Jul 13, 2014 · 5 minutes

Tip for CEOs of flailing tech companies: To buy yourself some time, tell the world you're reorienting your strategy to embrace mobility and the cloud. For some reason, it works every time.

So what are we to make of Microsoft CEO Satya Nadella's wordy memo on reorienting the company to embrace mobility and the cloud?

Microsoft, notoriously, misunderstood how we would use the Web when it was emerging in the 1990s, despite having the dominant browser for years. Its cluelessness in realizing how mobile devices were displacing the PCs that ran Windows software is legendary. In 2012, when Steve Ballmer spoke of his vision of a “devices and services” company, it was seen as a big step forward for Microsoft that still left it a step behind others.

Now that Nadella (above) is tipping over the apple cart again, can we realistically envision Microsoft as not just a leader but also creator of the brave new world of what he calls “mobile first and cloud first”? As improbably as it seems from a historical perspective, I think the answer is: Yes, but it's going to involve a great deal of pain.

Handicapping the companies that will shape, control and profit from the Internet over the next decade, it's easy to imagine Facebook, Google and Amazon among the winners. There may be also some startups that will also emerge as contenders if they don't get bought first. Microsoft is fighting to be a dark horse in that race. That may not sound great, but it would be a big improvement over its chances before Nadella.

Nadella is still unproven, but it's already clear he's no Ballmer. It's not just the lack of bluster, it's his clear focus on where technology is moving. The part of Nadella's memo that rings truest is the worldview – the description of a world where three billion people will have Internet-connected devices, and where many will have multiple connection points, whether devices or sensors.

“We are moving from a world where computing power was scarce to a place where it now is almost limitless, and where the true scarce commodity is increasingly human attention,” Nadella wrote. And it's here where Microsoft has the opportunity to catch up. Many companies have a good sense of where the Internet is taking us. Much fewer will thrive there, and the ones that do understand that it's less a matter of the technology you offer than the attention that people pay to it.

That acknowledgment is a shift that may be without precedent in a company that built its success by forcing its technology into PCs through brute force. Nadella sounds less convincing when he talks about bringing “the core” of Microsoft into this future. The suggestion that Microsoft has “a rich heritage and a unique capability around building productivity experiences and platforms” quite simply erases the controversial practices that led to antitrust issues and made Microsoft an enemy to Silicon Valley.

What's interesting about this memo is that Nadella seems completely earnest in making that shift, in bridging the chasm between Microsoft's past and the future of a mobile-first, cloud-first world. And I wish him well. But I think he also signals he knows how huge the task is when he says, in the second paragraph, “The day I took on my new role I said that our industry does not respect tradition – it only respects innovation.”

This is why the transition Nadella is talking about will involve great pain. Microsoft's “core” of “building productivity experiences and platforms” was, in hindsight, practically a side effect of its paramount goal of controlling the software industry. That old outlook was what made Microsoft so powerful in the 80s and 90s and so much weaker since then.

In today's Internet industry, it makes less sense to dominate – or even define yourself inside – a single industry. Get big enough at creating software, like Google and Microsoft did, and you find yourself making devices. Become a commerce behemoth, as Amazon did, and you're offering cloud services. The more technology converges, the more the giants find themselves up in each other's business.

The common denominator of success these days is getting more people to use your software/gadget/service ecosystem. Over the past decade, Microsoft has been getting much better at doing this in the enterprise market, even as it's struggled on the consumer side. When people knock Ballmer as a CEO, this is the part they overlook: Ballmer began the transition Nadella is talking about by making Microsoft a strong competitor in business software.

To complete that transition, however, Microsoft needs to remake some of its core products. Instead of relying on Windows for PCs, Microsoft will need to come up with a mobile OS better than Windows Phone today – an intelligent interface that new offerings like Cortana or Power Q&A are already hinting at. Pushing Office 365 toward its potential will mean abandoning the Office suites that have long been a cash cow. If casual games continue to sideline the graphic-intensive games on the Xbox, it may mean rethinking Microsoft's entertainment division.

In time, that won't just mean creating new productivity experiences and platforms that can compete with the best that others can offer, it will mean cutting the deadwood left behind. And that will mean a lot of layoffs of employees who don't fit in to Nadella's brave new world – not just the job cuts expected in the integration of Nokia, but deeper cuts in areas close to the core of Microsoft's traditional strongholds.

If Nadella can achieve his vision for a new Microsoft, it will mean embracing other operating systems in a way that was unthinkable at Microsoft even five years ago. But it's also doubtful that the 127,000 employees now at the company will have a role to play in that future Microsoft.

Nadella is quiet on the prospect for now, except to say in the memo that “organizational changes” will be revealed this month. More details may be announced when Microsoft reports its fiscal year earnings on July 22, but already unnamed insiders are hint dropping hints of coming cuts. Nadella's Microsoft may yet have a bright future in the tech industry, but many at Microsoft today may not be around enjoy a share of it.