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Rediff News  All News  » Business » Bold steps Satya Nadella will take to change Microsoft

Bold steps Satya Nadella will take to change Microsoft

Last updated on: March 27, 2014 13:31 IST

Image: Microsoft Chief Executive Satya Nadella.
Photographs: Courtesy, Microsoft. Bill Rigby in Seattle

Satya Nadella, the Indian-born self-described cricket fanatic who took over as Microsoft Corp's chief executive last month, makes his public debut on Thursday and is expected to go on the offensive right away with some bold strokes.

When Nadella hosts his first major press conference this week, he's likely to describe - if not officially launch - versions of Word, Excel and PowerPoint designed for Apple Inc's iPad, looking to cash in on a market worth up to $7 billion a year, according to Wall Street analysts.

The technology behind the software is not ground-breaking, but the strategy is: It puts Office at the heart of the company's push to become a leading services company across a variety of platforms - possibly at the expense of Windows and its own Surface tablet.

Bold steps Satya Nadella will take to change Microsoft

Image: Satya Nadella with Bill Gates and Steve Ballmer
Photographs: Courtesy, Microsoft.

That perceived willingness to break with the Windows tradition, which remains co-founder Bill Gates' most enduring legacy, has helped spur Microsoft shares to $40-plus levels not seen since the dotcom boom of 2000.

Wall Street is now guardedly optimistic on a company that, while still garnering billions of dollars in annual profit, risks gradual obsolescence in a mobile-powered tech industry.

"The fact that Nadella is going to pull the trigger (on Office) shows he's not just an insider that's going to continue the status quo. Right now, it's a blank sheet of paper," said Daniel Ives, an analyst at FBR Capital Markets.

Bold steps Satya Nadella will take to change Microsoft

Image: Microsoft's former CEO Steve Ballmer speaks at the launch of the company's Microsoft 365 cloud service in New York.
Photographs: Ray Stubblebine/Reuters

Depending what Microsoft charges for Office on the iPad, and how many of the scores of millions - and rising - iPad users adopt it, it could rake in anywhere between $840 million to $6.7 billion a year in revenue, estimates Raimo Lenschow, an analyst at Barclays.

Rick Sherlund, an analyst at Nomura who has urged Microsoft to put its most lucrative franchise on the iPad for some time, welcomed the idea but was more cautious on the rewards.

He estimates that an iPad Office would generate only $1 billion or so in new revenue a year, as many potential users will already have corporate licenses that can be converted to the new product.

And it's unclear how much of its revenue will be surrendered to Apple, which generally takes a 30 percent cut of app sales through its store. Microsoft and Apple declined comment.

Bold steps Satya Nadella will take to change Microsoft

Image: Ford Motor Co. CEO Alan Mulally.
Photographs: Brendan McDermid/Reuters

Optimism Boosts Shares

The anticipation of Nadella's mobile-centric strategy has pushed Microsoft shares up 11 per cent in the seven weeks since he took the helm, and they are now rolling along at 14-year highs.

On Thursday, Nadella is officially slated to talk about mobile and cloud strategies. But investors and industry executives will be just as attuned to any signals from the new CEO on whether he's willing to take Microsoft in a radically different direction.

To some investors, steering a new course for such a massive entity - Microsoft is the second-largest US tech company by market value - is a daunting task.

And some, who would rather have seen an energetic outsider like Ford Motor Co's Alan Mulally get the job, are yet to be convinced Nadella has the leverage to make the necessary change.

Bold steps Satya Nadella will take to change Microsoft

Image: A Microsoft Office logo is shown on display at a Microsoft retail store in San Diego.
Photographs: Mike Blake/Reuters

But bold moves with Office, and signifying a renewed drive to conquer the mobile arena and 'cloud' computing after years of shackling its best products to PC-centric Windows, are seen as a promising start.

"This is something that should have happened a few years ago," said J.P. Gownder, an analyst at tech research firm Forrester. "Holding Office for iPad as a hostage in the tablet war didn't work out well for them. They have to start to undo this negative behavior."

Nadella has more work to do as well on the devices side of Microsoft's business plan.

Bold steps Satya Nadella will take to change Microsoft

Image: Nokia's Chief Executive Stephen Elop gestures during a presentation at the Mobile World Congress in Barcelona.
Photographs: Gustau Nacarino/Reuters

Windows-powered phones are well reviewed but held only 3 per cent of the global smartphone market last year.

Its Surface tablet, an iPad competitor, had 2 per cent of the tablet market, according to tech research firm Gartner.

Microsoft's $7.2 billion deal to buy the handset unit of Nokia, now delayed in closing, is unpopular with many investors who view it as a doomed defensive play to curb Google Inc's Android's dominance in the smartphone market.

It is "an acquisition not even a mother could love," according to Nomura's Sherlund.

Bold steps Satya Nadella will take to change Microsoft

Image: Illustration depicts working of Evernote.
Photographs: Courtesy, Evernote

Wall Street will be listening for Nadella's thoughts on the Xbox, the subject of renewed spin-off talk recently, and his willingness to buy his way into cloud-based computing services exploited by growing startups such as Dropbox and Evernote.

"M&A specifically on cloud is going to be key, around big data, cybersecurity, software-centric deals," said Ives at FBR. "Give investors a bone, and they will believe."


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