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April 7, 2014 at 8:07 AM

Nadella and the “new Microsoft”: What took so long?

SAN FRANCISCO — Now we know why Microsoft chose Satya Nadella to lead it through the next generation of computing.


The choice seems so obvious in hindsight, it makes you wonder why Microsoft took so long to make it happen.

Developers and analysts were wowed by the “new Microsoft” that Nadella and the new Redmond regime showcased at the company’s Build developer conference last week.

The event may be seen as the turning point for the company’s new emphasis on services over legacy platforms, even though it’s been moving aggressively in that direction for several years.

Nadella has been chief executive for only two months, but he spent the previous three years overseeing the development of the software tools and cloud services presented last week.

Whether or not Nadella prodded Microsoft to finally fix Windows 8 for users of traditional laptops and PCs — with an update also announced last week — is just icing on the cake.

“I wouldn’t call it a turning point; I’d call it an acceleration point,’’ said David Smith, vice president of the Gartner research firm. “I think they’ve convinced people that they know they’ve made some mistakes and are correcting it.”

Microsoft has a history of presenting its strategic shifts in convenient packages that make it easy for people to grasp the company is evolving and addressing shortcomings.

Bill Gates wrote “call to arms” memos that rallied the company and broadcast its plans, such as the 1995 “Internet Tidal Wave” memo and 2002’s “Trustworthy Computing.”

Both memos outlined trends and opportunities, and areas where Microsoft was at risk and needed to catch up.

During Steve Ballmer’s tenure these memos evolved into a mega news release of sorts. The last was his July 2013 outline of the company’s new focus on devices and services, a strategy that began a year or so before the memo was published.

Nadella hasn’t had time to write a big vision memo yet, at least not one for public consumption, but he’s shared his version of the “devices and services” strategy at his first two public presentations — a news conference announcing the version of Office 365 for iPad, and last week’s Build keynote, both of which were webcast.

A view of last week's BUILD conference

A view of last week’s BUILD conference

Both times Nadella talked about the emerging “mobile-first, cloud-first” world in which computing is everywhere, embedded in our surroundings, with “ambient intelligence” as these systems gather data and respond to people in the vicinity.

Nadella also cast Microsoft as an underdog and a challenger, which is especially the case in the emerging “Internet of things” he was alluding to in his vision talk.

Work is already under way to wire the world with a new digital nervous system — including billions of sensors and data that measure, track and see all sorts of things. This will generate a ridiculous amount of data that people, governments and companies may use to manage their lives and businesses.

End points of the system are being built mostly with free, open-source software, not copies of Windows that cost $15 to $100 apiece. So last week Microsoft announced it will offer a free version for projects in this arena.

The company also said it’s going to share more of its software tools with the open-source community it used to demonize, including an advanced new compiler project dubbed “Roslyn.”

Microsoft wasn’t planning to give away the software when the project started about 18 months ago. But that changed midway through as realization spread that Microsoft must do even more with open-source because developers are so excited about it, according to Anders Hejlsberg, the Microsoft Technical Fellow behind the project.

“We’re willing to play; we’re willing to learn,” he told me at the conference.

Nadella’s successor as head of Microsoft’s cloud and enterprise group, Scott Guthrie, said the company will measure the success of last week’s event by how much its tools and services are used “and the great applications users build on top of us.”

“The first litmus test is usually reaction from the keynote, of audiences here, of Twitter and things like that,” he said. “The initial spot-check is super positive.”

Microsoft investors also appear upbeat. The stock rose above $41 as the Nadella-led company made announcement after announcement about new products, before dipping Friday with a general downturn in technology stocks.

The stock’s climb over the past year was partly a result of expectations that activist investors would get the company to break itself up and spin out consumer businesses, such as Xbox or Bing.

A spinoff now seems less and less likely as Nadella has woven Xbox and Bing tighter into the rest of the business, yet the stock hasn’t gone back down to the $20-to-$30 range where it hovered for years. Perhaps Wall Street also is giving Microsoft a second look.

“Directionally and even symbolically, they’re doing some things to try and emphasize this is a different company,” said stock analyst Sid Parakh at McAdams Wright Ragen.

Imagine where Microsoft might be today if it didn’t take so long to reboot and Nadella was promoted sooner.

“All I would say is, he’s here now,” Parakh said, “and at least the first few moves were the right ones.”



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