From cloud to clout

AT LAST, almost six months after Steve Ballmer said he was standing down as Microsoft’s chief executive, the company has anointed a successor: Satya Nadella, the head of its cloud and enterprise group (pictured). On February 4th the company also announced that Bill Gates, its founder, would be its chairman no longer, but would become a “technology adviser”. John Thompson, the director who oversaw the process of choosing Mr Nadella, will succeed Mr Gates as chairman.

Two months before he said he would relinquish his job, Mr Ballmer unveiled a reorganisation of the giant firm’s business structures, accounting and management, declaring that Microsoft would henceforth be a “devices and services” company. Since then much of the talk about Microsoft—apart from gossip about who might succeed Mr Ballmer—has been about devices. Microsoft is buying Nokia’s ailing mobile-phone business, which is by far the biggest maker of smartphones that use Microsoft’s mobile operating system. The firm’s Surface tablet, despite encouraging results last quarter, has not sold well. Its Xbox entertainment console, however, has gone like hot cakes.
The appointment of Mr Nadella, a software engineer who has been at Microsoft for 22 years, is a reminder that services—especially the ones the firm sells to businesses—are every bit as important as consumer devices, and probably more so. Microsoft is not only battling Apple and makers of devices that run on Android, Google’s mobile operating system, as computing shifts from the personal computer to the smartphone and the tablet. The software giant is also fighting to retain business custom, as enterprise computing also becomes mobile and shifts from desktops and corporate data centres to cloud software and remote servers.

Under Mr Nadella’s leadership, the old “server and tools” division increased revenue by 9% in the year to June, to $20.3 billion (more than a quarter of total revenues), and operating income by 12.8%, to $8.2 billion, making it the best performing of the company’s big divisions. Mr Ballmer’s reorganisation makes comparisons since then difficult, but the new “commercial” segment saw revenue climb by 10% in the six months to December.

The process of picking Mr Nadella has been long and leaky (though in fairness to Microsoft, the company did say that it might take up to a year to pick its third chief executive, after Mr Gates and Mr Ballmer). But no one really expected it to take as long as it has—and to see so many names, from Alan Mullaly, boss of Ford, to Hans Vestberg, chief executive of Ericsson, put into the frame. Mr Thompson, the director who oversaw the search, said in December that more than 100 names had been considered. Shambles it may have been, but the business has bumbled along well enough: the latest quarterly results, on January 23rd, were decent and the share price has not suffered. And maybe Microsoft has got the right answer in the end.

Source:http://www.economist.com/blogs/schumpeter/2014/02/microsofts-new-boss