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Microsoft's Likely CEO Pick a Safe Choice, With Edge

Microsoft Corp.’s directors could have anointed a visionary outsider to shake up a technology giant that has fallen behind. Instead, they have opted for a safe choice.

Directors are negotiating with 22-year company veteran Satya Nadella to succeed Chief Executive Steve Ballmer, according to a person familiar with the matter. If the board finalizes the pick in coming days, Mr. Nadella will become the third person to lead Microsoft since Bill Gates and Paul Allen founded the company in 1975.

Mr. Nadella has signaled a desire for continuity, telling directors that, as CEO, he hopes to lean on Mr. Gates, according to several people familiar with the matter. Little in Mr. Nadella’s public history at Microsoft suggests he will break from the company’s pattern as a fast follower, rather than a trend setter.

“It is clearly a safe pick,” says Dan Fletcher, a research analyst at Neuberger Berman LLC’s Large Cap Disciplined Growth, a Microsoft investor. Mr. Nadella’s selection will disappoint those seeking “an outsider who would drive significant and bold change,” he said.

Satya Nadella says that as CEO he hopes to lean on Bill Gates, pictured. Reuters

That assessment could be short-lived, however. The job of CEO can embolden executives in unexpected ways. People who have worked with Mr. Nadella credit him with repairing technical glitches at Microsoft’s Web-search service, disarming Silicon Valley technologists suspicious of the company and fostering collaboration in a turf-conscious workplace.

If he is named CEO, Mr. Nadella would inherit many advantages. Microsoft generated $27 billion in operating profit in the year ended June 30, and the company holds $84 billion in cash. Microsoft’s Windows still runs roughly nine out of every 10 desktop and laptop computers in the world, and its Office and Exchange programs are corporate mainstays.

Most of Mr. Nadella’s experience is in serving corporate customers-the source of two-thirds of Microsoft profits-which suggests the company may want to double down in that area. He has been an leading internal champion of Microsoft’s efforts to rent computing power to other companies, even though that business competes with some of Microsoft’s most-profitable products.

Some investors, including an activist firm that soon will have a Microsoft board seat, want Microsoft to focus on corporate software and think the company should shed consumer-oriented operations such as the Xbox videogame business and Bing search engine.

Messrs. Gates and Ballmer and some directors have resisted that course, arguing that lines are blurring between corporate and consumer technology.

Mr. Nadella seems to agree. At a 2012 customer meeting in Kirkland, Wash., one attendee said Mr. Nadella argued passionately that consumer and corporate offerings can borrow and benefit from each other. Nand Mulchandani, CEO of software startup ScaleXtreme Inc., says Mr. Nadella told the group that his experience working on Bing taught him that Microsoft’s online business increasingly depends on its Web-computing services.

Not long ago, Microsoft could afford to fall behind, then spend whatever was necessary to catch up. That’s how it unseated Netscape Communications Corp. as the leading Internet browser in the 1990s.

Now, the game has changed. Microsoft is fighting on multiple fronts against well-heeled rivals. It must simultaneously compete with Apple Inc. in smartphones, Google Inc. in Web search, Amazon.com Inc. ‘s in Web-computing services, Oracle Corp. in databases, Salesforce.com Inc. in Internet-based corporate software and Sony Corp. in videogames, among others.

Mobile phones have been a particular problem. Microsoft’s software is on fewer than 4% of smartphones world-wide. Its latest effort to extend its influence is a pending $7.3 billion deal to buy Nokia Corp.’s mobile-phone business, a bet on combining Microsoft’s software with Nokia’s hardware. That deal, struck just as Mr. Ballmer was cementing plans to step down, saddles Mr. Nadella with a new strategy and 32,000 new employees.

As Microsoft scrambles to catch up in mobile, its rivals are sketching new technological visions. Google, Apple, Amazon and others are branching out into driverless cars, wearable computing gadgets, sensor-packed devices and flying robots. Microsoft has plans in some of those areas, but has shelved similar projects in the past. Around the time Apple’s iPad debuted in 2010, for example, Mr. Ballmer killed a planned Microsoft tablet computer to devote more resources to the next version of Windows.

Mr. Nadella felt the internal resistance to change on a smaller scale. “What I’ve learned, it is in fact harder to change when there is no crisis,” he said in a 2012 interview.

A look at Mr. Nadella’s decisions in his current job-leading the Microsoft division that makes technology to run corporate computer servers and other back-end technology-reveals an executive who has been willing to buck Microsoft’s traditions, to a point.

Mr. Nadella allowed outside developers to use non-Microsoft programming languages, popular with younger coders, on Microsoft’s “cloud” service that rents computing power to others. Mr. Nadella’s choice was “heretical,” Bill Hilf, a former Microsoft manager who then worked in the cloud unit, said in late 2012.

Forrester Research analyst Ted Schadler credits Mr. Nadella with boosting sales and securing capital to build computer server farms that support the company’s cloud business. “He’s clearly a change agent,” Mr. Schadler says.

The impact is measurable, if small by Microsoft standards: In the six months ended Dec. 31, Microsoft’s revenue from computer technology and services sold over the Internet more than doubled to $1.1 billion.

In general, though, people who know or have worked with Mr. Nadella say he has followed Microsoft’s conservative catch-up playbook, rather than make breakaway bets on new technology.

In 2009, he led Microsoft’s effort to revamp Bing to better compete with Google. The new version was technologically adroit, but little different than Google, which remains the dominant search engine. Microsoft executives shy away from discussing market share in search, preferring to refer to Bing as the company’s “Big Data engine.”

At the cloud unit, Mr. Nadella shifted direction of a product that he called too bold, to make it conform more closely to Amazon’s market-leading Web-services offerings. That boosted demand for the floundering Microsoft Web service, but also left an opening for rivals like Salesforce to make their own innovations.

A Microsoft spokesman said the company added additional capabilities to meet market demand.

Jeremy Howard, an entrepreneur now running computer-data firm Strategic Data Science, said Mr. Nadella’s shift was sensible, but betrayed a lack of confidence in Microsoft’s engineering prowess.

“The old Microsoft would have been, ‘We have the best platform here, we’ll keep trying,’ ” he said.


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