Did Nadella Just Audition for Microsoft's CEO Position?

When Microsoft invited us to Monday's press conference in San Francisco for a rare appearance by the head of the company's newly created cloud and enterprise group, we were informed he'd discuss how Redmond is planning for future growth in that business and how it will differentiate itself from its competitors.

Packed with the typical vagueness of a press invite, we certainly weren't going to pass on the opportunity to hear what Satya Nadella had to say. Would there be a major unexpected announcement of a new product or service to come, perhaps a blockbuster acquisition or would he merely describe what those who follow Microsoft already know?

As it turned out, Nadella effectively did the latter, formalizing the already disclosed release dates of products like Windows Server 2012 R2 and System Center 2012 R2, among other deliverables. But Nadella's media event was also an open Q&A not unlike a presidential press conference, sans the podium and the moderator on stage (and the cocktails that follow).

Though we at Redmond magazine watched the Webcast, our Silicon Valley contributor John K. Waters was on hand to provide color. While an even mix of tech journalists and business media were on hand, it appeared this event were staged for Nadella to make his case to skeptical business journalists who, like us, wonder if Microsoft can remain a force in the post-PC and cloud era.

Given his appearance on CNBC earlier that morning, it also appeared as though this event was staged not only to articulate Microsoft's blueprint for growing its key $20 billion enterprise business but to have him audition as a candidate to succeed Steve Ballmer as CEO. Nadella is one of numerous candidates that pundits have floated as potential successors but typically only in passing. Many of them are those who work or have worked at Microsoft. On Monday, Nadella was hammered with questions about just about everything that may impact Microsoft's future, including how the re-org might be impacted by the next CEO and whether or not he considered himself a candidate for the job -- asked predictably by All Things D's Kara Swisher.

Nadella answered the question just like New Jersey Governor Chris Christie responds when asked if he might run for president in 2016. "Our board's looking for a new CEO and that process is well on our way," Nadella responded. "Steve is very much the CEO today and I'm excited about my job. That's the sum total of what I have to say on that." Do you think he saw that question coming?

Despite the fact that he didn't drop any bombshells, he certainly had answers for a lot of questions which haven't come his way of late. Perhaps the most interesting was a reporter who asked, and I'm paraphrasing here, how Nadella can effectively run Microsoft's cloud and enterprise group when a key component of the company's enterprise portfolio, Windows Server and by default Hyper-V, which powers Windows Azure, is controlled by a different group, the operating systems organization headed by Terry Myerson.

"This 'One Microsoft' reorganization is just fantastic from us not having in fact any of these notions of who controls what," he said. "If you look at what I'm doing here, you're talking about everything that's happening across Office 365, Dynamics, CRM. What's happening inside our server products and Azure has not changed. The servers are very much part of my organization, but that's kind of immaterial, because some of the componentry like the hypervisor itself is in the core OS, but the entire server gets put together. And that I think you can say this 'One Microsoft' thing is more a reflection of how we were already working and more formalizes it. I celebrate this notion of being able to decouple what I think are our engineering efforts and what is our marketing and business model, because I think categories are going to rapidly shift. What is a developer product, what is an IT product, what is an end user product, all have to be rethought, we think about this as one unified engineering effort, and one unified go to market effort. Especially with consumerization, that becomes even more important."

It's interesting to hear that Windows Server is part of his organization, even if it's also part of the operating systems group. The implication is that there's more overlap and shared resources in these organizational lines than Microsoft has articulated.

The next test of his well-roundedness on the Microsoft portfolio came in the form of a question regarding the role of tablets with apps like CRM. Of course Nadella worked in the Dynamics group years ago so it wasn't foreign territory. "We're really thrilled about some of the client work around CRM and [how] some of our ERP applications are taking advantage of the new Windows 8 touch form factors to enable real work," he said.

 Nadella then tied that to his own line of business. "Any time you're innovating in the front end for different mobile form factors, you also want to have the back end as a service," he said. "So Azure Mobile Services, which I think is one of the fastest-growing services out there. When it comes to mobile, we've done a fantastic job of making the business applications or application development for these new touch and mobile form factors, with the back end that much more easier."

Not only did Nadella get a pitch in for the company's software-as-a-service (SaaS) story, he related that to the company's devices and services strategy, tying it to Windows 8 and the company's development environment.

Some interesting figures Nadella shared worth noting:

• 70 percent of Windows Azure usage is Microsoft's six-month-old infrastructure-as-a-service (IaaS) offering
• 2.5 million organizational tenants now reside in Windows Azure Active Directory, aided mostly by Office 365. Nadella said that's key for any ISV that can now do single sign-on using WAAD. Note: Despite the figure he gave, a Microsoft spokeswoman sent an updated figure that's actually now 3 million tenants).
• While Microsoft claims its software runs on 75 percent of Intel-class hardware, Nadella says Microsoft's $20 billion in enterprise revenues makes it a small player in what he sees as a $2.2 trillion market. "What I tell my team is it's not about building software for enterprise IT, but the best way to think about it is to build software that we use in our own stuff [Bing, Office 365, Dynamics Online, Xbox Live, etc.], which is powering our own first-party services and by doing so we're going to meet the future demands of enterprises."

Who knows if Nadella will emerge as a leading candidate to succeed Ballmer. While he might not have the aura of an Eric Schmidt or a Paul Maritz, they didn't either before they were thrust into the limelight. Nevertheless, Nadella could become the same type of executive as those two, whether or not he becomes Microsoft's next CEO. What's your take on Nadella's audition?

Posted by Jeffrey Schwartz on 10/09/2013 at 12:16 PM