Nadella has inherited a big mess

Microsoft has confirmed that Satya Nadella is becoming its new chief executive. He was formerly in charge of the firm's Cloud and Enterprise division and has never headed up a major company, let alone had to replace the larger-than-life Steve Ballmer to oversee what has become a mishmash of products and services. So, where to begin with what some have called the "worst job in the world"?

When Nadella looks at his new portfolio he'll see something - some may argue - akin to the England football team: ageing stars trying to cling onto their magic, alongside underperforming newcomers yet to reach their full potential. It's time for a team talk.

Nokia

With the Lumia smartphone being the most successful device running the Windows Phone system, Nokia seemed like an ideal addition to the Microsoft family - even if it did cost them tidy 5.4bn euros (4500 crores).

"Microsoft has a long history of struggling and being ridiculously slow to integrate acquisitions," says Chris Green, principal technology analyst at the consultancy Davies Murphy Group.

"Nokia is too big and important to stuff up."

One possible strategy may be to utilise and build upon the Lumia brand, which compared to the business-orientated name of Microsoft, might make the devices seem a little racier in the eyes of consumers.

Windows

The good old days of Windows 98 are long behind Microsoft

Microsoft pinned a lot of hope on Metro, a new interface for Windows that did away with the tried-and-tested desktop with Start button, and instead offered an attractive set of tiles.

It lent itself nicely to touch-screens, and meant that Windows could look the same whether being viewed on a desktop PC, tablet or smartphone. But it has not gone quite to plan.

"They still have both a functionality and PR issue with Windows 8," Green says.

"Consumers are still struggling to get on with it. Core business customers are increasingly not upgrading to it."

"Windows 8 was unfortunately a bit of a compromise for everyone's demands really," says Nick Odantzis, acting editor of Windows Magazine.

"They alienated a lot of people who like Windows for what it is - a good solid operating system for doing work on, for doing general things."

Xbox

It's been a good decade. At first, many questioned the logic of Microsoft launching a console at all - but it proved to be a masterstroke, one of the stand-out highlights for the company in recent years.

But with the new console war well underway, the next few years are crucial for the Xbox's long-term success. Pre-launch, the Xbox One found itself in a PR quagmire over its pre-owned game policy, while presentations that focused on the Xbox One TV features made hardcore gamers wonder if it was a true "gaming" machine.

But there's a long, long way to go in this battle. Many gaming experts declare the Xbox One to be more ambitious than the PS4, suggesting that Microsoft may have to be patient in the so-far neck-and-neck battle.

The cloud

Satya Nadella has already helped the company's cloud computing operation boost sales.

Cloud computing - which in this context means using software that "lives" on the internet, rather than on your local machine - is a big growth area, and likely to be the way software such as Microsoft Office is used in future.

Indeed, Office 365, which runs in the cloud, has gone down well with businesses, fending off, to some degree, similar offerings from the likes of Google.

Windows Azure, one current cloud-based offer, has begun the transition somewhat, but it is very much a product aimed at businesses.

We may soon seen a version of Windows that is more akin to Google's Chrome OS - a lightweight, and cheap, operating system that has most of its applications running using the web, rather than installed on the machine itself.

The firm is also likely to ramp up efforts to promote its recently rebranded OneDrive cloud storage service as an alternative to Dropbox, Google Drive and Amazon Cloud Drive.

Management and morale

One key task for Nadella will be to cheer everyone up a bit.

“Microsoft chews up and spits out new hires in senior roles,” said Charles Fitzgerald, a former strategist at Microsoft. He added about Nadella, “He knows where the bodies are buried.”

But there remains some concern that Nadella will be too beholden to Microsoft’s past, including Gates and Ballmer, the two previous chief executives.

“We do not want to see a continuation of the existing direction for the business,” Rick Sherlund, an analyst with Nomura Securities, wrote in a research report on Friday. “So it will be important that Nadella be free to make changes.”

"I think the new chief executive needs to re-establish Microsoft's identity," offers Catherine Ellis, managing editor of Windows Magazine.

It's true - company morale has taken a bit of a kicking during the Ballmer years.

"Microsoft's employee base never really bought into Ballmer and whatever vision he had for the business," argues analyst Green. "Like many salespeople, he was seen as a bit too short-sighted."

As well as Ballmer's departure, other high-ranking executives have trickled out of the company in recent years. Among them Don Mattrick, former head of Xbox, who has moved over to social games company Zynga.

Part of the hiring task, then, will be about more than the chief exec - there's a whole backroom staff to consider.

"It's not about hiring one guy at the moment - it's about hiring 20," says Green.

"The management team has been decimated in the past nine months.

"He has to put a whole new generation of lieutenants in place. And he has to have full buy-in from the rank and file."

To get them onside, Green says, Nadella must act quickly.

"He's got to map out a five-year vision for Microsoft in his first 90 days."

Calm down the "unlock shareholder value" crowd

Early last year, the ValueAct Capital hedge fund took a $2 billion stake in Microsoft and began agitating for change. Along with other noisy activist shareholders, ValueAct says its goal is “to work constructively with management and/or the company's board to implement a strategy or strategies that maximise returns for all shareholders.”

Those are gentle, highly sanitized code words, of course. What “unlock shareholder value” really means is “sell off or spin off assets and give the cash to shareholders.” Which might be at odds with the long-term strategy of the company itself.

Define the line between business and consumer

The overlap between product lines in Microsoft is substantial. The work that goes into Windows and Office ends up in both the enterprise and consumer/soho versions of those two products. Trying to spin off either product into separate teams or (shudder) businesses is a recipe for chaos.

But there are certainly opportunities to paint a brighter line between the two sides of the house than we’ve seen so far.

Clean up the licensing mess

Enterprise customers experience real pain every day thanks to Microsoft’s unbelievably complex licensing rules, which are practically sadistic. Managing desktop and server and client access licenses is enough to make even the most diligent accountant break into a cold sweat and grab his security blanket

Keep the hardware division growing fast

The Surface division had a rocky start but seems to have recovered after those initial stumbles. The Nokia acquisition has the potential to bring in some hardware genius and sales that could scale up to 100 million devices a year in fairly short order.

(Inputs from BBC and CNet)