Satya Nadella’s appointment as Microsoft CEO a year ago was surprising. A protracted search for Steve Ballmer’s successor had many expecting the nod to go to an outsider to steer Microsoft into the future, not the then-unknown 22-year Microsoft veteran. Microsoft even attempted to massage any concerns by strategically announcing Bill Gates was "substantially increasing" his time at the company. It’s still not clear whether Gates is really dedicating up to 30 percent of his time at Microsoft. Nevertheless, Nadella created a mission statement to drive Microsoft forward with a mobile and cloud focus, and so far he seems to be steering the software giant in the right direction.
A fresher and newer Microsoft emerges under Nadella
It's a year later, and Microsoft feels fresh, new, and less concerned with the legacy of Windows. While some argue Satya Nadella is just running Steve Ballmer’s Microsoft, he deserves much more credit for his 12 months in the top role. Under Ballmer, Microsoft was focused on protecting Windows at all costs. Ballmer’s biggest regret at Microsoft was Windows Vista, an operating system that was overly ambitious and one that took far too long to hit the market. Windows Vista distracted Microsoft from a growing mobile threat, and the company was ill-prepared for the iPhone and the dominance of Google on the web and Android on mobile. Perhaps most tellingly, Ballmer laughed at the iPhone initially. Apple just sold 75 million iPhones in three months, seven times more than all Lumia Windows Phones sold during the same quarter.
Nadella has indeed executed on some of Ballmer’s product plans, but he appears to be taking a slightly different path than Ballmer would have likely taken. Take Office for iPad as a good example. While it had been rumored for years, behind the scenes, engineers had been working closely to create a truly great app. Microsoft had planned to launch an iPhone version with free document viewing, but ditched those plans in favor of requiring an Office 365 subscription. Office for iPhone eventually debuted in June 2013 and frustrated many with the Office 365 requirement. Nearly two months after Nadella’s appointment as CEO, Office for iPad launched with free reading and a requirement of Office 365 for editing purposes, and then just months later Nadella took the bold step to make the apps free across iOS and Android. That wasn’t a Ballmer decision, that was clearly a Nadella decision.
After stumbling with its Xbox One launch, Nadella was also quick to appoint a new Xbox leader. Phil Spencer took over less than two months after Nadella’s appointment as CEO and quickly killed the Kinect bundling while promising an increased focus on gamers. A few months later, Microsoft surprised many by acquiring Minecraft for $2.5 billion, Nadella’s first major acquisition as the new CEO. Microsoft buying Minecraft looks unusual, but it’s actually a genius move for the company. Minecraft already generates strong revenue, and Microsoft expects to break even from its purchase by June. That’s already looking like a much better acquisition than Ballmer’s $6.2 billion write-off of Microsoft’s 2007 acquisition of aQuantive. Financials aside, in the longterm it will likely play into Microsoft's cloud services plan, and the company has already used it to help demonstrate its new HoloLens headset.
Surprise acquisitions boost Microsoft's software on iOS and Android
Elsewhere, Nadella is making some daring bets on mobility and ways to make consumers love Microsoft again. A surprise Acompli acquisition has resulted in an Outlook mail app for iOS and Android that people are praising far and wide, and a rumored Sunrise acquisition could have similar results. Nadella also teamed up with Dropbox to integrate its cloud service with Office versions for iOS, Android, and Windows. It’s a new approach that is clearly designed to get consumers to respect and like Microsoft apps and services, while having the long-term benefit of convincing them to use a Microsoft Account instead of a Google or Apple ID. Some question Microsoft’s efforts as warning signs for Office and Exchange, but the reality is that Microsoft is betting on far bigger targets than its enterprise communications platform.
These recent acquisitions are key to where Microsoft is heading in the next five years and why Nadella is moving quickly to try and reposition the company. Nadella has made some changes to Windows that most consumers won’t even notice, like making it free for device makers who are creating devices with screens under 9 inches. That allows companies like HTC or Samsung to create Windows-based small tablets and phones without paying money for a license. It’s a big change that has resulted in a number of low-cost Windows-based machines launching over the holiday season. It’s also a strategic move to increase Windows Phone market share, shake off any potential Chrome OS threats, and once again get people using Microsoft apps and services.
Nadella wants people to love Windows
"We want to move from people needing Windows, to choosing Windows, to loving Windows," said Nadella at a recent press event for Windows 10. "That is our bold goal." That love is lacking, and as Microsoft moves to what Nadella calls "Windows as a service," then the idea of operating systems becomes less relevant. The future will be a battleground over services and apps that work across multiple devices and different form factors, and Nadella’s background in cloud seems to be influencing Microsoft’s moves here.
There are plenty of parts left at Microsoft for Nadella to transform, and he hasn’t always been perfect. Nadella faltered when he said women should have "faith in the system" so that those who didn’t ask for raises would receive "good karma." The reaction was outrage, and Nadella was quick to apologize. It was a testing time for the new CEO, but 2015 looks to be an even bigger challenge.
Nadella now faces the prospect of a Windows 10 launch that is promising big things and returning Microsoft back to its focus on the familiarity of Windows and a company that's great at software. Microsoft is still struggling with Windows Phone, and Lumia hardware could be a distraction. Lumia sales are heading in the right direction, but too slowly, and new universal apps across Windows 10 are designed to boost developer attention to the platform and generate more consumer interest. Perhaps the biggest challenge of all is proving where Microsoft will make money from its free versions of Windows and free apps / services on iOS and Android to offset any dips in Windows licensing. Microsoft’s recent quarterly results showed significant decreases in revenue for both Windows and Windows Phone, something investors and analysts will be watching closely as the year progresses. The answer could be a more Google-like approach, with revenue coming from advertising and subscription services.
If Microsoft can continue to surprise everyone with bold new visions of the future of Windows like HoloLens and a continued focus on cross-platform software and services, then Nadella’s second year as CEO could be even more exciting. For now, he’s shaken up Microsoft and presented a vision for how the company will thrive against strong competition, and he’s made a big impression in just a year.