The Exchange

It won't be all smooth sailing for Microsoft's new CEO

Satya Nadella, the new Microsoft (MSFT) CEO, wasn’t front and center at the company’s huge developer conference in San Francisco this week, preferring to let underlings unveil what’s new from Redmond in a 3-hour-plus kickoff keynote session.

“This is one of those privileges you lose when you get kicked upstairs,” Nadella joked when he finally appeared at the tail end of the keynotes, dressed down in a T-shirt, jeans and black sneakers.

What Microsoft did introduce was underwhelming, including modest tweaks to the unpopular Windows 8 operating system, easier ways for PC developers to write apps for Windows phones and a few unexciting new phones from Nokia. Nadella's only been in charge for a few months, of course, so the weakness may be a greater reflection on his predecessor, Steve Ballmer.

One of the more attention-grabbing moves was Microsoft's decision to stop charging licensing fees for Windows on mobile phones and tablets with screens under 9 inches. That might have been a game changer before Google’s (GOOG) Android used the free strategy to achieve dominance. Now it seems too little, too late – 80% of Windows phones are sold by Nokia, which won’t be paying royalties much longer since Microsoft bought the company, and Windows tablets are struggling to capture even 2% of the market. Still, it shows Nadella is willing to break with decades of prior Microsoft practices.

There was some initial excitement over Microsoft’s moves to give fans of prior versions of Windows more options to roll back the controversial changes made in Windows 8. That product is increasingly seen as a flop; forcing companies to upgrade from ancient Windows XP has lately boosted the market share of Windows 7 more than 8.

Tantalizing vaporware

But the biggest changes desired by Windows 8 haters – the return of the old-style Start menu in the bottom left corner of the screen – was shown as tantalizing vaporware. It will not be included in the next update of Win8, the oddly named “Windows 8.1 Update” (since the company already rolled out “Windows 8.1” – was 8.2 unavailable?).

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Microsoft teases a classic Start Menu for Windows 8.1 with built-in Live Tiles

Much of Nadella’s own talk was composed of what is rapidly becoming standard Nadella boilerplate, proclaiming Microsoft’s dedication to mobile devices and cloud services.

“Our vision, simply put, is to thrive in this world of mobile first, cloud first going forward,” he said during a segment devoted to answering questions from developers on pre-recorded videos. He ended with a few lame jokes about Microsoft’s new Siri-like digital assistant, Cortana. The developers in attendance cheered, but the overall message sounded more abstract than concrete given the modest and incremental improvements introduced.

Shares of Microsoft, which have hit 14-year highs lately, were unmoved, just as they were during Nadella's iPad for Office introduction on March 27. The shares, at $41 on Thursday, have gained 12% since Nadella was named CEO in February after a five month search. Shares are up 27% since just before that search kicked off with word that Ballmer was stepping down. Investors, it seems, have already priced in quite a bit of smarter strategy and sharper new products. They may want to see some sharper results before sending the shares off on another tear.

To be fair, there are only so many changes Nadella can make in his first few months. He may have wanted to show more-meaningful updates around Windows at the conference but they may not have been ready yet.

And many developers are more excited about Microsoft’s Azure cloud service, which got the spotlight at the conference on Thursday. Nadella wasn't on stage; Scott Guthrie, who inherited Nadella's old job overseeing Azure, hosted a presentation on the new features for cloud application developers.

Hundreds of developers packed one afternoon specialty session with Mark Simms, one of Microsoft’s Azure gurus. Focused on Microsoft’s biggest enterprise customers, Simms wore a tie, though he loosened it up and unbuttoned his collar. He delivered a tour de force of advice, jokes and salesmanship all in a language developers – while perhaps not reporters – could relate to.

And in the end, they probably control Microsoft’s fate more than anyone.

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