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Comment Microsoft's promotion of Satya Nadella puts an engineer who's been championing – and coding – Bing against Google in charge of the company's earth-bound server and tools business.

It's an expression of confidence by CEO Steve Ballmer in Nadella's talents, and a move that likely closes an extremely unstable chapter in the history of Microsoft's management.

Nadella replaces Bob Muglia, leading Microsoft's $15bn Windows Servers, Visual Studio, Silverlight, SQL Server, and Azure cloud business.

Muglia announced his resignation in January, after 23 years with Microsoft, following a disagreement with Ballmer over Microsoft's cloud strategy. The pair seemed to clash over Muglia's inability to make more money off Azure.

Ballmer has appointed Nadella to lead one of Microsoft's most important businesses: important not just for the revenue it generates, but also important because it's now responsible for leading Microsoft's Azure charge onto the cloud.

Bloomberg reported earlier this week that Ballmer was planning a management shake-up that would elevate more product managers with engineering backgrounds. Nadella certainly has the engineering chops, a fact referenced by Ballmer when he announced Nadella's appointment.

Nadella most recently led engineering on Bing, Microsoft's online ads platform, as well as on MSN. He also has engineering experience inside the server business: in his earlier years, Nadella spent time leading the engineering work in Microsoft's server group.

It's his old-world experience with servers and tools combined with his newer online engineering credentials that went in Nadella's favor. According to his bio while working on Bing:

Nadella was responsible for the technical vision and engineering of some of the largest web services and cloud infrastructure on the planet, serving hundreds of millions of customers each day around the world, as well as providing advertisers with a scale search and display platform to connect with customers and grow their businesses.

Ballmer said of Nadella's new role:

We wanted someone who could define the future of business computing and further expand our ability to bring the cloud to business customers and developers in game-changing ways.

Nadella has been in charge of the regular feature updates that Microsoft has been folding into Bing to differentiate it against Google. Microsoft's approach has been to present more ordered and context-aware search returns and information.

These changes have helped Bing. Microsoft's search service now has 12 per cent US market share, 28 per cent when Bing is combined with Yahoo!. Arguably, this has Google concerned by Bing's – admittedly slow – momentum. The history of computing is littered with market leaders who ignored Microsoft only for find Microsoft catching up and leaving them behind.

Google just replaced its chief executive Eric Schmidt for founding CEO Larry Page in an attempt to recapture and channel the start-up spirit that helped it become the web's largest search and ads operation.

Parsing Ballmer's words in the context of Muglia's departure, it seems that Nadella's mission will be refine Azure to increase its appeal as a platform for developers and hosting partners. Also, Nadella will need to find more ways to develop and sell more of Microsoft's traditional servers and tools as component pieces of customers' public and private clouds – an approach taken by Oracle, which has decided to sell the picks and shovels needed to pan for gold in the heavens rather than join the rush to be a service provider.

To date, Azure has been a developer-hosting story while the majority of Microsoft's so-called cloud wins have been on hosted versions of Microsoft email, collaboration, and messaging against Google Apps and Gmail, and Lotus from IBM. To date, the only examples we have of Azure being hosted by anybody other than Microsoft are agreements with Dell, HP, Fujitsu, and eBay to run Azure in their data centers with the OEMs building appliances that would effectively deliver the Azure cloud in a box. The OEM agreements were announced in July 2010, but nobody has yet delivered any services or products.

If there is a worry in all this, it's that the engineer who helped develop the Azure compute fabric that Nadella inherits – and will now be expected to expand and monetize – is on his way out.

That would be cloud senior vice president Amitabh Srivastava, who is leaving Microsoft. Srivastava joined in 1997 and started Project Red Dog in 2006, which became the Azure compute fabric. No reason was given for his exit, but Ballmer said in his email about Nadella's appointment: "Windows Azure is in a great place, and Amitabh is ready to move to a new phase in his career."

Engineering was just one part of the job requirement, though, and Nadella does offer something Srivastava will have lacked: the kind of business background that's generally needed to round out your résumé as a group president at Microsoft.

He led Microsoft Business Solutions (MBS) and was responsible for Microsoft's Dynamics line of ERP and CRM products before that group was folded into the Microsoft Business Division along with one of Microsoft's big money makers, Office.

Nadella's appointment potentially ends a great period of instability and churn in Microsoft's senior ranks. Before Muglia announced his resignation, Microsoft lost Robbie Bach, president of entertainment and devices, and Stephen Elop, president of MBD.

Ballmer did not exactly replace these two, but rather appointed presidents with smaller responsibilities running product principalities inside the larger E&D and MBD kingdoms. The executives now running Windows Phone and Xbox and gaming in E&D, and the exec running Office fit the profile of managers with engineering credentials as outlined by Bloomberg.

It seems unlikely that Microsoft will lose the two presidents who remained in situ while others lost their heads: Windows and Windows Live's Steven Sinofsky and online services' Qi Lu. Unlike Bach and Muglia, Ballmer seems happy with Sinofsky, who was actually promoted to group president in 2009 in honor of the successful delivery of Windows 7 following the Windows Vista fiasco.

Lu was a Yahoo! veteran and a senior vice president of engineering who's hire was seen as a major coup for Microsoft. He is in charge of taking on Google and developing and rolling-out Bing not just through Microsoft and Yahoo! properties but through sites like Facebook.

The only hole left now to fill is that of the person running ERP and CRM. Kurt DelBene who oversaw engineering on Office is now president of Office, but does not appear to have inherited Elop's control of ERP and CRM. That, instead, seems to be run by Ballmer these days.

If Microsoft is to be believed, this is the way things will remain – at least for now. Microsoft-watcher Mary-Jo Foley reports that the company told her that it's not planning on any further "major" reorganization of top management at this time. ®

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