Satya Nadella inherits big profits and big problems as Microsoft's growth is slowing and Windows is losing relevance in a post-PC world. The new CEO's secret weapon? Yell less
When Satya Nadella settled in the US at age 20, he had a problem. The Indian émigré wanted a master’s in computer science as fast as possible, so he could dash into America’s booming tech sector. But cash was tight and his undergraduate preparation, back in Mangalore, was patchy. In 1988, professors at the University of Wisconsin-Milwaukee (UWM) pegged him for the slow lane. Gaps in his software studies seemed so severe he might need an extra year to graduate.
No way.
Within months, Nadella yanked himself up-to-speed on UWM’s requirements—and wheedled a coder’s job on the side to earn spending money. By the spring of 1990 Nadella was racing to complete his thesis on computer algorithms, aiming to graduate in the standard two years. UWM professor K Vairavan remembers coming into the computer lab one morning and beholding a sleeping bag in the corner. It was Nadella’s time-saving trick: A way to conduct lab research until 3 am, catch a catnap and then keep going.
Nadella has been surprising his bosses ever since. He joined Microsoft in 1992 and by 2011 rose to become one of five executive vice presidents reporting to CEO Steve Ballmer. When Microsoft’s hunt for a new leader began last August, directors pegged Nadella as a great candidate down the road, once he got a bit more seasoning. Then they took a closer look. They liked what they saw. On February 4, Microsoft announced that Nadella, the skinny 46-year-old with the funky glasses, would be Microsoft’s next leader.
Well-run companies like to promote from within. Dysfunctional companies hire outsiders to head off calamity. Microsoft’s six-month hunt for a new CEO—which included a public flirtation with 68-year-old Alan Mulally from Ford as a possible turnaround artist—suggests the question: Is Microsoft well-run or dysfunctional? The answer, of course, is both.
By most financial measures, Microsoft is a well-oiled machine. It posted $21.9 billion in net income last year, reflecting a freakishly high 28 percent of revenue. Microsoft’s brand is as ubiquitous as Coca-Cola and Christianity; the Windows and Office franchises each boast more than 1 billion users worldwide. Yet Microsoft’s growth rate has slowed from 15 percent a year in the mid-aughts to barely 6 percent today. Ambitious product pushes of the past decade, such as the Bing search engine, Windows Phone or Surface tablets, have won skimpy market shares at great expense. There’s a perception in Silicon Valley that Microsoft can’t innovate anymore. Its own directors have worried that the culture under Ballmer became too arrogant and insular, making it hard for the Redmond, Washington, company to match fleeter rivals such as Google and Apple.
It’s rare for an internal candidate to fix such messes. How could anyone who tolerated Microsoft’s flaws for the past decade suddenly see the company with fresh eyes and declare: “Enough already!”
Well, 100 days in, Nadella has established himself as anti-Ballmer, even though his press people insist that such repudiation cannot be happening. Table-pounding bravado is out; good-natured curiosity is in. There’s less talk about seizing billion dollar opportunities or hitting financial targets and more emphasis on investing profits to win hordes of new users. Nadella will have a big date in July if, as expected, he explains everything to Wall Street analysts in an all-day briefing. The likely headline: Give me leeway on short-term earnings so I can get this growth engine revved again.
Part of Nadella’s transformational agenda involves righting matters internally before sharing his views publicly. Ballmer was a deliciously quotable CEO who often let rhetoric get ahead of results. Nadella right now is dodging major interviews so he can focus on customers, partners, employees and shareholders. But after conversations with more than two dozen Satya-ologists—ranging from fellow CEOs at tech giants (such as Hewlett-Packard’s Meg Whitman) to long-ago work buddies from the 1990s—it’s possible to assemble a clear picture of what the new boss is like and where he is heading.
Start with Nadella’s instincts for getting the right products to market. “He’s very sharp technically,” says Workday Inc Chairman Aneel Bhusri. “He’s an innovator. He knows that even the best ideas don’t start out looking like they could be huge.” In face-to-face meetings, Nadella is guided by an engineer’s interest in what the world will look like in three to five years, rather than a salesman’s hunger to close deals before the 30th of the month. His mind isn’t trapped by Microsoft propaganda, which was Ballmer’s undoing. Ask Sequoia Capital’s Jim Goetz what he thinks of Nadella, and the conversation gets earthy in a hurry. “Satya doesn’t bull---- himself,” says Goetz, a top venture investor. “He comes alone. No entourage. He wants to know where we see the world going. He’s the most self-questioning executive from Microsoft that I’ve ever met. He’s also a brilliant software strategist.”
Nadella’s official biography glides past the dot-com boom and bust of 1998-2002, but his tangles with that era may influence how he deals with Microsoft’s operations today. Instead of working in the safety of the Office or the Windows division when the 1990s internet frenzy collapsed, Nadella became an executive at bCentral, a short-lived attempt at supporting small business websites.
Nadella shrugged. This wasn’t a sales call. It was somewhere between fact-finding and espionage. At the end of the hour-long visit Nadella had drawn out a detailed map of what startups like Okta wanted from the cloud. Over the next few months he met with at least seven other startups in similar settings. Those talks inspired Nadella to offer Linux at a special, lower price on Azure—forgoing Windows licensing fees to keep customers happy. The decision was so at odds with Microsoft’s lockstep methods that it later became the subject of a Harvard Business Review case study.
(This story appears in the 13 June, 2014 issue of Forbes India. To visit our Archives, click here.)