As founder and chief marketing officer of a Seattle-based business collaboration software provider, Brent Frei’s not only close to Microsoft geographically. He’s worked closely with the company on a business level -- and, particularly, he knows a little about new Microsoft CEO Satya Nadella.

“Since the recent re-org at Microsoft and possibly also before the re-org, Satya has been very active in reaching out directly to ISVs (Independent Software Vendors) like Smartsheet to prioritize how best to get the cloud ecosystem rallied around Microsoft,” Frei told CMSWire. “And, it's more than lip service. We've been in direct contact with the senior folks that have made rapid progress in addressing specific infrastructure areas that enable third party apps to successfully operate with their products at enterprise customers.”

So was Nadella the right choice to become the Redmond, Wash. software and technology giant’s third CEO?

“We Seattle-based companies have a big stake in a strong set of thriving technology anchor-titans,” Frei said. “Clearly Microsoft is a central figure in that set. There has been plenty of concern in recent years that Microsoft's slow pace and progress into the cloud was the front end of a long decline. Satya is likely the best of the choices I'm aware of to address that head on.”

Microsoft’s Message Through Nadella

So what is Microsoft’s message with the hiring of insider Nadella, the company’s former executive vice president of cloud and enterprise?

Industry analysts told CMSWire the move sharpens Microsoft’s focus on cloud infrastructure and agile development and signals the organization’s investment into younger senior leadership (Nadella’s 46).

“The message is one of the new guard coming into leadership and setting a new course for the company,” said Charles Weaver, CEO of the International Association of Cloud & Managed Service Providers (MSPAlliance). “Naturally, it's a move that signals even more prominence on cloud computing. It also signals how the old guard at Microsoft are turning over the reins to a younger CEO, and one who does not come from the legacy software business which built Microsoft's success.”

James Staten, principal analyst on cloud computing and adaptive intelligence with Forrester Research, called the Nadella hiring a “sign of recognition that the direction and vision he has been executing on in the enterprise software and cloud group is the right direction for the company -- agile development, shifting the business to SaaS and cloud-based.”

Nadella is a “proven leader,” Staten added, “who can shift the often deeply engrained culture at Microsoft.”

And of course, as Ovum Research’s Richard Edwards pointed out, putting a 20-plus-year company executive in the top seat has its benefits.

“A 20-plus year veteran of the company, Nadella will undoubtedly have similar DNA to that of his predecessors, so continuity is likely to be as good as it gets,” Edwards told CMSWire. “As head of cloud and enterprise, Nadella understands the capabilities of Microsoft’s new ‘propulsion system’ better than anyone and, as a Microsoft ‘lifer,’ he will have an intimate knowledge of Microsoft’s overall capabilities, including its strengths and its weaknesses.”

Early Tests for Nadella

Nadella and Microsoft are not without their challenges. In a report released to CMSWire, the International Data Corporation outlined some of the major concerns for Nadella and Co.:

  • Can it sustain growth? Microsoft’s record recent quarter of $24.5 billion of revenue comes with a caveat: while the results showed strong year-over-year growth of 218 percent in the Devices and Consumer Hardware segment (think xBox and Microsoft Surface), it came at a low profit margin, according to the IDC. The cloud business under Nadella’s leadership grew year over year at 28.1 percent. Those two businesses combined? 26.5 percent of Microsoft's revenue in Q2. The previous quarter, they accounted for only 16.7 percent. Can the company sustain that growth going forward, the IDC asked?
  • Can it adapt fast enough? Microsoft must execute a full ecosystem vision in order to compete with Apple, Google and Amazon. The company's made enormous investments like Windows Azure, and in the network of global datacenters that support online products including Windows Azure, Bing, Windows Intune and Dynamics CRM. Have they begun to pay Microsoft back?

The company's approach has always been a long-term strategy -- and while that is the right strategy for cloud and platform solutions, investors remain highly concerned that Microsoft is lagging Amazon, Google and other large scale service providers,” according to the IDC. “This is a business area where Satya Nadella has had years of hands-on experience, but he needs to clearly demonstrate that Microsoft can compete with, and beat, these other mega-providers.”

  • Can Office lead the way? It’s been 16 months since the touch-first Windows 8 operating system was launched. But Microsoft has still not shipped a version of Office, IDC said, designed to run in the operating system's Modern UI. It also has yet to ship versions of Office for Android phones and tablets, and has not shipped a version optimized for the Apple iPad. To date, Microsoft has attempted to use Office as the carrot to drive adoptions of Windows-based tablets and phones, IDC reported. “It's a strategy that has simultaneously failed to drive adoption of these devices and put at risk Office's dominance in the business productivity market," IDC reported. "The company is not only leaving a great deal of money on the table, but it's also forcing tablet users to find alternatives to Office." 

Searching for Wins

So is Nadella the right choice to tackle these challenges?

“Cloud infrastructure and software is the future, and Microsoft has to have a leader with a cloud-first bias,” Smartsheet’s Frei said. “Windows and Office can no longer drive the boat.”

Playing nice with all apps in the cloud is a necessary core tenant to enterprise success, Frei added.

“BYOD and BYOA are exploding inside large companies,” he said, “and devices and software that afford the smoothest path to success.”

In order to continue to thrive, Frei said Microsoft must win in the enterprise.

“As alternatives to Office and some of the key business systems continue their pace of adoption in the cloud, Windows will become optional as well,” he said. “We talk with enterprise customers every month who are actively looking for ways to reduce their licenses of Office and Windows. Their cash cows are at significant risk.”

Shifting Away from Legacy Products?

Microsoft wanted to have someone who was not mired down in some of Microsoft's legacy products, Weaver added.

"It's obvious Microsoft made this move to see its cloud computing prowess become more visible within enterprise," he said. "However, it is also a sign that Microsoft is no longer reliant on legacy software products and will be moving into new product areas, like cloud. One area we will be watching is whether Nadella makes any significant movement in private cloud. IBM, and even Amazon, have been paying close attention to the rise of global data privacy and security concerns. Microsoft used to have a compelling story with its Small Business Server product; today, it no longer has such a product. I believe a lot of channel companies are hoping Nadella reinvigorates that product market."

IBM continues to move aggressively into cloud computing, Weaver added, chiefly by selling private cloud enabling products and solutions to the channel.

"This is one area where Microsoft needs to catch up," Weaver said. "Microsoft can continue to push Office365 and Azure, or it can innovate within cloud computing and try and regain some of its prominence within the channel by launching channel friendly products that empower the channel, instead of limiting their options.”

Going forward, Nadella must help Microsoft move faster, move as a single unit and stop fighting over vision and direction, Forrester’s Staten said.

“That's the objective of this hire,” Staten said. “Had they brought in a turnaround specialist the vision and direction would have suffered. Had they brought in an outsider there would be a pause in the movement forward as the new leader came up to speed on the company and learned about its unique culture. By choosing a strong insider with a proven track record of pushing the company, breaking old rules and driving change, they can push the pedal down immediately.”

Title image by Everett Collection (Shutterstock).