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SATYA NADELLA TECHNOLOGY

PROGRESS REPORT:
Microsoft’s CEO Drove
Significant Advances
So Far, But Challenges
Are Accumulating

Inside
All the Right (Early) Moves
Empowering the Technical Team
Significant Challenges for Azure, AI

By Andrew Brust
Satya Nadella Technology Progress Report

Introduction
To many on the outside, Satya Nadella’s leadership of Microsoft still seems fresh, but he’s
now passed a half dozen years in the role. At the macro level, Nadella has moved mountains,
taking a company that seemed doomed when he took over and not just reviving it, but
returning it to a leadership position. Certainly, if your metric were the company’s share price,
which has almost quintupled under his stewardship, Nadella should be seen as a savior.

But Nadella’s success spans well beyond the stock. Before he took the helm at Microsoft,
threats seemed to be everywhere and, in many of Microsoft’s high-profile product areas,
the company was falling behind. Microsoft was still in the mobile wars, with miniscule
market share. Its attempt at revamping Windows as a tablet operating system with Win-
dows 8 was not succeeding and PC sales overall were falling. The Azure cloud business
was interesting, but revenue was paltry by Microsoft standards and Amazon Web Services
(AWS) held sway with most startup companies, as well as many in the enterprise.

Pressure mounted for Steve Ballmer to resign, and when he announced that he’d be
stepping down, the search for a new CEO seemed like a task to anoint a victim, more than
a winner. Many throughout the industry picked their favorites for who the new CEO would
be, and few pontificated that Nadella would be it.

WHY SATYA?
At the time, Nadella was president of the Server and Tools Business (STB) – a job he took
in 2011 – and was known for his engineering acumen. But did that make him CEO material?
As it turned out, Nadella’s knowledge of the company’s culture, combined with his ability to
sidestep pointless political rivalries, was a great asset in his rise to the top.

Add the fact that his engineering background gave him credibility with the rank and file,
and that STB’s numbers had fared well, even as those of the flagship Windows division
were falling, and Nadella found himself in good stead. In the end, scrappiness, business
acumen, engineering credibility and an apolitical demeanor turned out to be the winning
combination, and Satya triumphed.

It took a little while, but eventually, Nadella’s ascension to the CEO position brought with
Cover: Den Rise / Shutterstock.com

it a cultural shift in Redmond. Rhetorically, the company shifted its focus to a “mobile first,
cloud first” world, recognizing the ebb of the PC age. Beyond rhetoric, though, the com-
pany has indeed gone full steam ahead in its focus on the cloud and on services and
products accessible to mobile devices. But Nadella’s had some challenges, too, and if
anything, they are continuing to build.

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Satya Nadella Technology Progress Report

Satya Nadella shown here being announced as Microsoft’s third CEO in 2014 while standing between second CEO
Steve Ballmer and original CEO and co-founder Bill Gates. Because Nadella was relatively unknown outside of
Microsoft and the technology community at the time, the company made a point early on to note how engaged
Gates would be in helping steer the company. Gates’ involvement has not been emphasized nearly as much as
Microsoft’s stock price and reputation have risen during Nadella’s tenure. Image source: Microsoft Corp.

If we want to get a good sense of how Microsoft is set for the coming decade, reviewing how
Nadella has done so far is an important exercise. Nadella’s first few years can be summarized
by inventorying three things: (1) the crises he first addressed and resolved, (2) his new initia-
tives that have made the company more competitive and, in some cases, brought it into
leadership positions, and (3) areas where Nadella’s Microsoft has faced significant challenges.
This report will examine all three areas, presenting analysis along the way.

Stop the Bleeding

Getting early wins was important to Nadella, as it would be for any new leader. But at
Microsoft, this was even more important, as morale was especially low. While blue badges
(as Microsoft employees are known) were excited about Nadella, it was important to
upgrade that optimism from cautious to confident.

Initial goodwill was significant, though. The CEO succession itself, and the choice of Nadella
to take the helm, did a lot to stem the tide of employees leaving Microsoft. In fact, it encour-
aged several who had left before Nadella’s ascension to come back to Redmond. The
halting and reversing of the employee diaspora yielded a new term – “boomerangs” – for
the returnees, especially for those who had just gone across Lake Washington to Amazon.

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Satya Nadella Technology Progress Report

PIECES OF 8
Another major course correction came with Windows 10. The importance of fixing Windows
is fairly obvious, but a fix was not straightforward. While Windows 8 was widely seen as a
debacle, and the effort to grow an app ecosystem for it was largely a failure, it couldn’t just
be withdrawn from the market. It needed to be succeeded by another version of the
operating system that would bring the Windows desktop back from purgatory and yet not
deprecate the modern apps platform that Windows 8 delivered.

The solution was to meld the Windows 8 Start screen and the classic Windows Start
menu, as well as the OS’s modern and desktop environments. Specifically, the solution
was to have the Start experience shape-shift between small and large formats, based on
whether the Windows device was in a newly created “tablet mode.” Back in desktop
mode, Windows Store apps became resizable, gaining title bars and minimize and maxi-
mize buttons. The end result was a return to the Start menu and the desktop that were
staples of the OS back to Windows 95, without deprecating the modern apps platform.

HOLD THE PHONE

In the arena of Windows Phone, Nadella recognized the futility of bettering that platform’s
market position. Less than 18 months after becoming CEO, Nadella shut down the Lumia
phone business and exited the market. That was not a decision he could have taken
likely: Microsoft took a $7.6 billion write-off on the shutdown of the division, which derived
from Microsoft’s $7.2 billion acquisition of Nokia’s phone business, less than six months
before Nadella became CEO.

For good measure, the Microsoft Band smart watch product was eventually discontinued,
as well. With Nadella clearly convinced that he had to double down (or, to use his prede-
cessor’s poker-inspired phrase, “go all in”) on the cloud, he realized that he couldn’t
afford the distraction and the resource drain that came from continuing in the small
device business.

DEVELOPERS, DEVELOPERS…
Nadella also realized that to win in the cloud required appealing to developers of all stripes.
That meant that a strategy based exclusively or primarily on .NET (the company’s develop-
ment platform, first introduced in 2002) was incompatible with the company’s overall goals.
As such, Microsoft has become much more friendly to developers on non-.NET platforms.
This includes not just .NET’s classic rival Java, but also Python, JavaScript/Node.js, PHP,
Ruby and others.

Microsoft began as a developer-focused company and its recent multiplatform embrace

has helped it become better-regarded in the developer community at large. Microsoft
haters and skeptics still exist, of course, but the company has largely turned things
around, in terms of its developer credibility.

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Satya Nadella Technology Progress Report

I’M A PC
A final area of repair for Microsoft was around PC hardware. In the Windows 8 era, before
Nadella became CEO, Microsoft for the first time brought its own PC to market in the form of
Microsoft Surface. The first Surface model, released in October 2012, was heavy and, other
than Office, could not run Windows Desktop applications. That machine was followed up in
short order by Surface Pro, which could, but suffered from short battery life. New Surface RT
and Surface Pro 2 models came out a year later, with improved battery life but not much
else. Neither generation of the machines sold terribly well, yet they still succeeded in
alienating hardware partners who felt Microsoft was competing with them.

Under Nadella, the Surface business righted itself in important ways. First, with the release
of Surface 3 in May 2015, the machines became far thinner, lighter and attractive. Second,
the added appeal resulted in much-improved revenues, making the Surface business
viable. Third, the innovation in Surface set a higher bar for Microsoft’s OEM partners, and
several of them (including Dell, Lenovo and HP) began producing machines far superior to
what they had brought to market previously.

When paired with the improvements in Windows 10, the entire PC/Windows ecosystem
upped its game. Under Nadella, Microsoft has committed to Xbox consoles and Surface,
but has definitively exited the mobile operating system and wearables market. Only now
is Microsoft dipping its toes back in the smart phone waters, with its yet to-be-released
Android-based Surface Duo. All in all, Microsoft has made its hardware strategy more
manageable, more coherent and more successful.

New Initiatives
Longer-term, Microsoft has executed on other business initiatives that have brought it
benefit, respect and success. These include a nearly singular focus on the cloud explicitly
aimed at utilization, not just onboarding and purchase of unused resources. With almost
everyone at Microsoft rowing in this direction, the company has achieved real traction with
Azure that it lacked before Nadella. Granted, AWS is still in the lead, but most companies
now announce support for both clouds, even if their initial in-market offerings are AWS-only.
That’s a marked turnaround from the time that most people didn’t mention Azure at all.

NADELLA’S YEARS IN OFFICE

Office 365, the cloud reincarnation of Office that is based on monthly subscription fees
rather than up-front license purchases, has proven to be attractive to consumers and
straightforward for businesses. It has provided a steady and continuous revenue stream
for Microsoft without the heavy lifting of selling big-bang version upgrades.

Office has also provided Microsoft with an opportunity to extend olive branches to other
platforms and, in so doing, to grow the Office franchise further. Soon after Nadella took

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the CEO spot, Microsoft announced the release of Office for iPad, marking a turning point
for the productivity suite.

Ironically, the iPad initiative was Ballmer’s, not Nadella’s. But Nadella got to announce it
and, arguably, Ballmer embarked on the iPad journey for the same reasons Nadella got his
job: Customers’ needs were changing, and Microsoft had to keep up. Beyond the platform
decision was a very astute business one: to make the apps work as authoring tools, for
free, for Office 365 customers, thus greatly strengthening the value of the subscription and
monetizing the apps without having to charge for them. This also paved the way for the
Mac Edition of Office to get a much-needed upgrade and sync its capabilities and UX to
the Windows version.

Given that Office 365 includes server and newly credible client apps, it has enshrined
Exchange as the dominant enterprise e-mail platform, increased Microsoft’s penetration
into the Mac market and brought it to both iOS and Android platforms, to boot.

ACQUISITIONS
Helping in that mobile expansion were the acquisitions of Acompli and Wunderlist, now
available as Outlook for iOS/Android, and Microsoft To Do, respectively.

Other notable acquisitions under Nadella included mobile development platform provider
Xamarin; AI/machine-learning focused companies Revolution Analytics, Maluuba and
Lobe.ai; sales- and career-oriented social network LinkedIn; and, more recently, developer
source code control phenomenon GitHub. This is not an exhaustive list, but it’s one that is
representative of Microsoft’s strategy: Invest in AI, mobile apps, the agnostic developer
ecosystem and big bets like LinkedIn that can add value to existing Microsoft properties
including Office and Dynamics.

LOVE LINUX?
To further its platform agnosticism, Microsoft has transformed .NET and PowerShell to be
open source and able to run on Windows, macOS and Linux. Along with this has been the
release of Visual Studio Code, a cross-language, lightweight code editor that also runs on
those three OSes and is also open source.

The unexpected embrace of Linux has been another pro-developer, pro-open source
initiative. The outreach and changes have been extensive and include support for the
Linux Foundation; the accommodation of Linux workloads on Azure; the release of a SQL
Server version for Linux; the re-platforming of Azure HDInsight from a Windows version of
Hadoop to a Linux version; and the creation of the Windows Subsystem for Linux, which
provides fully functional Linux command-line shells that can run natively on Windows.
Microsoft has also made it very simple to create Linux virtual machines on its Hyper-V
virtualization platform.

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Satya Nadella Technology Progress Report

A Strategically Empowered Technical Team

The top deputies reporting to CEO Satya Nadella with responsibility for overall technology direction have
broader overall portfolios, making for fewer political battles than Microsoft experienced in the past.

Satya Nadella, CEO

Scott Guthrie, Executive VP, Kevin Scott, CTO Rajesh Jha, Executive VP,
Cloud + AI Group Experiences and Devices

TEAM PLAYER
On the leadership side, Nadella has made some very shrewd moves. First and foremost,
he promoted Scott Guthrie, who was corporate VP for Azure specifically, to become
executive VP of the erstwhile Enterprise and Cloud unit, which was the successor to STB,
and is now refashioned as the Cloud + AI Platform. Essentially, Guthrie got promoted to
Nadella’s old job, and oversees not only Azure but also Visual Studio and Dynamics (more
on that below). This has been noteworthy for several reasons. First, Guthrie has long been
an advocate for open source, open standards and cross-platform support. And, as one of
the creators of the Web development platform in the initial release of .NET, Guthrie has a
deep technical background. These qualities make him almost picture-perfectly aligned
with Nadella and the new Microsoft.

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Satya Nadella Technology Progress Report

Under Guthrie, CVP James Phillips, who initially and successfully headed up Microsoft’s
Power Platform, (which comprises Power BI, Power Apps and Power Automate – formerly
Microsoft Flow), has been given increasingly broader responsibility. For example, Phillips
is responsible for the Dynamics 365 platform, which includes Dynamics ERP and CRM, but
also a growing number of other business applications and strategic technologies like the
Common Data Service and Common Data Model.

Harry Shum was chosen by Nadella to spearhead Microsoft’s new AI and Research
division, which includes Microsoft Research (MSR) and Bing. This marks the first time MSR
has been brought into Microsoft’s mainstream, with its leadership effectively elevated to a
“cabinet level” position. This is consistent with Nadella’s track record of seeing greater
productization and monetization of MSR’s work which, in the age of a research-driven
technology like AI, makes a great deal of sense. CTO Kevin Scott now heads up AI and
Research, and Shum has left the company.

UNITY IN DIVISIONS
In addition to the people who have risen under Nadella, it’s important to consider the
structure of the company itself, which is now broken down into only three divisions. We’ve
mentioned two so far (Cloud + AI Platform, as well as AI and Research); the remaining one
is Experiences and Devices and is led by Rajesh Jha. This division includes Windows
experience (essentially, the OS shell), Office, devices (including Xbox and Surface), MSN
and servers. Meanwhile, while you might expect HoloLens to be in Experiences and
Devices, it’s not. Instead, a new AI Perception & Mixed Reality Services group, led by Alex
Kipman, has been created and domiciled in Cloud + AI Platform.

Noteworthy in this structure is what it doesn’t contain: standalone divisions for Windows and
Office, once the breadwinners and political powerhouses of the company. Instead, Windows
has been split, with the Windows Platform team in Cloud + AI Platform, and the Windows
Experience and Windows Server teams in Experiences and Devices, along with Office. While
the split of Windows can be seen as a demotion of sorts, Office’s colocation with (part of) it
probably isn’t. Instead, the success of Office’s transformation to a subscription service is
something the company is likely hoping will rub off on Windows, a la Microsoft 365. Windows
was broken up, like a convicted monopoly. Office is there with it in a mentoring role.

This three-division structure contrasts significantly with the six-division one (Server and
Tools Business; Windows; Office; Business Applications; Online Services; and Entertain-
ment and Devices) that preceded it. Streamlining the corporate structure is consistent with
another important Nadella policy known as “One Microsoft.” That policy is meant to com-
bat both the perception and the reality of infighting between Microsoft divisions (and even
groups within divisions). Historically, these rivalries had been quite severe. For example, in
the Windows 8 era, the tensions between the Developer Division (within STB) and the

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Windows Division were acute, as .NET’s architectural decoupling from Windows and its
strong emphasis on Web development had long struck the Windows Division as disloyal.

It’s clear Nadella saw those confrontations as a tax, of sorts, on the company that slowed it
down and made it less competitive. As CEO, Nadella’s goal has been to quash the distrac-
tions from such disarray, and his three-division structure (with one of those divisions first
among equals) is his organizational tactic to tamp it down.

Challenges, Now and Ahead

With that simplified structure, featuring Cloud + AI Platform on the leading edge, and a
restated company credo of “Intelligent Cloud and Intelligent Edge,” the ship was righted.
But that doesn’t mean it’s on a perfectly straight course, and it doesn’t make it 100 per-
cent watertight. With over six years in the CEO role, the romance period is well behind
him, and Nadella has built up some setbacks. It’s important for us to look at those, as well.

FRIENDLY FIRE
To begin with, the all-out effort at driving Azure utilization has made for some roadkill out
in the field and collateral damage on the corporate side of the company.

In the former realm, one issue is that cloud solution providers (CSPs), upon whom Microsoft
has relied heavily to help generate Azure sales, sometimes find themselves in competition
with Microsoft. They also sometimes find that a Microsoft program called Digital Partner of
Record (DPOR) has become a system that’s been gamed, with large account resellers
(LARs) contractually requiring their customers to list them as DPOR, even when their
involvement in the customer’s cloud workloads may be minor. This has led to smaller
partners losing out on recognition and revenue from Microsoft.

At corporate, the cloud utilization zeal has also had the unintended consequence of new
internal rivalries. For example, Microsoft partners closely with Azure Marketplace compa-
nies, like cloud data warehouse vendor Snowflake, in order to generate pull-through
utilization on compute and storage. Meanwhile, Microsoft has its own dog in the cloud
data warehouse race in the form of Synapse Analytics, which can suffer cannibalization
from the Snowflake partnership. Microsoft has also unleashed a big push behind Azure
Cosmos DB, sometimes to the detriment of SQL Server and Azure SQL Database.

DRAG .NET
Microsoft’s traditional developer audience experienced some neglect, too. On the desktop
side, Microsoft has churned from Windows Forms to WPF (Windows Presentation Founda-
tion) to UWP (Universal Windows Platform – the successor to the Metro/Windows Store
platform from the Windows 8 days). At present, UWP has low adoption. While WinForms
and WPF have had some renewed investment and support from Microsoft, it has still

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forced some tough choices for customers. And on the cross-platform mobile development
side, the acquired Xamarin platform has seemed to keep a low profile.

WE’RE NO. 2!
If Microsoft puts so many of its eggs in the Azure basket, yet still comes in at No. 2 behind
AWS, isn’t that a particularly precarious place to be? And don’t these precarious circum-
stances apply not just to Microsoft, but to its customers, who are making significant
investments in the Microsoft platform?

Will Microsoft ever overtake AWS in the cloud wars? Will Microsoft’s enterprise acumen
make it the ultimate victor as the cloud becomes more of an enterprise play and less of a
playground for small businesses and startup companies? Or is Microsoft anchoring itself as
the No. 2 provider? It’s hard to say, but the prolonged uncertainty could tarnish Nadella’s
image and reduce confidence in him. Meanwhile, he doesn’t really have a choice, as he
needs to bet on the cloud. Microsoft watchers need to monitor this particular saga. It’s
critical to the company’s – and Nadella’s – ongoing success.

AI-YAY-YAY
A last and very important area where Microsoft under Nadella faces fundamental challenges
is AI, another of the company’s big bets.

To begin with, Azure Machine Learning has undergone several major “resets.” But there are
numerous other fragmented offerings, including HDInsight, Databricks, Azure Cognitive
Services, ML.NET, WinML, the Bot Framework, SQL Server Machine Learning Services and
other integrations of R and Python into various Microsoft products. Although it has completed
some AI product consolidation recently, Microsoft still has too many AI products and technol-
ogies and not enough AI revenue. Things need to be rationalized, further consolidated and
monetized.

AI and Azure are two huge company bets, and both of them face formidable challenges.

What’s Next?
Within the first 17 months of Nadella’s tenure as CEO, Microsoft announced Office for iPad,
Windows 10 and Surface 3; acquired Acompli, Wunderlist and Revolution Analytics; and
shut down the Lumia phone operation. Nadella made waves, and good things followed.

Since then, Microsoft has acquired Xamarin, LinkedIn and GitHub and it’s ended support
for Windows Phone 8.1, effectively killing the platform. While these latter four events were
important, the early moves were far more impactful.

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Microsoft once again needs to accelerate the rate of change. Nadella needs another big
push, comparable in magnitude and impact to the one he launched at the beginning of
his reign. If Nadella can force more change, push Azure to compete even better with AWS
and finish cleaning up the AI sprawl, he’ll be able to kick off the new decade with much of
the momentum he helped generate in the last decade.

Meanwhile, while Microsoft’s stock is a market leader, MSFT’s huge success might indicate
less upside to come. Further, after a full decade of Azure, some are doubting whether it
can truly leapfrog AWS. And despite PR pushes and a high-profile video ad campaign with
hip-hop artist Common, Microsoft AI hasn’t found its groove.

These challenges are not insurmountable, nor are they to be underestimated. They are
most certainly make-or-break, though. Nadella must focus on them with laser precision.
Success here could let him leave a legacy of wizard and miracle maker. Without it, history’s
judgement may be less kind.

Andrew Brust is the founder and CEO of Blue Badge Insights. He advises data and analytics ISVs on winning in the
market, solution providers on their service offerings, and customers on their analytics strategy. He writes about Big
Data for ZDNet and co-chairs the Visual Studio Live! series of developer conferences. Brust is an entrepreneur, a
veteran consultant and a current Microsoft Regional Director and MVP.

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