Investors want Microsoft’s new CEO to kill Xbox, Bing and Surface

It's the morning after Satya Nadella's first day as Microsoft's CEO. Now that the confetti has cleared, Nadella faces tough choices about the path forward for the company.

Two influential Microsoft shareholders have been pushing the Redmond software giant to abandon what they view as non-essential product lines so that Microsoft can focus on its core strength: selling enterprise software to businesses. Nadella has spent the last seven months running Microsoft's $20 billion server and tools division, so he could be ideally suited to manage that transition.

But doing so would mean repudiating much of the legacy of his predecessors, Bill Gates and Steve Ballmer, who have long believed that Microsoft needs to win over consumers, not just corporate IT managers. As a 22-year Microsoft insider, Nadella owes much of his career to Gates and Ballmer.

Nadella's tenure at Microsoft's helm will be largely defined by how he balances the competing visions of Microsoft's future and the strong personalities who will be pushing those visions in Microsoft's boardroom. Having activist shareholders who are urging Microsoft to rethink its vision could give Nadella an opening to face down his predecessors, if he wants to do so. But it wouldn't be easy.
.
.
.
Ballmer envisioned Microsoft as a "device and services" company and reorganized the company last year to better execute that vision. But now Ballmer is out — though still on the board — and with a new CEO come fresh questions about the fate of consumer tech at Microsoft.

Microsoft's Windows division has been facing shrinking profits; last year, the unit pulled in a net $9.5 billion, down from $11.6 billion in 2012 and $12.3 billion in 2011. Company filings suggest that the drop is largely attributable to declining demand for Windows among consumers, even as sales of Windows to businesses remain strong. The same division also reported a $900 million loss on unsold Surface tablets. The online services division, which oversees search engine Bing, reported a loss of $1.3 billion in 2013 — less than the previous year but still in the red.

Some investors have suggested that Microsoft spin off its money-losing consumer products and focus solely on the enterprise. Even the Xbox deserves to go, Paul Ghaffari, the wealth manager for Microsoft co-founder Paul Allen, said last year.

But Robert Bontempo, a management professor at Columbia Business School, is skeptical that Nadella will be able to chart his own course on the matter. "You're asking for Nadella to walk into a board meeting and look Ballmer and Gates in the eye and say, 'The decisions you've made over the past two decades are a mistake,'" said Bontempo. "That's going to take some serious strength of character."

Click to expand...