Michael K. Spencer
Microsoft became the third US company to pass a market cap of $1 trillion in late April, 2019. Its stock has had an incredible 2019 so far. If you think about it, under Satya Nadella, its CEO that has pivoted a software giant into the Cloud, Microsoft has more subscribers than Netflix, more cloud computing revenue than Google and feels like a new company, not a behemoth of the past.
As of May 2019, Microsoft even overtook Apple to become the world’s most valuable company, a stunning climax in a year that also saw it pass Amazon and Google’s Alphabet Inc. with its business model of solid diversification. It doesn’t need to fight in low profit margin wars like Amazon or depend on Ad-revenue like Google or pivot to services like Apple. This is Microsoft, a company now linked to new avenues with a new spirit.
The old one, run by Bill Gates and feared as the “Evil Empire”, has become something else and is actually arguably a more ethical force in business and technology than either Google, Facebook or Amazon. Managers don’t make questionable decisions and employees don’t have to protest multiple times a year. There’s no exodus of top talent and executives and not the kind of controversy on working conditions.
Nadella, a 51-year-old engineer with multiple degrees who grew up in Hyderabad, India, is known for his librarian’s temperament. Satya has not only made a lot of good decisions, he’s been very stable in how Microsoft feels in the Cloud, like a more mature company.
The software maker has been pushing its cloud products in recent years, and the company is aiming to catch up to Amazon’s AWS dominance. Azure is currently second behind Amazon for cloud services, and ahead of Google’s own offerings. Microsoft has incredible industry and enterprise partnerships.
We have to give credit where credit is due. Nadella’s turnaround over the five years since he replaced Steve Ballmer as CEO has been nothing short of historic.
Microsoft’s latest earnings also revealed that the three main buckets the company splits its businesses up into are all doing well and roughly contributing the same amount of revenue this quarter (around 30 percent each).
Office, LinkedIn, and Dynamics = $10.2 billion in revenue
Azure cloud, server products, and enterprise services = $9.7 billion in revenue
Windows, Xbox, and Surface = $10.7 billion in revenue
This means it’s one of the most diversified business models in technology that exists today. Gaming, cybersecurity, Hololens2, helping to connect businesses in the world, and open-source software. Microsoft is truly unique.
Microsoft’s odd cultural rehab is complete. Basically, Nadella has manifested what he calls corporate “empathy” and a shift of his team from a “fixed mindset” to a “growth mindset.”
Nadella’s approach to running Microsoft is solid, a bit like a wise Grandfather. Despite his success in revitalizing Microsoft after a string of whiffs — Windows Phone, Windows RT, and the Xbox One, among others — Nadella doesn’t want employees getting too comfortable in success. Azure, Xbox and LinkedIn are good things, they are global, but the future is going to be competitive.
So how good was Nadella’s business savvy for Microsoft? Nadella cut funding to Windows and built an enormous cloud computing business — with about $34 billion in revenue over the past year — putting it ahead of Google and making progress in key areas against the dominant player, Amazon Web Services.
Azure, Microsoft’s cloud platform, has won marquee customers such as Exxon Mobil, Starbucks, and Walmart. Also you don’t swoop up LinkedIn and GitHub and remain the same company. Azure could in theory challenge AWS.
Nadella is extremely soft spoken and mild mannered. So you don’t think of him as the Darth Vader of Microsoft’s second coming, but he might be just that. Nadella might have saved the company. It’s that epic. When the board appointed him as Ballmer’s replacement, Microsoft looked trapped by the decline of Windows, which achieved a market share of more than 90 percent at its peak. Luckily, however, even Windows is still a $20 billion-a-year business.
Nadella makes self-effacement look really sophisticated. Remember where he came from. Nadella started by selling PCs to corporate buyers. He later oversaw engineering for Bing, the company’s search engine, before taking over Azure. And the rest is history.
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