New CEO Opens Window on Microsoft's Future - Wall Street Journal

Investors have laid out the welcome mat for Microsoft's new chief. But Satya Nadella will need to strike a delicate balance lest the rug is pulled out from under him.

So far, he is off to a good start. Mr. Nadella made his first public showing at a small press event in San Francisco last week to launch the company's popular Office suite for Apple's iPad. He also announced new services designed to help companies manage fleets of mobile and PC devices regardless of operating system.

Microsoft's shares gained more than 2% Friday and are up nearly 11% since Mr. Nadella was named to the post on Feb. 4. That is heartening, especially given the 40% plunge in market value his predecessor, Steve Ballmer, presided over during his 14-year tenure.

These are the right moves directionally for Microsoft, though they will take time to bear fruit. A more important test comes this week, as the company kicks off its annual Build developers' conference. Historically, this is where Microsoft previews forthcoming updates to its Windows operating system, and lately has included announcements of new devices as well.

Windows, along with Office, remains the company's cash cow. So Mr. Nadella needs to establish a compelling plan for the property to keep its universe of developers engaged.

Even so, he appears ready to stake out a vision of a Microsoft no longer tied to devices running on its software. That would be a wise move, considering the Windows-based PC universe is shrinking, and the company remains a bit player in operating systems for smartphones and tablets.

That argues for moving more of the company's products to the so-called cloud, and a renewed focus on selling to enterprises. Indeed, enterprise sales accounted for about 70% of Microsoft's revenue in its last fiscal year—and more than 90% of its operating income, estimates Mark Moerdler of Sanford C. Bernstein. He projects that moving more of the company's enterprise business to a cloud-based subscription model could add between $11 billion and $21.5 billion to annual revenue by the end of fiscal 2017.

The prospects for such a shift may help explain why Microsoft's stock is at its highest in 10 years. Mr. Nadella's early moves should make an eventual payoff more likely.

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