Enterprise Guru Nadella Takes The Helm At Microsoft 

The search is over, and perhaps a calmer and more focused era is beginning for Microsoft now that it has tapped insider Satya Nadella to become its next chief executive officer.

Concurrent with the appointment of Nadella to the CEO post, Microsoft announced that co-founder and largest shareholder Bill Gates would be stepping down as chairman of the company.

Gates is to become a technical advisor to Nadella, and with his fortune still largely tied up in Microsoft stock and earmarked for his foundation to do good works around the world, he has a vested interesting in helping Microsoft succeed. Such was the case when Gates turned over the reins to Harvard pal Steve Ballmer in 2000, twenty years after he came to the software giant as its first business manager. Like Gates, Ballmer has his fortune tied up in Microsoft and will remain an active director of the company. Ballmer announced his retirement from Microsoft last August, which was something of a surprise and coming a bit earlier than expected, setting off a CEO search that was managed by lead director John Thompson.

As it turns out, Thompson will be replacing Gates as chairman. Thompson is currently the CEO at Virtual Instruments, which makes infrastructure performance management software, and prior to that he was CEO at Symantec for a decade and a top executive with various roles at IBM.

At 46, Nadella is old enough and experienced enough to take the helm of a $100 billion software and services behemoth that dabbles in devices. He is also young enough to remain in that job for a very long time if he is successful at countering Microsoft's many competitors in many corporate and consumer segments. Gates ran the company for 25 years and Ballmer for 14 years, and that is a long time for any company – even for founders and their friends.

Nadella was born in Hyderbad, India, and got his bachelor's degree in electrical engineering from Mangalore University. He came to the United States to get a master's degree in computer science from the University of Wisconsin. After that, Nadella was a member of the technical staff of Sun Microsystems (which was eaten by Oracle four years ago), and in 1992 he joined Microsoft. Nadella worked on the operating system that would become Windows NT while getting his master’s degree in business administration from the University of Chicago. He spent a lot of time on airplanes.

Nadella's climb up the ranks of Microsoft started as an advocate for the Windows platform among developers. He then moved on to the Commerce Platforms Group and was the leader of development for BizTalk Server, a platform for integrating Windows with mainframe and other proprietary systems, and Commerce Server, the e-commerce add-on to Windows Server. Microsoft ate Great Plains Software and Navision in the early 2000s to enter the enterprise application software business, and Nadella joined the Business Solutions Division that was formed from these companies and Microsoft's own bCentral business portal. (Remember that? Probably not.) Nadella eventually ended up running this application software division as well as an adjacent Search and Advertising Platform Group. Since early 2011, Nadella has been in charge of the Server and Tools Business, a group in Microsoft that drives around $19 billion in sales – about a fifth of revenues for the company and a much larger proportion of its profits.

Perhaps the most important thing about Nadella is that he has been in charge of the build out of the cloud platform that is used to host Microsoft's Windows Azure cloud platform, the Bing search engine, and the Office 365 application suite adopt Windows Server 2008 and then Windows Server 2012. Microsoft has built a set of cloud infrastructure that is based on its own software that scales to over 1 million servers and, significantly, can run the same applications that customers deploy in their own datacenters.

Nadella's deep enterprise experience will be balanced by the device and consumer experience of Stephen Elop, who ran the Business Division (like Nadella) until he left to become CEO of smartphone maker Nokia in the fall of 2010. While Elop was running Nokia, the company switched to Microsoft's Windows Phone platform and last September Microsoft announced that it would spend $7.2 billion to acquire Nokia and get a toehold in the smartphone market that it controlled itself. Once the Nokia deal closes, Elop is expected to take control of the device businesses at Microsoft, which include its Windows Phones, Xbox game consoles, and Surface tablets.

Microsoft, and we presume Nadella in particular, has read the writing on the wall about cloud computing and has done a good job at positioning Microsoft to take advantage of a mass migration of corporate computing to the cloud should this in fact happen. Microsoft is spending billions of dollars per year building out its Azure cloud, putting it on par with Amazon Web Services and Google. Like those two competitors, Microsoft would have to build large and efficient datacenters to support its own services even if customers did not want to host their applications on Microsoft's iron. The fact that Microsoft has actually gotten very good at this in the past half-decade or so is remarkable and shows precisely what Microsoft – or indeed, any IT incumbent with deep pockets – can accomplish when focused.

It is fair to reason that a reasonable chunk of the small and medium business market that Microsoft has served so brilliantly with the Windows Server platform and its adjunct systems programs will move from on-premises equipment to cloud computing just because the odds are that Microsoft will be able to run the infrastructure better than the SMBs can. Even at a slight premium, it is worth the cost for SMBs. This is not the case for large enterprises, who know full well that they can use their own IT skills and pricing leverage with server, storage, and networking equipment makers and software suppliers like Microsoft to create their own private clouds for the same or less money as a public cloud.

The trick for Microsoft for serving these customers will be to package up all of its homegrown tools and skills from the Windows Azure cloud in such a way that large enterprises can make use of it all. Thus far, Nadella has done precisely that and companies are increasingly installing Windows Server, the Hyper-V hypervisor, and the Azure Pack tools to create their own clouds. However, if you keep score with money, VMware remains the server virtualization and cloud juggernaut in corporate datacenters. Microsoft has another play that VMware does not, however. The company actually designs its own servers and datacenters, and it has just donated its most recent server design to the Open Compute Project.

You can read Nadella's letter to Microsoft employees to get a bit more of a feel for who he is.