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

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 respected public firm, forward of Apple. It’s firmly entrenched as a pacesetter in key areas, similar to cloud and synthetic intelligence.

As Nadella marks his 10-year anniversary on the helm, he is broadly praised throughout the tech business 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 internet search and cell and was utterly left behind in social media.

Many tech business 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 special and someone to be considered as one of the GOATs among 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 biggest of all time.

There are loads of obstacles in Nadella’s manner as he pursues additional development.

Regulators are involved about Microsoft’s energy. Rivals are jealous. Some purchasers are skeptical about spending much more cash on the corporate’s AI instruments once they already allocate a lot finances 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 largest 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 alternate options. Interoperability wasn’t the most well-liked phrase.

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

Nadella’s Microsoft has additionally fashioned partnerships with a few of its fiercest rivals. In 2023 Oracle co-founder Larry Ellison visited Microsoft’s headquarters in Redmond, Washington, for the primary 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 similar to Azure.

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

Nadella has shocked folks 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 informed 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 informed him to take what he’d discovered at Microsoft and share it.

“I was like, ‘What?'” Nathan stated. “That was amazing. He totally lifted the burden of having that conversation.”

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

Microsoft declined to supply 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 may ceaselessly be seen behaving equally courtside.

While Nadella might not deliver as a lot leisure worth, he is confirmed to be simpler than Ballmer on the subject of dealmaking. In addition to GitHub, Nadella has made expensive acquisitions similar to LinkedIn, Minecraft father or mother 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 just lately, Nadella helped Microsoft land the $75 billion acquisition of recreation writer Activision Blizzard, a deal that traders will not know the right way to 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 previous, and giving Microsoft a management place in an rising market.

Nadella is probably greatest recognized within the tech business for pushing Microsoft deeper into cloud computing. Azure, which delivered 30% income development in the newest quarter, was began through the Ballmer years. But Nadella introduced it to life, remodeling 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 look at him as a leader that I’ve learned from, grown from,” Dallas stated. “I continue to watch him.”

In wanting on the street forward for the 56-year-old Nadella, listed below are among the largest challenges in his manner:

Microsoft checked out shopping for TikTookay 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 is probably not what they like. The firm should put together for the period when Gen Z is in command of IT budgets. OpenAI’s ChatGPT, which some college students use, might be a begin.

Some Microsoft staff have been there for over 20 years. Many will go away after far much less time. For years, staff have stated they’ll make more cash at different massive tech firms. Some have obtained 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.

Microsoft critics usually say the corporate not often will get it proper the primary 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 pill, 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 on the subject of constructing merchandise in new classes, a former government stated. The firm’s dual-screened Surface Duo telephones operating Android have not caught on, and Microsoft Loop, a response to fashionable productiveness apps similar to Notion, has but to catch fireplace in app shops.

Antitrust officers have just lately blocked acquisitions at Adobe and Amazon. They tried and didn’t squash Microsoft’s buy of Activision. But Microsoft’s massive push in AI has come by way of an funding, not a purchase order. The Federal Trade Commission’s Lina Khan stated in January that the company will look at 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 habits following a high-profile case introduced by the U.S. Justice Department within the Nineteen Nineties.

In regulatory filings, Microsoft calls OpenAI “our strategic partner.” The uncommon nature of the association was on show in November, as Nadella labored extra time 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 firms and have a relationship that may trigger inner stress. In allocating graphics processing items to OpenAI, for instance, Microsoft is typically depriving its different departments of them, two folks aware of the matter informed CNBC. Altman informed Nadella onstage at an occasion in November that the 2 firms have “the best partnership in tech.” However, OpenAI is not all the time happy counting on Microsoft as its cloud provider, one of many folks stated.

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

Nadella is continually trying to find the following class that may generate income and revenue. The firm’s HoloLens augmented actuality headset, introduced in 2016, hasn’t turn into a giant hit. Nadella hoped that an AI Copilot added to the Bing search engine in February 2023 would convert into share features, 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 is perhaps Microsoft’s subsequent massive factor, the corporate should proceed to seek out new methods to drive development.

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

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