Satya Nadella named Microsoft CEO as Bill Gates steps down as chairman

Microsoft settled on a veteran insider as its replacement for long-time CEO Steve Ballmer on Tuesday, ending a five-month search with a choice some analysts called a “safe pick” for the software behemoth.

India-born Satya Nadella, 46, head of the company's cloud computing division and enterprise business, was appointed after a team of headhunters concluded a five-month search that included some of the most world’s most famous executives.

Nadella is only the third person to lead Microsoft; since the company was founded 39 years ago, only co-founder Bill Gates and Ballmer have headed it. But in recent years the company has looked flat-footed as rivals Apple, Google and Facebook have dominated and innovated in hardware, online services and social media.

In a nod to Nadella's low profile outside the company, Microsoft introduced him with a sleek web page that was heavy on biographical details including the revelation that he relaxes by reading poetry.

Ballmer said he would step down last August amid mounting criticism of the company’s dependence on its Windows, Microsoft Office and workplace software, products that have generated massive profits for the company for decades but are being increasingly challenged by online alternatives. In a statement, Ballmer said Nadella was “the right leader at the right time” for Microsoft.

Some were less sure. In a note to investors, analysts at FBR Capital Markets said the appointment of Nadella was a "safe pick" compared to choosing an outsider. Microsoft was among the first to innovate in areas like smartphones, tablets and cloud services. But it has seen those ideas better executed by rivals including Apple and Amazon, the note said.

As part of the announcement, Gates said he would step down as chairman to assume a new role on the board as founder and technology adviser. John Thompson, the Microsoft board member who oversaw its search for a new chief executive, becomes chairman. “During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” Gates said..

“Satya is a proven leader with hardcore engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth,” Gates said in his statement.

Nadella may be little known outside of Microsoft’s sprawling Redmond campus, but inside it he is a star. Before being named as CEO he ran one of Microsoft's fastest growing divisions, cloud services. Revenue at the division soared 107% compared to a year ago, the company said when it reported its fiscal second-quarter results on 23 January. Most of his experience is in serving corporate customers – the source of two-thirds of Microsoft profits.

He has also been unafraid to speak his mind on sensitive issues. In December, speaking at the Le Web conference in Paris, Nadella addressed the revelations of the NSA whistleblower Edward Snowden, saying they demonstrated that “the surveillance system has to be reformed”.

"Businesses and users are going to use technology only if they can trust it," said Nadella. "Clearly now it's the responsibility, I think, of governments – the US government included – to restore that trust. The only mechanisms that I think we have learned is that the respect for the liberties of people and the rule of law is the one way to have societies thrive."

Microsoft's decision to retain Gates worried some observers. Sydney Finkelstein, a leadership professor at Dartmouth's Tuck School of Business, said there were huge challenges ahead for Nadella. Finkelstein said making changes within a company as large as Microsoft was difficult for any CEO, and more so when the senior figures being replaced were, as in the case of Gates, still playing a part.

“The next CEO needs to instil a level of risk-taking and innovation,” said Finkelstein. He pointed to examples of insiders shaking up big companies after the resignation of a famous CEO – Bob Iger, for example, took over at Disney after Hollywood legend Michael Eisner was forced out amid criticism that the the media firm was losing its way to younger rivals. Iger went on to revitalise Disney, buying Pixar and Marvel.

“But that’s much harder to do if the people who used to run it are still breathing over your shoulder,” said Finkelstein.

Finkelstein also noted that before Nadella’s appointment, the top job at Microsoft had been linked to a number of leading executives outside the company, including Ford CEO Alan Mulally. “The fact that he is relatively unknown outside Microsoft is interesting, especially in the light of the big names that were associated with the job. It makes you wonder if he was the first choice,” Finkelstein said.

James Staten, an analyst with Forrester Research, was more positive. "Satya Nadella is a tough, number-driven leader. [His appointment] will be a great thing for the overall direction of the company," Staten said.

"Nadella is a visionary, is making it happen, and knows what it takes to drive change in the unique Microsoft culture. An outsider would have a hard time accomplishing this coming in fresh. And time is of the essence."