The ultimate goal of cloud, however, is to provide a service, and it's to Software as a Service, through companies called Managed Service Providers, that Nadella is now expected to move. 

This resembles Microsoft's old strategy of luring developers to write programs under Windows. The question being asked is whether Windows will remain the focus. Hedge fund investors see a need for Microsoft to better serve devices such as the Google Chromebook and Apple iPad, and an overt identification with Windows hurts that effort.

Nadella's appointment is being treated as a very big deal in his native India, where reporters are oozing over his love of cricket and bragging about his pay package -- $1.2 million base salary with stock incentives that could reach $18 million.

Microsoft can take advantage of that by bringing large Indian outsourcing companies such as Infosys (INFY), Wipro (WIT) and Tata into a closer orbit. These companies have a combined turnover of $100 billion and are benefiting from a weak rupee in international markets.

The Nadella announcement eclipsed word of an alliance between Microsoft's Bing search engine and Foursquare, a market-lagging social recommendation service. Microsoft is putting $15 million into Foursquare as part of its effort, which aims at local search, but the commitment to Bing will remain uncertain until Nadella speaks to it.

And this is the ultimate question, where the balance will be between investment in business software and consumer products. Microsoft is a highly successful business software company, and the perception is it is failing in its consumer-oriented endeavors. It's not just a question of where Nadella will invest, but what Nadella will drop in order to do it.

At the time of publication the author held shares of GOOG, AMZN and AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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