Bill Gates quits as Microsoft chairman as Satya Nadella is named chief executive

Few people outside Microsoft had ever heard of Satya Nadella until last Thursday, when the Indian-born executive was named as the most likely candidate to become chief executive of the technology giant.

Speculation had focused on a series of captains of industry. Ford chief executive Alan Mulally, Ericsson’s Hans Vestberg and Qualcomm’s Steve Mollenkopf were all forced to publicly rule themselves out of the running.

Those who predicted that Microsoft would anoint its new king from among its existing pool of executives named Stephen Elop, the former Nokia chief, and Tony Bates, the British boss of Skype, long before they looked at Mr Nadella.

That Mr Nadella is the frontrunner for the top job speaks volumes about Microsoft’s likely direction over the next decade.

The 46-year-old technology chief has spent almost half his life at Microsoft, largely involved in so-called “enterprise” products that are geared towards businesses rather than consumers. He currently leads its enterprise and cloud division.

The appointment comes at a crucial juncture for the company. Mr Gates built the computer giant on the principle that if the software was good enough, the rest would surely follow. It was a strategy that worked for decades. Microsoft Windows was so far ahead of the competition, computer manufacturers installed it in their products by default.

However, the world eventually changed around it and gadgets rather than software became the keys to success. Apple set out with the opposite vision, staking its future on the notion that if its hardware – glossy Macs, iPhones and iPads - was good enough, it could persuade customers to swap Windows for their own iOS platform. The company that had once nipped at Microsoft’s heels toppled it from its position as the biggest technology business in the world.

Somewhat reluctantly, Microsoft was forced to change. Over the past two years, it has produced its Surface tablet, bought Nokia’s mobile handset business and launched Windows 8, a radical reinvention of its iconic operating system that is designed to allow people to flip easily between tablets and PCs.

None of these initiatives caught the public imagination, and the launch of Windows 8 ranked as a disaster, both in its timing and execution. Morale suffered, with staff and investors complaining that the computer giant had lost its culture of innovation.

The cycle of decline has also taken its toll on Microsoft’s shares. They have fallen more than a third since Mr Ballmer’s appointment in 2000.

However, analysts and investors who hoped Mr Ballmer’s successor would usher in a more glamourous era of Microsoft could be disappointed. Mr Nadella’s roots are in enterprise computing, and this is likely to remain his focus.

Microsoft’s promises of “end to end business solutions” may not be as sexy or fast-growing as Google’s web search or Apple’s shiny hardware, but they are still a valuable cash cow. The company’s revenues climbed 14pc to $24.51bn in the last three months of 2013, while profits hit $6.6bn, up from $6.4bn in the same period the previous year.

Mr Nadella would do well to make Microsoft more competitive, by sharpening innovation, cutting dead weight and boosting morale. But analysts think he is unlikely to spearhead any major reinvention of the company as a purveyor of consumer gadgets.

“Going for Nadella is the board saying, ‘all the other stuff is nice, but we want to hunker down and protect the core profit stream’,” says Dan Lavin, head of consultancy firm Silicon Valley Ventures.

On Friday, expectations were mounting that Mr Gates would step aside as chairman, in favour of John Thompson, Microsoft’s lead independent director.

Some observers interpreted the move as an attempt to sweeten investors, who had hoped for a more radical change at the helm of Microsoft rather than another company man. However, others argued that Mr Gates, who remains the largest Microsoft shareholder, would only ever have left of his own volition.

“It is absolutely 100pc, 200pc, 300pc his decision. It has nothing to do with moving the stock at all, because actually he is Microsoft’s biggest shareholder,” said a source close to the company.

In truth, Mr Gates shifted his focus away from the computer giant many years ago, preferring to devote his time and public profile to improving world health though the Bill and Melinda Gates Foundation, the charity he established with his wife.

However, his departure as chairman would still mark a historic moment for the technology business he founded as a student.

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