Microsoft Names Company Veteran Satya Nadella As CEO

Satya Nadella is Microsoft’s new CEO. But he ascends as co-founder Bill Gates returns to a more central role at a company struggling to catch up in the exploding market for mobile devices.

Gates is giving up the chairman’s role to become technical adviser to Nadella, the 22-year Microsoft veteran who was named Tuesday to succeed Steve Ballmer as its third chief executive. Gates said he would devote up to a third of his time–which is now largely devoted to philanthropic activities–to help Nadella craft Microsoft’s product strategy.

His return raises questions as to how free a hand Nadella will have in setting his own strategy as the company responds to an array of business challenges. Gates, while known for his technical expertise, is also linked to past Microsoft product stumbles and has little track record in areas such as smartphones, which are critical to the company’s future.

Unlike some other corporate founders who have returned to positions of power, such as Google’s Larry Page or Steve Jobs at Apple, Gates won’t play a day-to-day management role. Rather, he will take part in a new triumvirate that includes former Symantec Corp. Chief Executive John Thompson as chairman.

Gates and Ballmer will remain on the board and still be major shareholders, leaving the company’s two former CEOs with a hand in Microsoft’s direction.

People who have worked in or around Microsoft generally said it was sensible to put Gates in a role that plays to his strengths as a technologist, but they also wondered whether the company’s founder would be able to let other executives’ decisions overrule him.

“The big challenge is going to be, how is that going to work in the moment, in the big decisions?” said Matt McIlwain, a managing director at Seattle-area venture-capital firm Madrona Venture Group. “Will Bill allow choices to be made that he didn’t agree with?”

Microsoft declined to make Messrs. Gates, Nadella or Thompson available to comment for this article.

Ballmer himself faced a similar challenge when he took over as CEO from Gates in 2000.

Their power struggles in the early years stalled some company decisions, the pair have said previously. Microsoft director David Marquardt and others stepped in to help mediate tensions between the two men, who have known each other since they shared a Harvard University dorm in the mid-1970s.

The company said Nadella had asked Gates to step into the advisory role. “I’m thrilled that Satya asked me to step up,” Gates said in a video posted Tuesday.

But other people close to the company believe the arrangement was also favored by Gates, who had already stepped up activities at the company since Ballmer announced plans to step down in August.

“Even if he’s not the CEO or chairman, it’s still Bill’s legacy on the line here,” said Brad Silverberg, a former Microsoft executive who is now a venture capitalist at Ignition Partners.

The announcements Tuesday end a search that dragged on for more than five months. A Microsoft board search committee, headed by Thompson, considered a long list of internal and external candidates that included Ford Motor CEO Alan Mulally.

People familiar with the matter said Gates or other board members had mentioned to CEO candidates the option of him taking on a larger technical role at Microsoft. His potential involvement started emerging as a stronger option in recent weeks as the board came to more seriously consider Nadella for the CEO post, some of these people said.

In settling on Nadella, a 46-year-old immigrant from India who led some of the company’s most complex businesses, the directors disappointed some people who think radical change at the company is needed. But he is extremely popular with Microsoft’s rank and file, many of whom acknowledge the need for change and also welcome the decision to have Gates serve as a mentor.

“A lot of people–the reason they are here is because of Bill,” said Wen Shi, 29, a software development engineer in Microsoft’s Office software division. “As youngsters they thought he changed the world. We have trust in him.”

Tony Valey, who also works on Office, suggested Gates could help hold employees to a higher standard that may have been missing. “Bill calls it as it is,” he said. “He’s demanding, but not from a negative standpoint. He wants you to bring up the level of your work.”

Gates, 58, co-founded Microsoft in 1975 with Paul Allen and served as CEO until 2000. He served as chairman and chief software architect, but gave up his full-time job and his office in Microsoft’s headquarters building in 2008.

He continued to pop up on campus periodically to participate in product reviews or to discuss technical strategy for areas about which he cared deeply, including Web search and methods of collecting online consumer data, said people familiar with those meetings. One of the people estimated that he had spent roughly 20% of his time on Microsoft activities.

Gates deepened his Microsoft involvement after the CEO search began, one person familiar with the situation recalled. “He has been meeting with [Microsoft] people, asking people questions and writing memos,” this person said.

The hot market for mobile devices has weakened the value of Microsoft’s Windows software franchise in personal computers. The company also faces challenges in online offerings that the industry calls cloud services, though Nadella is credited as helping Microsoft become more competitive in that market.

Nadella said Tuesday that “mobile-first, cloud-first” will define Microsoft in the future. “The question for us is, ‘How do we thrive in that world? What innovation can we bring?’ ” he said, speaking to customers and partners in a meeting at Microsoft’s headquarters that was broadcast on the Web.

For people steeped in Microsoft lore, Gates’s new role is a flashback of sorts to when Ballmer took over in 2000 and Gates became chief software architect. The next five years were among the worst stretches in Microsoft’s history, as it struggled with and scrapped an updated version of the Windows software.

The parallels to 2000 aren’t perfect. Gates then had a full-time job at Microsoft and now he will act as a part-time technical adviser and mentor to Nadella. He also was fresh off the CEO post then, and now he has 14 years of experience with another person running Microsoft.

Still, some former Microsoft executives say Gates influenced the design of Windows Vista–one of Microsoft’s worst-received products ever–as well as Windows 8, which has also received mixed reviews. His instincts concerning consumer hits weren’t always solid.

One former Microsoft employee recalled a meeting where Gates assessed the iPod shortly after Apple introduced the device in 2001. Gates dismissed the iPod because he said a consumer electronics device with a hard drive would never be popular. Apple did eventually ditch the hard drive on most iPod models, but the device sold about 400 million units since 2001.

Gates was among the most prominent early advocates of tablet-style computing, using software based on input with a pen-style device. Hardware makers that used Microsoft’s software never gained the consumer acceptance of Apple’s touch-based iPad, which became a huge hit after it hit the market in 2010.

While a series of reports surfaced about external candidates during the lengthy CEO search, people who know the company well say an outsider would have trouble learning how the organization works and making any needed changes. And Microsoft needs to catch up quickly in some key product areas.

“They have to get 2014 right,” Silverberg said. “Time is of the essence.”

Among the external candidates, Ford’s Mulally was considered among the most likely. But he decided to drop out of consideration largely because Ballmer planned to remain a Microsoft director, which could cause clashes, one person familiar with the situation said.

Some people on the board also were put off by the lack of extensive tech experience and age of Mulally, who is 68, another person familiar with the matter said. Through a Ford spokesman, Mulally declined to comment.

As Nadella takes the reins of the company, Thompson’s experience is also expected to help mentor Nadella. The new Microsoft chairman, who spent more than 25 years at International Business Machines, is well regarded for his management style, turnaround experience and dealings with Wall Street investors.

Thompson initially stood with Gates, Ballmer and Nadella as they prepared to go on stage Tuesday morning for an employees-only town hall, according to one person who was there. But it was the latter three men–the only CEOs in Microsoft’s roughly 39 years in business–who wound up huddling together in front of the meeting.

“There’s only the three of us,” Gates remarked, according to this person.


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