More than three months after becoming Microsoft's (NASDAQ:MSFT) latest CEO, Satya Nadella said on stage Tuesday night at the inaugural Re/Code Conference that having billionaire founder Bill Gates around has been a good thing.
The Gates factor
Investors had mixed responses to the news earlier this year that Gates would return to Microsoft as a technical advisor when Nadella took over as CEO. Gates' continued presence as chief software architect, which essentially meant he was now number two and that he would still be involved in day-to-day operations, had not worked out so well when Steve Ballmer replaced him as CEO in 2000. In the first behind-the-scenes look at the friction between Ballmer and Gates in a 2008 WSJ article, writer Robert Guth detailed a yearlong struggle during 2000, with the two competing for power.
Soon, the two men clashed as Mr. Ballmer tried to assert himself in his new job. As the firm's iconic leader, Mr. Gates still held sway that wasn't tied to a title: In meetings Mr. Gates would interject with sarcasm, undermining Mr. Ballmer in front of other executives, Mr. Gates and other Microsoft executives say.
Worst of all, the conflicting roles interfered with major decisions. For example, in 2000, the company was working on a Web version of Microsoft office called NetDocs and the two had clashing views on the new product's direction. The struggle lead to building a 400-person team and then folding the project altogether in 2001.
And it wasn't until 2008, after Apple launched the iPhone that made Microsoft's product strategies look antiquated, that Gates stepped completely aside from day-to-day operations to work on philanthropy full time. Could Microsoft possibly have made a better transition to mobile earlier on if Gates' wasn't around?
Now with Gates and Nadella, investors wondered whether history would repeat itself.
But Nadella said the roles are clear. "I run the place. Bill's helping," he said in his conversation with Re/Code's Kara Swisher and Walt Mossberg.
Even more, Nadella said Gates is bringing some specific and useful contributions to the table.
First, Gates offers a passion for reinvigorating the company's dominant productivity suite, according to Nadella: "He's got some specific interest in Office and how to reinvent it. He's got an agenda which I subscribe to."
Second, Gates contributes meaningfully to the culture. Nadella said Gates provides founder-sourced inspiration in ways the current CEO can't. His presence, push, and standards add value, Nadella said.
Microsoft Chairman John Thompson offered similar thoughts on the dynamic earlier this week. "Bill is as involved as Satya wants him to be," Thompson told The Wall Street Journal.
A tough road ahead
But given Microsoft's current challenges, there could be a new problem with Gates: underinvolvement. Microsoft undoubtedly faces some big challenges, most notably in the mobile space dominated today by Apple and Google. After pretty much missing the boat on smartphones, Nadella and Gates will need to find a way for Microsoft to stay relevant and grow in an increasingly mobile environment.
The company has made some recent aggressive moves to catch up in mobile. Microsoft finally launched a version of its Office suite for Apple's iPad, displaying its willingness to bring its software and services to every device. Then there is the Microsoft's recent refresh of its Surface tablet line with the launch of the Surface Pro 3. With the Surface, it's becoming increasingly clear the company wants to define a new category of laptops that replaces the need for a tablet altogether.
These two moves alone, of course, aren't enough to give Microsoft the clout needed to compete with Google and Apple in mobile. And it's not yet entirely certain the company can muster up much else in the category. Fortunately, a conservative valuation and the company's solidly performing cloud, server, and gaming businesses leave room for some error. But the pressure is certainly on. Hopefully the Nadella-Gates dynamic can land Microsoft some big wins.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.