22 October 2018

New CEO brings fresh hopes for Microsoft to boost China growth

Microsoft Inc.’s appointment of Satya Nadella as its new chief executive brings fresh hopes that the software giant will boost growth in China, the world’s largest internet and telecommunications market, particularly in cloud computing and smart mobile devices.

Nadella, 46, was head of Microsoft’s cloud and enterprise group, one of the company’s fastest-growing operations in recent years, before he was tapped to replace Steve Balmer as CEO. Bill Gates also stepped down as Microsoft chairman and was replaced by John Thompson, another cloud computing expert.

Together, Thompson and Nadella form the new management team that is expected to lead the company’s transformation from a desktop-oriented business to a mobile, cloud-based model.

This should be good news for its business in China, where the potential for revenue growth could easily surpass that in other markets, including the United States. 

Microsoft remains a key player in the global information technology sector, and its Windows operating system is still the undisputed leader in the desktop and enterprise PC sector, which accounts for more than 90 percent of internet traffic globally. However, it is lagging far behind its rivals in the mobile arena, and this is an urgent challenge for the new management as global desktop PC sales continue to shrink.

Nadella, a Microsoft veteran of more than two decades, has witnessed the company’s slide from a dominant force in the desktop PC arena to a weak player in the mobile market, which is dominated by Apple Inc.’s iOS standard and Google Inc.’s Android system.

Latest industry figures show that its Windows Phone operating system only accounted for less than 1 percent of the global mobile internet traffic in January 2014, compared with iOS’ 54.45 percent and Android’s 34.6 percent. That clearly shows that Microsoft has failed to extend its market leadership from desktop to mobile, even though it was one of the first movers in the mobile market through the Windows Mobile-based smartphone devices it introduced in the early 2000s.

For Nadella, the first order of business should be to maintain the growth momentum of the Windows Azure cloud computing service for enterprise users. The business, which stores data and runs applications for clients through remote servers, reported a revenue of US$20.3 billion for the fiscal year ended June 30, 2013, compared with US$16.6 billion when Nadella took the helm of the cloud business.

The key growth driver was Office 365, a cloud version of Microsoft Office applications, which is a must-have tool for business computer systems. The success of such subscription-based cloud services points to the future of Microsoft’s software business, as applications are no longer confined to a dedicated device but can be accessed from the “cloud” using all sorts of devices.

It would be interesting to see whether Microsoft will partner with PC makers to launch a cloud-based computer for the mass market, similar to Google’s Chromebook, with the PC powered by its cloud operating system.

Microsoft is relatively weak in the consumer business segment, with the exception of its XBox gaming device. As smartphones and tablet PCs are replacing desktop PCs in the mass market, Microsoft is under pressure to regain its influence in the mobile operating system. The integration of Nokia Oyj’s handset business into Microsoft will be a key development to watch.

While the Windows Phone OS has yet to become a significant presence in the mobile world, it is possible that Microsoft may leverage on the Android platform to regain its mobile exposure; the market is abuzz with rumors that Nokia will unveil its first Android smartphone later this month.

If Microsoft decides to use Android as one of its mobile operating systems, such a move may lead to partnership with smartphone makers in China since the latter have the knowhow to manufacture such devices.

Nadella’s team also may have to consider integrating Android and Windows Phone into a single OS in a bid to lure developers to join the Microsoft camp, thus further narrowing the gap with Google and Apple.

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EJ Insight writer

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