support Nadella in shaping technology and product direction. Gates remains a board member.
John Thompson, lead independent director, will become board chairman.
Nadella becomes only the third CEO in Microsoft’s 39-year history, following in the footsteps of co-founder Gates and current CEO Steve Ballmer, who announced in August that he would be retiring within 12 months.
“During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” Gates said in a news release. “Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth.”
Nadella called Microsoft “one of those rare companies to have truly revolutionized the world through technology, and I couldn’t be more honored to have been chosen to lead the company.”“
“The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform,” he said in the news release. “A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly.”
In an email to employees, Nadella said: “We are hungry to do more. Our industry does not respect tradition — it only respects innovation. This is a critical time for the industry and for Microsoft. ... Our job is to ensure that Microsoft thrives in a mobile and cloud-first world.”
Nadella offered no specifics on his plans for Microsoft, instead paraphrasing writer Oscar Wilde, in saying: “We need to believe in the impossible and remove the improbable. ... This starts with clarity of purpose and sense of mission that will lead us to imagine the impossible and deliver it. We need to prioritize innovation that is centered on our core value of empowering users and organizations to ‘do more.’ “
Ballmer, in an email to employees, called Nadella “a proven leader. He’s got strong technical skills and great business insights. He has a remarkable ability to see what’s going on in the market, to sense opportunity, and to really understand how we come together at Microsoft to execute against those opportunities in a collaborative way.”
Ballmer, who remains a member of the board, said as he's often said throughout his career that: "I love this company. I love the bigness and boldness of what we do.”
Thompson, the new board chairman and the director who led the CEO search committee noted that Nadella had the unanimous support of the board, calling him “clearly the best person to lead Microsoft.”
As CEO, Nadella will lead a global behemoth that last fiscal year brought in $78 billion in revenue and $22 billion in profit. It has more than 100,000 employees worldwide — about 43,000 of them in the Puget Sound area. Another 32,000 Nokia employees are expected to join the payroll once that acquisition closes.
Nadella, 46, is a 22-year Microsoft veteran and currently heads its Cloud and Enterprise group, which provides servers, cloud platforms and other technology tools for corporations.
As such, he heads one of the company’s fastest-growing, most profitable divisions and has been a key player in helping shape, articulate and execute Microsoft’s strategy for the cloud, the term used to refer to services and data that live on remote servers and which users access online.
Last fiscal year, his division pulled in $20.3 billion in revenue and $8.2 billion in operating income.
Described as very smart, personable, charismatic and collaborative, he is well respected within the company and well regarded by Wall Street.
Some investors, though, who would like to see more radical changes at Microsoft, question whether an insider such as Nadella will bring about big changes.
Nadella will be heading a company in the middle of great transitions.
The company still has formidable strengths, including its pervasiveness among corporations, its dominant position in PC operating systems and in productivity software, and its rapidly growing business providing services and technology infrastructure via online networks.
It’s also made a big investment in recent years on building its cloud infrastructure and services.
But it’s the daunting challenges facing Microsoft that the new CEO will have to quickly address.
While Microsoft built its fortune on making its operating system — Windows — ubiquitous on PCs, the market for PCs has declined. In its place, the markets for smartphones and tablets have soared — and in those markets, Microsoft has very little share.
The introduction last year of Windows 8, which featured a radical new user interface designed to be especially touch-friendly, met with a tepid response. And it’s only now that a full array of touchscreen devices featuring the new operating system, at better prices, are reaching the marketplace.
While Apple’s devices and Google’s services and Android operating system have succeeded with consumers, Microsoft has struggled in that market, the Xbox console being the glaring exception.
Microsoft is also in the middle of a huge organizational transition.
The company is shifting toward becoming one that produces devices and provides services through online networks — the “devices and services” vision that Ballmer first announced last year.
It will soon become one of the largest device manufacturers in the world, when its $7 billion purchase of Nokia’s handset business is finalized, expected sometime early this year.
And the “services” side of its “devices and services” vision has been growing rapidly, with offerings such as Office 365 on a rapid adoption rate.
The company is still in the middle of a huge reorganization that Ballmer began in the summer, designed to spark better collaboration between groups and a quicker pace for updates and innovations.
Microsoft’s share price finally began to rise last year, after remaining stubbornly flat for much of the decade. The most recent big stock price increase came after Ballmer announced he would be retiring.
Ballmer, who has been CEO since 2000, has faced criticism for years about Microsoft’s stagnant stock price and its falling far behind competitors such as Apple and Google in the fast-growing mobile market.
The biggest challenge facing the new CEO, said veteran Microsoft analyst Rick Sherlund with investment bank Nomura, is not just how to enhance earnings.
That can be done pretty easily, Sherlund said, with actions such as buying back stock or getting out of businesses that aren’t of great strategic importance.
The bigger challenge, he said, is figuring out how to better focus the company — Microsoft currently has its tentacles in everything from search to servers to consumer devices to much, much more — and how to come up with product strategies to enhance growth of the businesses it already has.