Nadella, 46, will become only the third CEO in Microsoft’s 39-year-long history, following Gates and Ballmer.
Microsoft also announced that John Thompson, the company’s lead independent director, will succeed Gates as chairman. Gates will retain a seat on the board as well as serving in his new advisory role, the company said in a statement.
Shares of the world’s largest software maker were up 1.1 percent in pre-market trading following the news.
Indian-born Nadella has been an executive in some of the company’s fastest-growing and most profitable businesses. For the past seven months, he was the executive vice president who led Microsoft’s cloud computing offerings.
The choice of Nadella was widely expected, and investors and analysts are already weighing how effective the 22-year Microsoft veteran will be in re-igniting the company’s mobile ambitions.
Despite its longstanding position as a leader in the technology industry, Microsoft has been late adapting to recent developments. It has allowed Google to dominate in online search and advertising, and watched on the sidelines as iPhones, iPads and Android devices sapped sales from the company’s traditional strength in personal computers.
Its attempt to manufacture its own mobile devices has been littered with problems, from its quickly aborted Kin line of phones to its still-unprofitable line of Surface tablets.
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 potential drivers of Microsoft’s growth over the next couple of years. Both businesses saw their number of customers more than double in the last three months of the year, compared with a year earlier.
Most agree that Nadella’s background in creating Microsoft’s “cloud” computing services makes him a safe pair of hands to take the company forward, but there remains a question over his ability to make Microsoft a hit with consumers or with impatient shareholders.