Now Nadella has the helm of Microsoft

Now, of course, the speculation can begin in earnest. The arrival of Satya Nadella as the new CEO of Microsoft, particularly because of his recent past as executive vice president of the firm's Cloud and Enterprise group heading up cloud operations, has prompted widespread speculation as to the direction he will be taking the company. Most of it does seem to assume that much more of a cloud-plus- business direction is what will emerge.

The opportunity for speculation is, of course, made all the more widespread because Nadella did not issue any form of pre-elevation manifesto concerning where he might take Microsoft into the future. But as a long standing engineering executive with the company he will have a good understanding of those issues and where they can lead.

In addition, he is said to have a good business brain and it is this combination which is seen as the key to his appointment.

So where is he likely to take the company now?   

Back in September, at the time when Microsoft turned its partnership with Nokia into an acquisition, I wrote suggesting that this acquisition could be key to the company’s future, not least because of its growing position in cloud service provision.  I made the point that corporate systems are often based on Microsoft products, and in particular the Office suite of productivity tools. Even if the back office applications are IBM, or Oracle, or SAP, or even Linux-based cloud services, the front-line tools are still often part of Office.

Here was one of the cornerstones of a vision that I felt Microsoft should have adopted explicitly when it first partnered with Nokia back in 2010. The pulling together of the company’s cloud delivered services such as Azure and Office 365, coupled with a package of mobile hardware, operating systems and applications packages would give end users an end-to-end, soup-to-nuts collaborative environment that plays straight to the growing pressure from within businesses for BYOD services.

This opinion is now increasingly widely shared, especially amongst the US investor community which has a strong bearing on the main board of a business like Microsoft. For example, Barclays Capital analyst, Raimo Lenschow, has been quoted pointing to the fundamental importance of the cloud services market to Microsoft at this stage.

“We believe Nadella is a strong choice to lead the company," he has writen. "Over the past year he has shown he has the ability to leverage the company's dominance in the on-premise enterprise IT landscape into building thriving cloud businesses as evidenced by the accelerating momentum of Office 365 (Software as a Service) and Azure (Infrastructure as a Service and Platform as a Service)."

This view is shared by Bernstein Research analyst, Mark Moerdler.  "The CEO selection, we believe, clarifies Microsoft's commitment to the enterprise market over consumer and to the transition to Cloud and Subscription. Nadella and [Amy] Hood, Microsoft's CFO, are both from the Enterprise side of business and have extensive experience in Cloud and subscription as well as the key product families making this transition."

At the same time, influential Microsoft shareholders have been noted as pushing the Redmond software giant to abandon what they view as non-essential product lines so that Microsoft can focus on its core strength: selling enterprise software to businesses. There does seem to be a growing groundswell for the hiving off of the xBox games machine as a separate entity, and now would be a good time to do this as it is still one of the big revenue earners for Microsoft.

That would leave some elements of hardware as part of the product portfolio, of course. Not least amongst these are the Nokia mobile phones and the Microsoft Surface tablet/laptop PC. The latter is still a loss maker, though many who have used it swear by it as a valuable business tool. And thereby lies a lesson for Microsoft.

It is often said about that company that it has correctly anticipated many of the biggest changes in technology — the rise of smartphones and tablet computers, being two examples. But the downside is that it has often failed to capitalise on those changes by poor execution of the products developed, and their subsequent marketing.

All of this then raises a question. As the technology has become more commoditised and consumer products have become the headline grabbers, Microsoft has become seen as a poor innovator that is losing its grip. But does the growing acceptance of cloud delivered services as a mainstream model for both business and consumer, is the focus of `innovation’ itself changing? Is the next phase of innovation going to be about the technology, or will it shift to be about how technology is used?

I suspect it is about to become the latter, and if that is the case it could put Microsoft into a strong position in the enterprise and SMB markets, as it has a strong track record in the business use of technology.  

Obviously, there are possible stumbling blocks along this road. Perhaps the most important is the place of now ex-chairman, Bill Gates, and out-going CEO, Steve Balmer. Both will remain on the board, and Gates will gain a new role as a technology consultant. There is much speculation as to how this plays out, with some seeing Balmer’s presence in particular as a block against any move away from consumer market and xBox.

The views on Gates are diverse and largely geared to whether he is `stepping down' as chairman, or `being brought back' as technology consultant. It iscertainly the case that, once Gates `gets' a technology development he can really push hard on it. If he is `getting’ the new relationship between business and the cloud then he could prove very supportive to Nadella.

He might even be instrumental in Microsoft ultimately claiming that it has `innovated innovation itself into something new and valuable’. It has to be said that this might not be a bad thing, as much innovation seems to occur for no other reason than its own sake.

There will also be changes needed to some of the company’s existing policies in the cloud, such as Microsoft telling large enterprises that they simply can't have access to Microsoft's cloud services for them to build their own on-premise private clouds. This is a strange position to adopt as such companies are an important part of Microsoft's ecosystem, particularly when they now have sound alternatives available such as Cloud Stack, OpenStack or Eucalyptus.

In addition, I suspect this is exactly the way Oracle is now thinking as it wakes up fully to what the cloud actually means. It has many large enterprise users for whom a private cloud hosted by their key application and database provider makes a logical next step.

Indeed, like many others speculating about what Nadella will bring to the party, I feel the first steps must be to bolster and empower all of the huge Microsoft ecosystem, for they all can have a profitable part to play, not just for themselves but for Microsoft as well.