Advice to Microsoft’s Satya Nadella: Be More Brave

Advice to Microsoft’s Satya Nadella: Be More Brave

Tech Columnist Christopher Mims Suggests Five Moves for New CEO


Updated June 1, 2014 9:55 p.m. ET

Dear Satya,

We haven’t met, but I’m a fan of yours. I don’t want to throw shade on your predecessor, Steve Ballmer —your first, record quarter at the company was arguably his doing—but it’s obvious you were the right person to succeed him. He was a salesman; you’re an engineer. And MicrosoftMSFT +1.49% land of hard-core technologists, is at its best when it’s led by one of its own.

But I’m worried about your company. Yeah, right now you’re making money hand over fist. But so did BlackBerry BB.T -1.55% as recently as the end of 2010. Then, well, we all know what happened.

Almost all of the secular trends in computing are working against you and have been for some time. In terms of where you’re actually making money, Microsoftremains the PC company in an anything-but-PC world. Only three in 100 smartphones shipped world-wide this year will run Windows. The Surface Pro 3 laptop/tablet is a nice piece of hardware, but it isn’t clear people actually want it. The Pro and Pro 2 didn’t sell as hoped.

Your predecessor’s strategy was for Microsoft to be a “devices and services” company. I know the temptation is to double down on the former to sell more of the latter. But that has to stop. Microsoft has to stop trying to compete with Apple,AAPL -0.37% Google GOOGL +0.19% and Oracle ORCL -0.43%/SAP/Salesforce/Amazon Web Services.

People who have worked closely with your company have told me that Microsoft has always acted as if whatever Microsoft makes is literally the computing ecosystem for the world. Given the shift to cloud and mobile, that is obviously no longer the case.

I don’t think I’m about to suggest anything you haven’t thought about. But honestly, I want to see you be more brave:

1. Make Windows free (but keep charging for everything else).

I know, Windows is about a quarter of your revenue. Giving it away could cost you up to $20 billion a year. But you have $87 billion in cash, and your profit margin is 28%. You can afford to think big.

And you don’t really have a choice. Google’s Chrome OS, which is free, is a much bigger threat than almost anyone realizes. Every day it gets better, and Google is like a python. It might take a long time, but eventually it will squeeze the life out of Windows in the consumer market. At present, laptops running Chrome OS are mostly junk, yet it’s often the case that on Amazon.comAMZN -0.39% the best-selling laptop under $400 is a Chromebook.

Also, you don’t have to make Windows completely free. Give it away to consumers and device manufacturers, but sell a pro version to corporations. Most important: Keep charging for and evolving Office, and make it your central platform upon which people can build.

Operating systems are interchangeable, but no one has succeeded at reproducing the utility of the Office suite, the files of which are as entrenched a standard as the Web’s HTTP protocol, especially for businesses.

Making Office available for the iPad was overdue; making it as good on the iPad was enlightened.

2. Forget the consumer business.

The conventional wisdom is that nowadays, the line between consumer and enterprise IT doesn’t exist. That’s wrong, especially for Microsoft. Currently, you get 58% of your revenue and 75% of your earnings from sales to businesses.

Sometimes it’s OK to be entrenched. The power grid wouldn’t exist withoutGeneral ElectricGE +0.19% and we’re not about to move to a post-electricity world. Microsoft makes things all of us need. There’s no shame—and plenty of money—in what is essentially infrastructure.

This also means you have to stop trying to make hardware aimed at the consumer. You can’t make the “definitive” version of your devices, as if you were Apple, and still maintain an ecosystem, like Google. Most will think this wildly premature, but you should probably sell NokiaNOK1V.HE +2.16% And Xbox? There’s potential there, but it’s not the connected-home hub the company hoped for, it’s losing money and it’s a distraction. Spin it off as a separate company, and let people run with it in some new directions.

3. Stop alienating your partners.

The Surface Pro 3 may sell, despite its mixed reviews. But at what cost? Surface signals to your allies that you are willing to hurt their business in order to foist Windows 8 on your customers, who, by the way, still find Windows 8 confusing and difficult to use. It’s no coincidence that the number of Chrome OS-based PCs being manufactured by your formerly exclusive partners is greater than 20 in 2014, when last year it was just a handful. In the long run, Microsoft doesn’t exist without Windows, and Windows doesn’t exist without your partners.

4. Your future is the cloud—embrace it.

You don’t need me to tell you this; you headed Microsoft’s cloud division. And last week, when IT analyst firm Gartner came out with its report on cloud computing, your cloud services were rated second only to Amazon’s.

Revenue for your cloud services and cloud-based Office 365 productivity software was up 31% year over year in the most recent quarter you reported earnings, making it by far the fastest growing portion of your business. Yes, it’s only 10% of revenue, but both Jeff Bezos and Larry Page have said they think cloud services will someday be bigger than all their other sources of revenue. Why shouldn’t the same be true for Microsoft?

5. Act before problems become apparent to shareholders.

The drain of talent from Microsoft to Google and elsewhere has been brutal. Tech companies succeed or fail on the strength of their brain trusts. You have to persuade engineers that Microsoft is an exciting place to work. What better way to do that than to announce that the portions of Microsoft you are betting on are going to get all the liberated resources you can throw at them?

Microsoft has already evolved much more quickly than any company of its size and ambition has a right to, and that’s the reason you have a profitable business and a large cushion of cash. It’s time to use it.




About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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