FORTUNE -- How does a CEO grab attention when he's the follow-up act to a brash, voluble leader like Steve Ballmer? For Satya Nadella, who hardly seems prone to the same kind of sweat-soaked stage performance of his predecessor, the answer lay in a bold strategic gesture: Get Microsoft (MSFT) Office onto the iPad.
Office, of course, had long been Microsoft's great cash cow fenced off from the green pastures of the tablet market. Some believed it was the reason Microsoft started making Surface tablets after decades of not manufacturing personal computing devices. That expensive experiment hasn't exactly delivered a hit. Surface sales are growing, but its 2% market share lags those of Samsung, Amazon's (AMZN) Kindle Fire, and of course the iPad (AAPL).
With Nadella taking the reins from Ballmer, Microsoft has the chance to begin a new era -- distinct from the Ballmer years that saw modest growth and a move into enterprise software, and even more remote from the Gates years when Microsoft ruled PC software with an iron fist. Nadella's Microsoft appears to be a company that aims to compete in markets rather than control them.
Nadella's experience is aligned with the same technologies that promise future growth -- cloud computing, multi-platforms, mobility, big data -- the antithesis of the proprietary software that Microsoft built its historical success on. That's why the Office 365 for iPad announcement was notable. It wasn't so much two longtime enemies sharing revenue. It was Microsoft risking its own mobile platform by expanding to another, bigger platform. It was a Microsoft open like never before.
The announcement was also Nadella's first big public appearance, a product launch cum CEO debut. The move was a risky one: It could telegraph that Microsoft was capitulating to Apple (AAPL), running its prized wares on its old rival's device while paying a 30% share of revenue for the privilege. Increasingly, Nadella is instead being seen as a leader who can finally usher the company out of the PC era and into the cloud economy.
Last month, when Microsoft announced that Office apps would be available for the iPad, the news stirred a ripple of notice. Analysis was mixed. The New York Times wondered if it wasn't the right move too late. Techcrunch found it to be worth the wait. Someone at Forbes dismissed it as a non-game changer.
After a few weeks in the App Store, Office for iPad is proving the early skeptics wrong. More than 12 million people downloaded Office Apps in the first week. Today, Word, Excel, and Powerpoint are the three most popular free apps in the iPad App Store (excluding games, which shows that tablets may be better for idleness than productivity). The basic apps are free for bare-bones functionality, but a subscription to Office 365 opens up more features.
For investors, the arrival of Office for iPad is unlikely to translate into material earnings, at least any time soon. It may open Microsoft to businesses that prefer tablets over traditional PCs, but it could also cannibalize the company's older, high-margin markets. Desktop and laptop sales have been declining since the iPad's introduction, although recent months have shown signs those declines are stabilizing.
If the move has little short-term benefit for Microsoft, its symbolic value is higher. CEOs of prominent companies like Microsoft often set the tone of a company, and in some ways Microsoft now appears to have lost the cloud hanging over it when Ballmer was there. Ballmer, of course, also worked to push Microsoft into a more open direction, but somehow Nadella's presence makes it seem like it may finally be happening.
Office, of course, is only one part of Microsoft's business. It's the prime contributor to the company's business division, along with Sharepoint and Exchange. That division makes up a third of Microsoft's revenue and three-fifths of its operating income. But growth in the division has been flat -- revenue rose only 2.5% in Microsoft's last fiscal year (ended June 2013) and declined 6% in the last six months of 2013.
Microsoft is seeing faster revenue growth in its server and online services divisions, although these segments have much lower margins. (The online division has been a perennial money loser.) So while the Office move is seen as a symbolic victory for Nadella's Microsoft, the company is still weighed down by many of the same old issues: an enterprise software market and the aging business in PC operating software.
Office for iPad is a strong start to Nadella's follow-up act to Ballmer. But it will need to be followed by a lot more creative, bold moves to change Microsoft into the dynamic, future-oriented company that investors are hoping it can become.
Krzanich may turn out to be a CEO so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way.
By Kevin Kelleher, contributor
FORTUNE -- All along Intel's (INTC) storied history, an investment in the company has essentially been a vote of confidence in Moore's law -- the observation, named after an Intel founder, that the number of transistors on a microchip doubles MOREJan 24, 2014 5:00 AM ET
Zuckerberg practices the realpolitik, while Gates is a die-hard ideologue.
By Kevin Kelleher, contributor
FORTUNE -- If you came of age after Microsoft (MSFT) dominated the technology industry, you might well look at Bill Gates' philanthropic efforrs and call him a hero. Others who had to compete against the de facto monopoly that was Microsoft under Bill Gates might see things differently. To them, he was a vampiric force that fed on MOREJan 8, 2014 12:49 PM ET
What the confused Apple CEO can do to avoid getting canned and having to slink away with nothing but his $378 million compensation package as comfort.
By Fraser P. Seitel
FORTUNE -- I'm sure Tim Cook is hugely competent, a wonderful operating executive, and a real nice guy.
But as CEO of the world's most respected high-tech franchise, he has been an unmitigated disaster.
In the two years since Cook assumed the reins of MORESep 12, 2013 10:16 AM ET
The former IBM chief has a stellar record. What better credentials could a new Microsoft CEO have than having humiliated and beaten his new charges?
FORTUNE -- When I reviewed Steve Ballmer's umpteenth structural reorganization of Microsoft last month -- was it only last month? -- I noted that the key missing ingredient to making the construct work was leadership. A re-jiggered Apple without Steve Jobs doing the jiggering never would MOREAdam Lashinsky, Sr. Editor at Large - Aug 27, 2013 10:13 AM ET
It's over for the struggling phone maker, right? Not so, says a vocal contingent of analysts and investors. They think the company's worst days are behind it.
Note: This story has been updated to reflect BBRY price changes on June 19.
By Kevin Kelleher, contributor
FORTUNE -- Has any company in the technology sector seen higher highs and lower lows in the past decade than BlackBerry?
If you remember, BlackBerry (BBRY) -- which earlier this MOREJun 19, 2013 5:00 AM ET
Initial public offering side effects include first-day pop followed my painful malaise. Take with caution.
By Kevin Kelleher
FORTUNE – First Groupon fired Andrew Mason. Now Pandora says Joe Kennedy is leaving Pandora. Being a CEO of a company that made a splash in the public markets with high-flying IPOs is starting to look like a job hazard.
Pandora (P) priced its shares at $16 in June 2010. On its first day of trading, MOREMar 8, 2013 10:02 AM ET
Groupon founder Andrew Mason was fired from the CEO post, but he may well be remembered for having the right mix of grace and humor on his way out.
By Katie Benner
FORTUNE -- The man-boy founder of Groupon was fired yesterday. If you haven't read his letter to employees, do yourself a favor and click here. Mason took a lesson from the Carol Bartz school of honesty ("Yahoo f*cked me MOREMar 1, 2013 11:01 AM ET
With 1 billion user "endorsements" and counting, Jeff Weiner explains the secret behind LinkedIn's red-hot streak. (Hint: It has nothing to do with the 3,500 iPads he just gave employees.)
FORTUNE -- Why doesn't LinkedIn (LNKD) suffer from the same news leaks as companies like Yahoo (YHOO)? As LinkedIn CEO Jeff Weiner put it simply at Fortune's Brainstorm Tech dinner in San Francisco last night: It's all about transparency.
Weiner knows what MOREJP Mangalindan, Writer - Feb 14, 2013 1:43 PM ET
The tech giant faces difficulties ahead as the chip market changes. Here's what the company's next leader must do.
By Kevin Kelleher, contributor
FORTUNE -- Anyone care to run an $54 billion-a-year tech giant? Anyone have any good ideas how to get it growing again? Intel is looking for a new CEO to take the reins at the Silicon Valley icon next May, when Paul Otellini steps down from the job.
Since Otellini became MOREDec 5, 2012 7:27 AM ET
|Regulators pave way for Internet "fast lane" with net neutrality rules|
|What stumps Warren Buffett? Minimum wage|
|Apple shares soar on increased buyback|
|Facebook profit triples on mobile growth|
|Thanks to Obamacare, more workers may quit their jobs|