Nadella, 46, will be only the third CEO of Microsoft after founder Bill Gates and Steve Ballmer, the man he is succeeding.
The elevation of Nadella, a company insider for 22 years (he recently joked that he has also been married for 22 years), was expected once heavyweight outsiders like Ford's Alan Mulally and Nokia's Stephen Elop dropped out or were passed up. The names of Google's Sundar Pichai and Motorola's previous CEO Sanjay Jha also briefly made the rounds, serving to highlight the intensity of PIOs breaking the glass ceiling, something that began some two decades ago, but has become more pronounced now.
In picking Nadella, Microsoft directors selected both a company insider and an engineer. It has often been noted that Microsoft was more successful under the leadership of Gates, a programmer and its first chief executive, than it was under Ballmer, who had a background in sales.
Satya Nadella now finds himself the head of an icon of American business that has struggled for position in big growth markets like mobile and Internet search. The company has correctly anticipated many of the biggest changes in technology — the rise of smartphones and tablet computers, to use two examples — but it has often fumbled the execution of products developed to capitalize on those changes.
It remains to be seen whether Nadella's technical background, along with the closer involvement of Gates in product decisions, will give the company an edge it lacked during the Ballmer years. Microsoft said in a statement that Gates will "devote more time to the company, supporting Nadella in shaping technology and product direction."
Relinquishing his role as chairman will allow Gates to spend over a third of his time with product groups at Microsoft, "substantially increasing my time at the company," he said in a video made for the news of Nadella's selection. Gates said Nadella asked him to make the change in his duties at Microsoft.
Nadella is a contrast to Ballmer in other ways. Most recently the executive vice president of Microsoft's cloud and enterprise businesses, Nadella peppers his conversations and speeches with technical buzzwords that people outside the industry would most likely find impenetrable.
Nadella showed ambition early in his career. He received degrees in engineering and computer science, then earned an MBA from the University of Chicago Booth School of Business while working full time at Microsoft. He flew to Chicago from Seattle to attend classes on the weekend, according to Steven Kaplan, a professor at the school who taught Nadella in a course on entrepreneurial finance and private equity.
"He is take charge, smart, but in a likable way," Kaplan said, adding that Nadella received an A in the course.
While many executives within Microsoft tend to be polarizing figures, Nadella appears to be well liked in much of the company. Still, those who know him well say he is not a pushover as a boss.
Nadella's star at Microsoft rose considerably in the past several years as he took charge of the company's cloud computing efforts, a business considered vital as more business customers choose to rent applications and other programs in far-off data centers rather than run software themselves.
For years, Microsoft did not pay enough attention to how the cloud was attracting the creativity of a new generation of developers. When he got control of the division that included Microsoft's cloud initiatives, Nadella changed that. He began meeting with start-ups to hear more about what Microsoft needed to do to become more responsive to their needs.
"When you look at the most exciting things happening in tech, all the platform shifts happening and disruption — social, mobile, cloud — Microsoft has not even been part of the conversation until recently," said Brad Silverberg, a Seattle-area investor and a former Microsoft executive. "With Satya's leadership, Microsoft is doing interesting things in cloud."
But Nadella has to grapple with a much broader set of challenges in markets in which he has little experience, like mobile devices. He inherits a deal to acquire Nokia's mobile handset business, along with 33,000 employees, and a wide-ranging reorganization plan devised by Ballmer and still in progress.
In an interview in July, Nadella was supportive of the reorganization plan, which he predicted would allow Microsoft to adapt to changes in the market more quickly than in the past. "It's not like our old structure didn't allow us to do some of this," he said. "The question is whether you can amplify."
In his statement on Tuesday, Nadella said: "The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly."
Nadella was Microsoft's second-highest paid executive last year, earning $7.7 million in salary, bonus and stock grants. Only COO Kevin Turner made more. Microsoft has not yet announced his new package.
Nadella's elevation makes him the highest-ranked executive of Indian origin in the corporate world, ahead of such familiar names as Pepsico's Indra Nooyi and Mastercard's Ajay Banga. Microsoft's Windows still runs roughly nine out of every 10 desktop and laptop computers in the world, and its Office and Exchange programs are corporate mainstays. The company generated $27 billion in operating profit in the year ended June 30, and holds $84 billion in cash, making it a corporate powerhouse despite the relative decline in its fortune in recent years.
(With inputs from NYT & agencies)
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