This month marks the 19th anniversary of Bill Gates stepping down as CEO of Microsoft (NASDAQ: MSFT). It wouldn't be until 2008 that Gates would step away from daily operations at the software giant that he built in order to devote more of his time toward his philanthropic efforts, and he remained chairman of the board until resigning from that role in 2014. In the nearly two decades since the software visionary relinquished the reins, Microsoft has had just two CEOs: Steve Ballmer and Satya Nadella.
Here's how those two leaders have made their own impacts on the Redmond-based titan.
Bill Gates and Steve Ballmer. Image source: Microsoft.
Steve Ballmer: 2000-2014
Ballmer befriended Gates way back in college at Harvard, which Gates famously dropped out of in order to start Microsoft. Unlike Gates, Ballmer would proceed to graduate before subsequently joining Microsoft. After years of working his way up through the company, Gates named Ballmer as his successor. Ballmer's record as a leader is mixed and depends on who you ask.
Ballmer became CEO right as the dot-com bubble was in the process of peaking and preparing to pop, technically tarnishing the track record of Microsoft's stock performance during his tenure. In terms of total return after factoring in dividends, Microsoft lost 9% over the 14 years that he was CEO.
However, that's largely a function of circumstance and timing. Many shareholders still refer to 2000 to 2010 as Microsoft's "lost decade." In terms of fundamentals, both revenue and profits soared under Ballmer. Those growing figures helped fund the company's quarterly dividends, which enjoyed consistent increases during that time.
That's not to say Ballmer didn't make mistakes. The bombastic executive famously dismissed Apple's foray into smartphones. "There's no chance that the iPhone is going to get any significant market share," Ballmer would say in a 2007 quote that will always haunt him. "No chance."
Ballmer was also slow to embrace the growing popularity of software-as-a-service (SaaS) revenue models. SaaS models have been around since the '60s, but they really took off alongside cloud computing, which offers a compelling combination of value for customers. Salesforce.com is widely considered a pioneer in the modern generation of SaaS companies, being among the first to be built from the ground up using a SaaS model.
It may have taken Microsoft a few years to come around, finally launching Office 365 in 2011 as a subscription product, but the company has executed incredibly well transitioning that cash cow to a SaaS model. At the end of the third quarter, Microsoft had nearly 190 million Office 365 users, including both commercial and consumer seats.
Still, pressure from critics and activist investors like ValueAct and Greenlight Capital continued to mount, and Microsoft's board eventually decided it was time for some fresh blood. Ballmer announced in August 2013 that he was retiring, and Nadella was named CEO less than a year later.
Satya Nadella: 2014-present
Microsoft's board didn't pick an outsider to become the next CEO; it picked Satya Nadella, a talented longtime executive that was leading its cloud and enterprise operations at the time. Nadella had already been with the company for over two decades, and the board rightly figured that Nadella's background would help him steer Microsoft into a cloud-based future.
Satya Nadella. Image source: Microsoft.
Under Nadella, Microsoft has embraced cross-platform strategies like never before. Recognizing the company's weakness in categories like smartphones, Nadella shifted focus away from developing a smartphone platform toward extending Microsoft's core businesses onto third-party platforms like iOS and Android, reinforcing the SaaS model by ensuring users could access the company's productivity suite from just about any device.
That approach has led the software giant to report record profits, driven by its traditional core segments, a booming cloud infrastructure business, a lineup of first-party Surface hardware that continues to expand, and more. Shares have more than tripled so far under Nadella's leadership.
It's clear that Nadella's cohesive vision for Microsoft's future is resonating with both enterprise customers and investors alike. At 51 years old, Nadella potentially has decades ahead of him to continue leading Microsoft, hopefully delivering many more years of strong fundamental execution and returns for investors.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL and CRM. The Motley Fool owns shares of Microsoft and has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.