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Microsoft CEO Hunt: Why There Are No Clear Contenders (Update 1)

Updated from Jan. 23 to include additional comments in the eighteenth paragraph.

NEW YORK (TheStreet) -- With the most exciting, external Microsoft (MSFT - Get Report) CEO candidate names now removed from the speculation ring, internal executives are once again back in the limelight for the top job in Redmond.

The possibility an external candidate will fill the new CEO role has been looking more and more unlikely lately, with recent talk that co-founder, current chairman and former CEO Bill Gates wants to continue having a voice at the company even after a new CEO has been installed. "Microsoft will always be his baby," said Norman Young, senior equity analyst with Morningstar, in an interview.

There's also speculation that some want to see him return to the helm, following the path of other tech company founders such as Apple's (AAPL) Steve Jobs, Google's (GOOG) Larry Page, Yahoo!'s (YHOO) Jerry Yang and Dell's Michael Dell.

Gates still plays a role in Microsoft's decision-making processes, serving as an advisor on key development projects. While he does not have veto power over the appointment of the next CEO, he remains the largest individual shareholder at the company and is still highly respected both within the firm and the tech community. "I don't think it would be especially difficult logistically for him to come back to run the firm," Young noted.

Must Read: Microsoft Jumps as Surface Sales Double

Though it's unlikely Gates would want to return full-time as CEO -- he's publicly stated that the Bill & Melinda Gates Foundation remains his top priority -- it is likely he'll want to stick around until the new CEO has a better grasp of the firm's issues. If that's true, it could very well be discouraging outside candidates.

"Some people fear that with some of the old guard around, a new outsider CEO might be constrained from making potentially bold decisions that depart significantly from the current strategy," Young explained. "The rumors that Bill Gates will likely be more involved with the firm going forward may prove to be a possible deterrent for any candidate as there might be questions about who is really in charge."

"If this is indeed the plan, then it will be a difficult path for Gate, the board, and the company to navigate," he added.

On the other hand, there's a relatively higher chance that an insider, less likely to rock the boat, could be more tolerant to some strategic micromanagement. This may not necessarily be what investors are looking for, but it may please the board. After last year's sweeping organizational changes keying in on devices and services, the board likely isn't eager to see any drastic changes for now.

"Microsoft is so heavily invested in the current 'Devices and Services' strategy at this point that it would be hard to roll back, in my view," said Tony Ursillo, tech analyst at asset manager Loomis Sayles & Co.

From an investor standpoint, it doesn't matter whether the candidate is external or promoted from within. They just want to see improvement, whether it's re-thinking current investments in unprofitable businesses such as Bing and Xbox, avoiding another repeat of the Windows 8 fiasco, or figuring out what to do with all the cash it has on the balance sheet.

With internal executives now taking back the spotlight, key candidates include Satya Nadella, executive vice president, Cloud and Enterprise; Tony Bates, executive vice president, Business Development and Evangelism; chief operating officer Kevin Turner; and Stephen Elop, the former Nokia (NOK - Get Report) CEO and a Microsoft veteran. Microsoft announced its purchase of Nokia's mobile phone and devices unit last September.

Elop has his pulse on the mobile industry, an important part of Microsoft's long-term devices and services strategy. He's also expressed enthusiasm for the CEO job. The problem with Elop though, is he appears to be the unruly one of the internal candidates, with a reputation for bold action and decision-making.

Elop probably wouldn't feel uncomfortable locking horns with Bill Gates and the rest of the old guard. While reports of his candidacy were heating up last year, there were rumors were that Elop was already talking about shaking up some long-held strategies at Microsoft, including a sharpened focus on bringing Office to wide-ranging handheld devices, no matter their operating system. He's definitely not afraid to rock the boat.

Under his watch, Nokia experienced severe market contraction and plunging share prices as Elop ordered drastic changes including a shift in the smartphone strategy to what was then an untested Windows operating system.

Elop's track record of dramatic undertakings could be pushing him down in the candidacy list.

"Stephen Elop is definitely interested in the position," said Frost & Sullivan director Ronald Gruia. "He's been one of the guys that certainly would be more than willing to step up to the plate. He would take that as another one of his challenges. The question is whether the Microsoft board wants that."

"He might not be a shoo-in candidate by any stretch of the imagination because the board might not be willing to go that far," said Gruia.

Simply from an optics standpoint though, it also may not be good for Microsoft to appoint Elop to head up the company. Many have been inclined to believe the conspiracy theory that he'd been working with Microsoft all along to bring down Nokia so that his "former" employer could feast on the spoils later on, and he'd in exchange be given a big payday plus a return to Microsoft to head the devices unit. Elop was a major player in the $7.4 billion sale of the Nokia business to Microsoft and is said to be receiving a $25.4 million payout mostly from Microsoft upon the closure of the deal.

"There will be a lot of folks in Finland and ex-Nokia employees who will say 'this was the plan all along,'" Gruia added.

That narrows the overall pool to three internal executives, with Bates being one of them.

Bates, the former CEO of Skype, currently has a broader job title at Microsoft. He has an evangelism component that would be valuable to rally the troops. Kevin Turner is the current COO, and previously the president and CEO of the Sam's Club division of Wal-Mart (WMT).

Despite the strengths that Bates and Turner would bring, Nadella is still poised to be the more likely choice of the three.

Nadella, a career Microsoft executive, has the broadest business experience of all at the firm and is the most familiar with the enterprise-concentrated businesses, an increasingly important focus at Microsoft.

Rumors are that Microsoft's next leader could be announced as soon as the end of January.

-- Written by Andrea Tse in New York.

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