Founded in 1975 by Gates and Paul Allen, the company has always made software that powered computers made by others — first with its MS-DOS system, then with Windows and its Office productivity suite starting in the late 1980s. Microsoft's coffers swelled as more individuals and businesses bought personal computers.
But Microsoft has been late adapting to changes in the technology industry as PC sales declined. It allowed Google to dominate online search and advertising, and it watched as iPhones, iPads and Android devices grew. Microsoft's attempts to manufacture its own devices have been marred by problems, from its quickly aborted Kin line of phones to its still-unprofitable line of Surface tablets.
Analysts see hope in some of the businesses Nadella had a key role in creating.
Microsoft's cloud computing offering, Azure, and its push to have consumers buy Office software as a $100-a-year Office 365 subscription are seen as the biggest drivers of Microsoft's growth in the next couple of years. Both businesses saw the number of customers more than double in the last three months of the year, compared with a year earlier.
Nadella is a technologist, fulfilling the requirement that Gates set out at the company's November shareholder meeting, where the Microsoft chairman said the company's new leader must have "a lot of comfort in leading a highly technical organization."
Born in Hyderabad, India, in 1967, Nadella joined Microsoft in 1992 after being a member of the technology staff at Sun Microsystems.
Partly because of his insider status and the fact that both Gates and Ballmer will remain among Microsoft's largest shareholders and company directors, analysts are not expecting a quick pivot in the company's strategy.
But some observers hope for big changes that will help lift Microsoft stock, which has been stuck in the doldrums for more than a decade. Since Ballmer took office on Jan. 13, 2000, Microsoft shares are down a split-adjusted 32 percent, compared with a 20 percent gain in the S&P 500.
Many investors are "frustrated because it's been 10 years seeing one of the best brands in technology missing out on social, on tablets, on part of cloud, as well as the overall device market," said Daniel Ives, an analyst with FBR Capital Markets.
The upside to naming an insider is "he'll be able to hit the ground running," said Morningstar analyst Norman Young. "The downside, of course, is that he has very little to no experience on the consumer side of the business."
In a company webcast following the announcement, Nadella acknowledged "there are parts of Microsoft that are going to be new to me" and named Nokia as one of them.
One area his tour of duty at Microsoft hasn't touched is its flagship Windows operating system for PCs. Windows 8 has not revived the PC market as expected, mainly because keyboard-and-mouse users have found it difficult to navigate the touch-first interface, which uses large tiles. Analysts expect Microsoft to merge its Windows Phone and Windows RT operating system for lightweight tablets into one system to appease software developers and consumers alike, while restoring some familiar navigation tools to the computer-based version of Windows.
His familiarity with consumer devices could also be tested quickly. Nokia is expected to unveil a phone that works on Google Inc.'s Android operating system at the Mobile World Congress conference in Barcelona, which kicks off Feb. 24. Whether Microsoft can close on its acquisition in time to change that is in question, but most observers view Microsoft as unlikely to continue helping a competitor in that way.
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