Microsoft CEO Nadella's top challenge: Figuring out mobile

In a world that is increasingly going mobile, Satya Nadella needs to ensure that Windows Phone is a relevant part of the mix.

Microsoft CEO Satya Nadella. Microsoft

Microsoft stands at a crossroads when it comes to mobile.

It's now up to new CEO Satya Nadella to shepherd the company in the right direction.

In taking the reins of the technology titan, Nadella faces a lot of questions about Microsoft. Chief among them will be how the technology titan will navigate the broader shift toward mobile, and just what role its Windows Phone and Windows operating systems play in that world.

It's not a new question, but arguably the most important one tied to the ultimate fate of the company. Microsoft, which has its roots in PC software, has been working on a slow -- and at times, awkward -- transition into mobile. Nadella will have to build upon the small progress Microsoft has made so far as it attempts to take on mobile giants Apple and Google.

"The opportunity ahead will require us to re-imagine a lot of what we have done in the past for a mobile and cloud-first world, and do new things," Nadella said in his first note to employees reflecting his new role as chief executive.

A priority will be how Nadella balances Microsoft's recent push into the hardware business while keeping its vendor partners happy. Microsoft ruffled some feathers with its Surface line of tablets, but is poised to double down on the smartphone and tablet business with the acquisition of Nokia's devices unit, bringing in-house the Lumia line, which has largely been the flagship brand of Windows Phone.

See also: Nokia buy can't fix Windows Phone's biggest hurdle: Itself

With BlackBerry seemingly down for the count, Microsoft's Windows Phone has a virtual lock on the No. 3 mobile platform behind Google's Android and Apple's iOS. Windows Phone captured 3.2 percent of the global market for smartphone operating systems in the fourth quarter, up from 2.7 percent a year ago, according to Strategy Analytics. But the platform is still far behind Android's 78.4 percent share of the market, and iOS's 17.6 percent share.

The Nokia Lumia 525 has been a key driver of Windows Phone in emerging markets. Nokia

Yet virtually the entire Windows Phone market is made up of Nokia phones, with many of its traditional partners, including Samsung and HTC, making halfhearted efforts to support the platform. While Samsung is still producing new Windows Phone devices, HTC has largely stalled out after a failed attempt with the "flagship" Windows Phone 8X and Windows Phone 8S back in late 2012.

Microsoft has already talked about the opportunities that come with bringing Nokia's business into the fold, mentioning the ability to better coordinate marketing and the brand. Neither Microsoft nor Nokia have talked much about whether they intend to keep the Lumia name.

Of course, there are plenty of risks too. And you don't have to look far to see how badly it can go.

"Microsoft has to become seamlessly integrated like Apple or it will fall apart like Google and Motorola," said Roger Entner, an analyst at Recon Analytics.

Google recently agreed to sell its Motorola Mobility unit to Lenovo for nearly $3 billion, a deal that both lightened the burden on its balance sheet and removed the awkward dynamic of Google being both a partner and competitor to the likes of Samsung, HTC, and LG. When Google first announced it was acquiring Motorola, its vendor partners publicly applauded the deal, but privately expressed concern about the potential conflict of interest.

Which is the same risk Microsoft runs into with Nokia. While the company gets a well-known mobile brand and smartphone expertise, it risks alienating vendor partners already leery to make too significant an investment into the Windows Phone world. The operating system has drawn interest from the Chinese vendors, but it's unclear whether a company like Lenovo would invest too much in Microsoft's OS after buying Motorola and cozying up to Google.

In fact, with Google now shedding itself of its conflict of interest, it's now Microsoft that has to gingerly walk the fine line between partner and competitor.

Read more on ZDNet: Steve Ballmer, the exit interview

One of the priorities for Microsoft -- and Nadella -- will be to foster a better relationship with its partners and selling the benefits of the integrated Windows Phone and Windows operating system to consumers. The company has reorganized itself so that its various Windows platforms are under one umbrella, and the company needs to communicate the advantages of that integrated approach. Departing CEO Steve Ballmer wasn't always successful in that mission.

Hopefully, Nadella, who company observers hope will bring some badly needed change to Microsoft, is up to the task.

"He is a visionary, has passion for change, is making it happen and knows what it takes to drive change in the unique Microsoft culture," said Forrester analyst James Staten. "An outsider would have a hard time accomplishing this coming in fresh. And time is of the essence."

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