Satya Nadella's first decade as Microsoft CEO was defined by cloud. What's subsequent?


Microsoft CEO Satya Nadella speaks throughout a keynote deal with asserting ChatGPT integration for Bing at Microsoft in Redmond, Washington, Feb. 7, 2023.

Jason Redmond | AFP | Getty Images

When Satya Nadella changed Steve Ballmer as Microsoft CEO in February 2014, the software program firm was mired in mediocrity. Its market cap was simply over $300 billion.

A decade later, Microsoft’s valuation has swelled tenfold, to $3.06 trillion, making it the world’s most valuable public company, forward of Apple. It’s firmly entrenched as a pacesetter in key areas, such as cloud and synthetic intelligence.

As Nadella marks his 10-year anniversary on the helm, he is extensively praised throughout the tech trade for altering the narrative at Microsoft, whose inventory fell 30% throughout Ballmer’s 14 years on the prime. In that period, the corporate was squelched by Google in net search and cellular and was fully left behind in social media.

Many tech trade analysts and traders would say that, thanks largely to Nadella, Microsoft is now set as much as be a powerhouse for the foreseeable future.

Nadella “is particular and somebody to be thought of as one of many GOATs amongst tech CEOs,” stated Aravind Srinivas, co-founder and CEO of AI startup Perplexity, which has the backing of Amazon founder Jeff Bezos. The acronym GOAT stands for greatest of all time.

There are loads of obstacles in Nadella’s method as he pursues additional progress.

Regulators are involved about Microsoft’s energy. Rivals are jealous. Some shoppers are skeptical about spending much more cash on the corporate’s AI instruments once they already allocate a lot price range to so many Microsoft merchandise. And Microsoft, together with its tech friends, has handled mass layoffs of late, chopping 10,000 jobs in early 2023, and eliminating 1,900 in January from its gaming division.

One of Microsoft’s greatest sore spots when Nadella took over was the closed nature of its merchandise. Microsoft was recognized to defend its proprietary Windows and Office software program and denounce open-source options. Interoperability wasn’t the most well-liked phrase.

“There was a bit little bit of a take-it-or-leave-it tradition,” stated Aaron Levie, co-founder and CEO of cloud storage vendor Box, which spent its early years going instantly after one in every of Microsoft’s merchandise. Nadella has made the corporate extra attentive to prospects’ wants, Levie stated. The two corporations now have a number of product integrations.

Larry Ellison, co-founder and govt chairman of Oracle Corp., speaks in the course of the Oracle OpenWorld convention in San Francisco on Oct. 22, 2018.

David Paul Morris | Bloomberg | Getty Images

Nadella’s Microsoft has additionally shaped partnerships with a few of its fiercest rivals. In 2023 Oracle co-founder Larry Ellison visited Microsoft’s headquarters in Redmond, Washington, for the first time, as the businesses made a joint cloud announcement. In a 2020 interview, Pat Gelsinger, then CEO of VMware, stated providing his firm’s software program on Microsoft’s Azure cloud was akin to a “Middle East peace treaty.” Gelsinger now runs Intel, which makes chips for PCs operating Microsoft Windows and clouds such as Azure.

In the Nadella age, Microsoft has additionally contributed to open-source tasks, launched software program beneath open-source licenses and launched a model of its Teams communications app for Linux.

Nadella has shocked individuals in different methods.

Michael Nathan was a senior director at Microsoft till 2016, when he left for a job in enterprise capital. Nathan stated he instructed Nadella concerning the alternative after the 2 of them left a buyer assembly in Silicon Valley. Instead of getting offended or making the state of affairs awkward, Nadella instructed him to take what he’d realized at Microsoft and share it.

“I was like, ‘What?'” Nathan stated. “That was superb. He completely lifted the burden of getting that dialog.”

He’s additionally decisive. In 2018, Nadella got here to imagine within the thought of shopping for GitHub simply 20 minutes after Nat Friedman, then a Microsoft company vp, began pitching him on it. Right away, Nadella advised that Friedman turn into GitHub’s new CEO, Friedman stated. Microsoft paid $7.5 billion for the code-storage startup.

Microsoft declined to offer a remark for this story.

Nobody would mistake Nadella for Ballmer, the showman. His predecessor was recognized for dancing on stage at conferences and hyping up crowds of 1000’s. Ballmer is now the proprietor of the NBA’s Los Angeles Clippers and might steadily be seen behaving equally courtside.

Steve Ballmer, former chief govt officer of Microsoft Corp., gestures as he speaks throughout a information convention after he was launched as the brand new proprietor of the Los Angeles Clippers in Los Angeles, California.

Kevork Djansezian | Bloomberg | Getty Images

While Nadella could not deliver as a lot leisure worth, he is confirmed to be simpler than Ballmer relating to dealmaking. In addition to GitHub, Nadella has made dear acquisitions such as LinkedIn, Minecraft guardian Mojang, and Nuance Communications which have contributed to Microsoft’s prime line. Ballmer was not so fortunate. His aQuantive and Nokia offers have been disastrous.

More not too long ago, Nadella helped Microsoft land the $75 billion acquisition of sport writer Activision Blizzard, a deal that traders will not know how you can assess for some time. And in AI, Nadella is credited for investing billions of {dollars} in startup OpenAI, resulting in product enhancements and cloud income from prospects each new and old, and giving Microsoft a management place in an rising market.

Nadella is probably finest recognized within the tech trade for pushing Microsoft deeper into cloud computing. Azure, which delivered 30% income progress in the latest quarter, was began in the course of the Ballmer years. But Nadella introduced it to life, reworking it from a analysis venture right into a product, stated Kevin Dallas, CEO of database software program firm EDB and a 24-year Microsoft veteran.

“I’m shameless in saying I take a look at him as a pacesetter that I’ve realized from, grown from,” Dallas stated. “I proceed to observe him.”

In wanting on the street forward for the 56-year-old Nadella, listed here are a few of the greatest challenges in his method:

Relevance

Microsoft looked at buying TikTook within the U.S. in 2020, however nothing got here of these discussions. While some within the youthful generations have Microsoft software program at work, it is not essentially what they grew up utilizing and will not be what they like. The firm should put together for the period when Gen Z is accountable for IT budgets. OpenAI’s ChatGPT, which some college students use, could possibly be a begin.

Retention

Some Microsoft workers have been there for over 20 years. Many will depart after far much less time. For years, workers have stated they will earn more money at different huge tech corporations. Some have acquired greater compensation after leaving after which returning. Microsoft has $81 billion in money and may need to use extra of the stash to maintain expertise — particularly the highest tier — round for longer.

Products

Microsoft critics typically say the corporate not often will get it proper the first time with new {hardware} or software program and that it is best to attend for the third model. Reviewers did not take kindly to the unique 2012 Surface tablet, for instance. Today’s Surface will get higher marks, but it surely’s nowhere close to the most well-liked pill on Amazon — the iPad is. Microsoft stays weak relating to constructing merchandise in new classes, a former govt stated. The firm’s dual-screened Surface Duo telephones operating Android have not caught on, and Microsoft Loop, a response to trendy productiveness apps such as Notion, has but to catch hearth in app shops.

Regulation

Antitrust officers have not too long ago blocked acquisitions at Adobe and Amazon. They tried and did not squash Microsoft’s buy of Activision. But Microsoft’s huge push in AI has come by way of an funding, not a purchase order. The Federal Trade Commission’s Lina Khan said in January that the company will study cloud suppliers’ investments in AI startups. Microsoft has additionally drawn inquiries in Europe over its cloud practices. Regulatory crackdowns are nothing new at Microsoft, which infamously modified a few of its conduct following a high-profile case introduced by the U.S. Justice Department within the Nineteen Nineties.

OpenAI relationship

In regulatory filings, Microsoft calls OpenAI “our strategic accomplice.” The uncommon nature of the association was on show in November, as Nadella worked overtime to get Sam Altman again on prime on the startup after the board fired Altman all of a sudden. Microsoft and OpenAI compete to promote AI companies to corporations and have a relationship that may trigger inside pressure. In allocating graphics processing models to OpenAI, for instance, Microsoft is usually depriving its different departments of them, two individuals acquainted with the matter instructed CNBC. Altman instructed Nadella onstage at an occasion in November that the 2 corporations have “one of the best partnership in tech.” However, OpenAI is not all the time glad counting on Microsoft as its cloud provider, one of many individuals stated.

Following the November brouhaha, Nadella was at the very least capable of get Microsoft a seat on OpenAI’s board. An OpenAI spokesperson instructed CNBC that the corporate views Microsoft as an excellent accomplice.

Next huge factor

Nadella is consistently looking for the subsequent class that may generate income and revenue. The firm’s HoloLens augmented actuality headset, introduced in 2016, hasn’t turn into an enormous hit. Nadella hoped that an AI Copilot added to the Bing search engine in February 2023 would convert into share good points, however Google stays the clear chief in that class. Nadella did say on a convention name this week that Bing gained share within the fourth quarter. While AI could be Microsoft’s subsequent huge factor, the corporate should proceed to search out new methods to drive progress.

Nadella has a lot to maintain himself busy for now. Analysts on common see sufficient growth to venture a 12% achieve within the inventory value over the subsequent yr, in accordance with FactSet.

WATCH: Microsoft is ‘so far’ ahead of competition and taking market share, says Jefferies’ Thill



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