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Microsoft's new CEO faces challenges inside and out

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Satya Nadella, center, Microsoft's new CEO, addresses employees along with founder Bill Gates, left, and CEO Steve Ballmer on the company's campus in Redmond, Washington, on Feb. 4.   © Reuters

CLAREMONT, Calif. -- Satya Nadella is only Microsoft's third chief executive ever, but he looks to be a significantly different leader for the software giant than founder Bill Gates or sales specialist Steve Ballmer.      

     A native of India, Nadella trained and worked as a computer science technologist and comes to Microsoft's top spot at a time of uncertainty in its mobile and tablet divisions. Even the company's landmark operating system business is stumbling.      

     Nadella is seen as a pensive decision-maker who will weigh all options and opinions in formulating strategy.      

     "He has a kind of Asian demeanor," said Roger Kay, who runs the technology consultancy Endpoint Technologies. "He's quieter, he listens more, gathers opinions and sees things from a multifaceted point of view."    

      "He's not a loudmouth like his predecessor (Ballmer)," Kay said in an interview. Microsoft's board also understood that a CEO without a software background would not have the respect of engineers -- something that Ballmer was famously seen as lacking. 

Achievements unlocked

Nadella, 46, was recruited to Microsoft from Sun Microsystems' technology staff in 1992 and worked on building the Windows NT operating system while studying for his master's in business administration from the University of Chicago.    

     In 2011, he was made president of Microsoft's Server and Tools business.      

     Though Nadella is from Asia, a huge and critical market for Microsoft, his appointment is not seen as an attempt to address those markets.

     The first problems that Nadella will face will be organizational, not product-oriented.    

     "I think his selection is largely due to his success in his prior job," said Rob Enderle, principal analyst of the Enderle Group, also a technology consultancy.    

     "His organization had outperformed other Microsoft organizations, so this appears to be a merit promotion," Enderle said in an interview.    

     "I don't think that a regional focus, regardless of the region, is going to be among the top three things he's going to address if he's got critical structural things he's going to address first."      

     Those issues include the disappointing sales of Windows 8, the company's latest flagship operating system, and the slower-than-hoped-for launch of its tablet computers, which trail well behind offerings from Apple and Google.      

     For smartphones, Microsoft's strategy revolves around its acquisition of handset maker Nokia, and the Windows mobile OS. This segment, too, has been a slow starter for Microsoft in a market dominated by Apple's iOS and Google's Android.      

Debugging work

Nadella is also faced with carrying forward Ballmer's latest reorganization of the software behemoth into a "devices and services" company, favoring such divisions as Server and Tools (Nadella's last domain), Skype and Interactive Entertainment.

     Despite a likely absence of regional prioritizing, Nadella's geographic strength is nevertheless Asia because of his deeper knowledge of the region. But a recent challenge in Asia has emerged with claims that Microsoft products have been penetrated by the U.S. government' s National Security Agency and used to spy on Asian governments.

     That perception must be addressed aggressively, or the company could face greater difficulties in selling to that market. Microsoft has been lobbying the NSA to cease such activities, or at least be more transparent about them to allay Asian customers' fears of buying Microsoft platforms.

Chances in China

In Japan, Microsoft has strong ties with Sony, Toshiba, Fujitsu and NEC, but not immense upside in a market that is relatively mature. Microsoft is also a comparative outsider in the gaming land of Sony and Nintendo, which are more attuned to producing titles for Japanese customers.

     China remains a major challenge for Microsoft's search business, where it has less than one-half of 1% of the search market against domestic players. In gaming, it is not a player, as China prohibits sales of Xboxes. 

     China also is still a serious problem in terms of software piracy, as legions of Chinese technology users are accustomed to a culture of not paying for software or content. 

     But rapidly growing mobile phone adoption in most of the rest of Asia, including in China, could be an opening for Microsoft. Android and iOS have a near monopoly over mobile phones in China, and smaller, cheaper smartphones running Android are exploding in popularity. But therein lies an opportunity. "In China, smartphone sales continue to be rapidly on the rise," said James Roy, an analyst with China Market Research in Shanghai.      

      "A big area for growth is among those who are lower-income, who are buying cheaper models that are good enough such as Xiaomi or Coolpads," Roy said. "They could be people who are not necessarily married to Android OS, and that could be a route in for Microsoft."

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