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Microsoft CEO Steve Ballmer at the Surface tablet unveiling in 2013. (GeekWire file photo)

One of the best moments in the Fremont Players’ production of “Dick Whittington and His Cat” — a British Panto on stage in Seattle’s Ballard neighborhood — comes when one of the characters, Fairy Bowbelles, tries to download her spells and charms from “the cloud,” without any luck. She never should have updated to Windows 8, she complains.

It’s a funny, only-in-Seattle moment, and a reminder that Microsoft is still a big part of the culture here — through all its ups and downs.

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Microsoft Chairman Bill Gates addresses shareholders at the company’s annual meeting in November. (GeekWire File Photo)

So where is this local technology company headed in the next year? Through a decade of covering Microsoft, starting back in 2003 at the Seattle P-I newspaper, I’ve made a tradition of trying to answer that question at the end of each year. But as I contemplated the annual exercise this time around, I came to a realization: I have no clue.

Microsoft enters 2014 without a new CEO to succeed Steve Ballmer, who surprised the industry in August when he announced that he would be stepping down within 12 months, several years ahead of schedule. So much of the company’s future hinges on this choice that it’s tough to make predictions in the meantime.

In fact, that state of limbo is the biggest risk facing the company right now. Microsoft has been through a period of unprecedented change in 2013 — not just Ballmer’s retirement announcement but also a massive reorganization, a $7.2 billion deal to acquire Nokia’s smartphone business, the board’s first-ever concessions to an activist shareholder, and the end of the notorious “stack-rank” employee review system.

Meanwhile, the traditional engine Microsoft’s business, the Windows PC, is facing a fundamental threat from the shift to alternative forms of computing. Microsoft’s Windows Phone emerged this year as the clear No. 3 in the market, but the company is still struggling to keep up with Apple and Google in smartphones and tablets.

700-nokia_lumia_2520_heroIn the midst of all this change, many of the company’s product releases have felt incremental or underwhelming during the past year. That’s where Microsoft is in trouble if the CEO search drags out much longer. The company needs a new leader to come in and set a clear, bold vision, and light a fire under the product teams.

And that’s where Ballmer and Bill Gates could have their biggest impact on the company in the year ahead … by letting go.

One major challenge for the new CEO, whoever he or she may be, will be fitting into the company culture and framework established by Microsoft’s two previous CEOs — both of whom are still major shareholders, expected to remain on the company’s board. Looking at the massive changes made by Ballmer on his way out the door, it’s hard to escape the sense that the new CEO will be running someone else’s playbook.

That’s a fundamental challenge for Microsoft’s board in its CEO search, and one possible explanation for the longer-than-expected search. What executive worth his or her salt would embrace a situation like that? To be able to lead effectively, an incoming CEO needs a blank slate, or at least a long leash to make massive changes if necessary.

Apart from the CEO search, the company’s upcoming year will be defined by the Nokia acquisition, as Microsoft officially gets into the business of making smartphones, promising to reshape its profit margins in the process. One key question, as Nokia’s share of the Windows Phone market continues to rise, is whether Microsoft can still get other phone makers to embrace Windows Phone as an alternative to Android.

Xbox Incubation GM Alex Kipman (Microsoft File Photo)
Microsoft’s Alex Kipman is reportedly leading the company’s wearable technology initiatives. (Microsoft File Photo)

More areas to watch in 2014:

  • PC shipments: The company’s fate still hinges largely on this market, which provide the engine for Microsoft’s Windows business. Could it see an upturn from the lows of 2013?
  • Speed of Innovation: As evidenced by the Windows 8.1 release, Microsoft has done a good job of shortening the update cycle for its flagship products. Now it needs to shorten the distance between research lab and store shelf — bringing new (and ideally innovative) products to market more quickly.
  • Where next for Windows? Various reports have signaled Microsoft’s plans to continue transforming Windows 8, including the possible return of the Start menu (not just the Start button), in the next major update for the operating system.
  • What about wearables? The possibility of new products from a group reportedly being led by Alex Kipman, the “father of Kinect,” who is now charged with overseeing Microsoft’s efforts to break into wearable computing.
  • Developer platform: Microsoft’s push to unify the underlying development platform across Windows, Windows Phone and Xbox will be key to its ongoing efforts to court third-party developers (and their apps).
  • Living Room: Microsoft’s Xbox One is competing not just against Sony’s PlayStation 4 but against the broader world of entertainment options in the living room. Despite calls by some investors to spin this business off, it will remain a key strategic initiative for the company.

And of course, we’ll be waiting to see if Fairy Bowbelles can download her spells from the cloud. After seeing the performance of “Dick Whittington” at Hale’s Palladium with my family this weekend, I asked the actress about the Windows 8 line. She said it always gets a big reaction from the hometown crowd — a mix of cheers and jeers.

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