Satya Nadella at one year: Grading Microsoft's CEO

Make no mistake: A year after he succeeded Steve Ballmer in the job, CEO Satya Nadella firmly controls Microsoft's fate.

Nadella took office on Feb. 4, 2014, and his early reign was handcuffed by Ballmer-era inertia -- and Ballmer-era flubs, particularly around mobile devices.

By about the six-month mark, Microsoft starting showing signs of shaking off the Ballmer rust. InfoWorld's six-month review of Nadella found him strong on financials, middling on Microsoft "meat and potatoes" (Windows and Office), and promising in his clear emphasis on the cloud.

Today, Microsoft is still saddled with a two-faced incarnation of Windows and a mobile portfolio few could envy. But with Windows 10 rolling forward, as well as the combination of Office 365 and Azure a vital and successful focus for the company, Nadella's stamp on Microsoft is now more clearly drawn.

Where does Microsoft stand under Nadella, and what's in store for the technology giant in the years ahead Let our review of Nadella's first year at the helm be your guide.

Rising from the ashes

Two years ago, then-CEO (and current Fergie fan) Ballmer laid the foundation of the "devices and services" aberration in Microsoft's long-term plans. Nadella was hit with the most painful consequence of Ballmer's folly: the sad demise of Nokia as we knew it, and the concomitant firing of 18,000 employees, 13,000 from Nokia.

Although "devices and services" might've proved innovative early in this decade, the concept sounds like something your nerdy uncle would've dreamed up. Nadella has gone to great lengths to never openly criticize "devices and services," but clearly he's incinerated the concept and coaxed Microsoft into its next phase.

Nadella came up with a completely different approach -- mobile first, cloud first, Windows best (when it's finally ready) -- that's struck a resounding chord. As a longtime Windows wonk, I find it hard to admit it, but the push to put Microsoft products on every platform has suddenly made Microsoft a player in an increasingly platform-agnostic world.

Leadership: Strategic vision

Microsoft's come a long way from "Windows on every desktop" to "Windows, what's that" Seriously, if Microsoft had waited for Windows to catch up, we'd all be running Office on iPads, Android tablets, and maybe even Raspberry Pis. The painful recasting of Windows as merely another platform has many longtime Windows users fuming -- "why do iPad and Android get Office before us" they cry -- but in the end, Office and Windows both need to stand on their own two feet or, as befits cash cows, four legs.

Nadella hasn't abandoned Windows. Speaking at the Windows 10 Tech Preview event on Jan. 21, he said, "We have bigger hopes, higher aspirations for Windows. We want to move from people needing Windows to choosing Windows, to loving Windows. That is our bold goal."

At the same time, though, he's handing very capable versions of Office -- arguably Windows' greatest selling point, at least in the corporate sphere -- to Apple and Google. He's also announced that OneDrive Albums and advanced search are coming to iOS first. That takes more than a little guts.

I'm raising Nadella's strategic vision grade from an A six months ago to an A+ today.

Leadership: Tactical vision

On the tactical vision front, I don't sense much progress. We've seen a lot of yet-unrealized sound and fury in the Windows direction, some strong short-term moves with still-crashing Azure, and a bit of life in the Xbox arena. But we've witnessed nothing but cheap from the phone contingent, some intriguing demos of touch-first Office with nothing notably better than Office for iPad, a lot of backpedaling with OneDrive for Business and OneDrive caching on local machines, and the fact that Surface still needs a serious face-lift.

Last time, I gave Nadella a C for his tactical vision grade. Now, I nudge it up a notch to C+, primarily because of Azure improvements -- spectacular outages and all.

Leadership: Communication

For communication, I'll skip lightly over the women-in-computing "karma" gaffe, noting only that sometimes very smart people say very dumb things. Haven't you

On the very positive side, Nadella managed to sideline "Scroogled" ad inventor Mark Penn. "Scroogled" marked a new low in the those-who-live-in-glass-houses milieu. Now, it's nothing but a negative memory. On the very damning side, Nadella originally approved the "Scroogled" campaign -- the first ones appeared after he took over.

Under Nadella, the messaging has gone from "devices and services" to a "productivity and platform company for the mobile-first and cloud-first world." That's off-putting to those of us who have to stay productive in a world that's only occasionally mobile and not all that cloudy. The surprise announcement last month of the HoloLens virtual-reality headset and Windows 10 APIs muddies Microsoft's direction even more.

Can I point to one statement -- or even a group of statements -- that tell me where Microsoft is headed Not really. There's an excellent Wired article by Jessi Hempel that gives an impression of what Nadella is doing. But it isn't from Nadella or even Microsoft. Communication remains a neglected stepchild.

I see nothing pointing to an improvement over Nadella's D communications grade from six months ago.

Leadership: Executive team

The past six months have seen a lot of changes at the board level. Ballmer left in August, and I didn't detect any crocodile tears from those who stayed. Then in September, two more longtime board members -- Dave Marquardt, general partner at August Capital, and Dina Dublon, ex-CEO of JPMorgan Chase -- announced their retirement, effective December 2014. They were replaced on Oct. 1 by Teri List-Stoll, CFO of Kraft Foods Group, and Charles W. Scharf, CEO of Visa.

But Nadella's inner circle -- the so-called senior leaders -- hasn't changed one iota since he originally reshuffled the deck shortly after taking office, with one exception: In November, Lisa Brummel left and Kathleen Hogan took over as executive VP of human resources. I know many current and former 'Softies who hailed the change. I still hear whispers about Eric Rudder (executive vice president of advanced strategy) and Stephen Elop (executive vice president of devices) leaving.

When Bill Gates stepped down as chairman of Microsoft in July, he was supposed to "devote more time to the company, supporting Nadella in shaping technology and product direction." I haven't seen any indication that actually happened, other than a mysterious "personal agent" gig, but it's a nice sentiment.

All in all, Nadella's managed to attract and keep an excellent inner circle. The board's bounced around a bit, but the "activist" fears that several analysts once expressed haven't come to fruition.

For the executives, I give Nadella a grade of B+.

Leadership: Human resources

Human resources under Lisa Brummel continued employee layoffs, with the final tranche of 3,000 employees laid off in October. Layoffs are never easy, but several screw-ups made these even more difficult. Still, Nadella insisted they were needed, and he's probably right.

The contract worker restrictions, which requires contractors to leave after 18 months, also rankle. Microsoft continues to push for more H1-B visas, even as it's become clear that the shortage they purport to solve doesn't exist.

Under Hogan, Microsoft's human resources actions seem to have a more human side to them, although I know many in the trenches would disagree.

Still, I raise Nadella's HR grade from an F to a D.

Technology/product lines: Platform support

Office for iPad has been a big success -- 45 million-plus downloads -- and Office for Android should be out soon. Touch-first Office for Windows should be out "in the Windows 10 timeframe," likely fall 2015. Skype runs on iOS, Android, and hardware. Microsoft's quickly turning from a Windows-first company to a "let's get it done" company, and that bodes well for the future.

Nadella's platform support grade: A.

Technology/product lines: Enterprise devices

Microsoft finally worked the major kinks out of the Surface Pro 3 this month. The 10th firmware update seems to have solved the big problems.

Unit sales figures are impossible to discern, despite the claimed $1 billion in Surface tablet revenues, but the lack of any other products makes you wonder how well enterprise devices are doing. For example, we haven't even seen a business-viable Lumia smartphone.

Nadella's enterprise devices grade: C--, subject to downgrade if we ever get sales figures for the Surface.

Technology/product lines: Consumer devices

Microsoft's consumer devices are doing much better than they were six months ago, primarily because Microsoft finally lowered the price and kept it there. Right now, you can buy an Xbox One with Assassins Creed: Black Flag (without a Kinect), and one year of Xbox Live service for $350. That kind of deal led to Xbox One outselling the PS4 over the holidays.

There's hope, so I'm lifting the D grade for consumer devices in the last report card to a C--.

Technology/product lines: Cloud services

Cloud services are going gangbusters for Microsoft -- revenue is up more than 100 percent year-to-year -- although the company's market share still hovers around 10 percent. Yeah, Amazon Web Services is that much bigger (IBM, at No. 3, is tiny).

Notably, Nadella isn't afraid to spend copious quantities of money building out infrastructure. That's good, because he'll have to run at breakneck speed to keep up. Combined with very competitive pricing and good introductory offers, Azure is on a roll.

Nadella's cloud services grade: A+.

Technology/product lines: Consumer vision

If it weren't for the promised HoloLens virtual-reality headset, Nadella wouldn't be faring well in consumer vision at all. The widely panned Microsoft Band, with its uncomfortable "thermal plastic elastomer with adjustable fit clasp," has had a succession of updates, none adding to its appeal. Yeah, it's sold out, but that's probably because Microsoft didn't make many in the first place.

By contrast, the HoloLens, another Ballmer-initiated project that's now beginning to see light, holds tremendous potential, especially when paired with Minecraft, one of Nadella's big bets.

The announced (but not yet delivered) ability to stream Xbox games onto any Windows 10 device would also rate as a tremendous consumer coup. It's still too early to call that one.

Although Nadella doesn't deserve full credit for HoloLens, he does for Minecraft. Balance it out with the Band nonsense, and I put his consumer vision grade at a B--.

Technology/product lines: Windows vision

With the advent of Windows 10, Nadella's Windows vision is good and getting better. We'll know by his two-year anniversary how well Win10 plays out, but all indications at this point are that it'll do very well indeed. More important than anything else, he and Terry Myerson's Windows crew aren't hiding in a corner.

Although it's unlikely that Microsoft's Universal Apps will be truly universal and you have to wonder why anyone would want a Windows desktop on an Xbox, the thinking behind Windows 10 steers us far clear of the Windows 8 debacle -- and may make Windows relevant again.

Nadella's Windows vision grade: a very hopeful B.

Financials: Company value

Ever since Ballmer announced his retirement, Microsoft's stock has performed quite well. When Nadella took over on Feb. 4, 2014, the stock closed at $36. A year later, it was at $42, after a major (16 percent) drop last week as the market digested Microsoft's continued softness in its current product lines. Still, that's a 13 percent increase in a year. Over the same year, Apple's stock is up 67 percent, but Google's Class A stock is down 6 percent. 

Rightly or wrongly, many financial analysts blamed Nadella for Microsoft's current weakness and the last week's drop in valuation. Factoring in the stock market's assessment, Nadella has earned a solid C for his company value grade.

Financials: Corporate financials

Microsoft's financials in general have gone well. Revenue for the quarter, reported on Jan. 26, was $26.5 billion with profits at $5.9 billion. Revenues rose 8 percent, though largely due to the acquired Nokia phone business; profits declined 1.6 percent, due to currency shifts, a renewed slump in Windows PC sales, restructuring costs related to the Nokia acquisition, and lower per-unit profits on phones than other devices and services. Financial analysts predicted as much, so were unfazed.

Of course Nadella inherited a very profitable company, but the numbers are certainly going his way -- despite last week's stock-valuation drop.

For corporate financials, Nadella earns a grade of B+.

Nadella's overall grades

If you look at Microsoft as a company -- in other words, as a profit-making enterprise -- there's no doubt Nadella is doing well. The lack of a home run in consumer products, which are driving Apple's capitalization to nosebleed levels, has kept revenue and earnings in the substratospheric realm. Still, Nadella's kept the cash churning, the cash cows baying, and the investors grinning. As far as Wall Street is concerned, he's earned a B.

On the Windows/Office front, Nadella's definitely doing better now than he was six months ago. Unleashing Office on all platforms and slashing his Vorpal blade through the corpse of Windows 8 both certainly help. Still, the whole world's waiting to see what he can pull out of the Windows 10 hat. He's earned a B grade to date for WIndows and Office.

Although Nadella espouses mobile first, we're still waiting to see what he can do with Microsoft's own smartphones and tablets. Unless Nadella sells off Lumia -- which might not be a bad idea, if a suitable Windows-fanatical suitor can be found -- he's under a lot of pressure to put his hardware where his software is. For mobile, Nadella has earned only a C grade, and we all expect better.

In the enterprise, he's doing well, and in the cloud he's leading the way to better things. It remains to be seen, though, if Nadella can outfox AWS. I give him a B+ grade for enterprise.

The computing world's changed a lot in the past six months, and Microsoft's been adapting. But what it really needs to do is start calling more of the shots, not merely keep pace. That's Nadella's challenge now.


Woody Leonhard

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