Yesterday's rumors are beginning to evolve into certainty. Though it isn't official and Microsoft is emphatically not commenting on it, it appears that Microsoft's enterprise and cloud guru Satya Nadella now has the inside track on becoming Microsoft's next chief executive officer. Nadella has always been a top five candidate. He is also the consummate Microsoft insider, a technically hands-on assured guy who also runs most of the lucrative side of Microsoft's revenue streams - especially those involving cloud-based platforms.
We'll get back to Nadella in a minute. First there is another issue to think on. A while back we reflected on the fact that Bill Gates only holds about 4.5 percent of Microsoft's stock these days, and we considered whether or not Gates really merits having the vast influence he is continually accorded as having at Microsoft - whether real or merely perceived. As chairman of the Microsoft board one has to think that his ongoing influence is real - even though our own sense of it is that he would personaly prefer for it to not be the case.
Replacing Bill Gates
It is true that several large-scale shareholders have called for Gates to resign as the board's chairman, and it appears to us that Gates - who has been chairman since 1981 (yes, 33 years) - is in fact likely to take this opportunity to exit gracefully from the scene - at least as chairman. We continue to believe that Gates is really far more interested in and involved with the work of the Bill and Melinda Gates Foundation and in fact we believe it is a very good thing for him to put his energies there.
Who is going to replace him? The obvious and safe choice is John Thompson, of course, who is also Microsoft's lead independent director and the board member heading up the CEO search. Thompson is 64 (about 6 years older than Gates) and joined the Microsoft board in 2012. For those too young to recall, made a splash when - following an almost lifetime commitment to IBM - he took over Symantec in 1999. Over his ten years there he built Symantec up from $600 million to $6 billion in revenue.
Thompson currently runs Virtual Instruments, a maker of software that tracks application and hardware performance, but we can think of that more as a hobby than anything else. It isn't really a hobby - we're sure Thompson would fiercely defend the company as the next big thing - but it's not the same as operating on the Microsoft stage. For that matter even Symantec at $6 billion would be but a smaller division of Microsoft.
Thompson joined Microsoft’s board specifically as an outsider in 2012 and he is credited by many folks as having taken his role seriously and having asked the hard questions that eventually led to Steve Ballmer's much-publicized top to bottom re-org of the company and with Ballmer's repositioning of Microsoft long term as a devices and services player. OK, so nothing is set in stone, and Gates will no doubt still have an influential voice (he's still Bill Gates!), but let's assume Thompson takes over. At least we know he brings independent and outsider thinking to the game - the importance of which cannot be understated.
So Then, Back to Nadella
Satya Nadella is a youngster still at 46. He has been president of Microsoft’s server business since 2011, and has steered the business to $20.3 billion in revenue - up from $16.6 billion when he took over. Nadella's group became Microsoft's new cloud and enterprise division following Ballmer's re-org. Of course Ballmer himself certainly had a hand in ensuring that the enterprise business continued to show huge growth. We've noted this often over the last several years - from that perspective Ballmer has always been a superstar CEO.
Nadella may have proven himself stellar in the role he's had, but no doubt he is also lucky to have been on board for the ride, but we must wonder how anyone leading that group - even anyone that might been less competent than Nadella - could have failed to deliver. We view Thompson's work in growing Symantec to $6 billion from $600 million as far tougher than Nadella moving a $16 billion business to $20 billion - especially with Ballmer involved at every turn.
Our sense of it is that success was pre-built into the Nadella equation, and Ballmer has always been there to ensure the equation always remained balanced. Of course we should note that "being lucky" as a trait is a good thing too as long as it doesn't mask incompetency.
Nadella rose the enterprise challenge, but then the enterprise challenge was met with both Microsoft's and Nadella's core competencies - there was no stepping out of anyone's comfort zone. But can Nadella do so again in a role requiring not only a great vision for the future but one that must absolutely reflect stepping out from behind those comfort zones?
The question posed is the hard question to answer. And we are not sure that Nadella's good points reflect he is the right answer to the question. Yes, he has both technical and management expertise - and honed these skills as a long time employee - he's been with Microsoft since 1992. Yes, he has led that big division, but that division entirely represents the old school Microsoft and he is entirely invested in it.
Just as John Thompson is the safe choice to replace Gates as chairman, Nadella represents the utterly safe choice to replace Ballmer. The yin of "old man" Thompson and his outsider status coupled with the yang of "youngster" Nadella's tried and true Microsoft insider status. Is it a match made in heaven?
Nadella is the completely safe and absolutely uncontroversial choice to take over as CEO. We can rest assured going into it that all of Microsoft's ancient streams of revenue will be thoroughly protected and will continue to grow at energetic rates. That is what makes Microsoft the world's greatest value company and value investment.
But we just do not see Nadella bringing the vision and out of the box thinking - and the ability to drive out of the box thinking and vision - to Microsoft that the company needs to re-emerge as a growth company. Will the stock move finally to, say, $45 per share? Probably. Will it move to $200 a share with Nadella at the helm? Very likely not.
The safe choice here guarantees the same thing will happen that happened under Ballmer - lots of amazing growth in revenue, and in fact growth as well from a devices and services perspective. But Microsoft will also be a company doomed to always be perceived to be stuck one year behind the times while Apple and Google (and to a lesser degree Facebook) continue to lead us into tomorrow.
TechZone360 Senior Editor
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