Satya Nadella’s first decade as CEO of Microsoft was defined by the cloud. What will happen next?

When Satya Nadella replaced Steve Ballmer Microsoft CEO In February 2014, the software company was stuck in mediocrity. Its market cap was slightly more than $300 billion.

A decade later, Microsoft’s valuation has increased tenfold to $3.06 trillion, making it the world’s most valuable public company. Apple, It has firmly established itself as a leader in key areas such as cloud and artificial intelligence.

As Nadella celebrates his 10th anniversary, he is being widely praised in the tech industry for changing the narrative at Microsoft, whose stock had fallen 30% during Ballmer’s 14 years at the helm. In that era, the company was liquidated Google It was completely left behind in web search, mobile and social media.

Many tech industry analysts and investors would say that, largely thanks to Nadella, Microsoft is now poised to be a powerhouse for the foreseeable future.

“Nadella is special and someone to be reckoned with as one of the great tech CEOs,” said Arvind Srinivas, co-founder and CEO of AI startup Perplexity. Amazon Founder Jeff Bezos. GOAT is short for Greatest of All Time.

There are a lot of obstacles in Nadella’s way moving forward.

Regulators are concerned about Microsoft’s power. Rivals are jealous. Some customers are skeptical about spending even more money on the company’s AI tools when they already allocate so much budget to so many other Microsoft products. And Microsoft, along with its tech peers, has recently faced massive layoffs, cutting 10,000 jobs as early as 2023, and laying off 1,900 from its gaming division in January.

When Nadella took over, Microsoft’s biggest Achilles heel was the closed nature of its products. Microsoft was known for defending its proprietary Windows and Office software and condemning open-source alternatives. Interoperability wasn’t the hottest word.

“There was a little bit of a take-it-or-leave-it culture,” said Aaron Levy, co-founder and CEO of the cloud storage vendor. box, who spent his formative years working directly on one of Microsoft’s products. Nadella has made the company more attentive to customer needs, Levy said. Both companies now have many product integrations.

Nadella’s Microsoft has also formed partnerships with some of its arch rivals. in 2023 Oracle Co-founder Larry Ellison visited Microsoft’s headquarters in Redmond, Washington for the first time since the companies made a joint cloud announcement. In a 2020 interview, VMware’s then-CEO Pat Gelsinger said that offering his company’s software on Microsoft’s Azure cloud was akin to a “Middle East peace treaty”. Gelsinger runs now intelWhich makes chips for PCs running Microsoft Windows and clouds like Azure.

In the Nadella era, Microsoft has also contributed to open-source projects, releasing software under open-source licenses and releasing a version of its Teams communications app for Linux.

Nadella has surprised people in other ways too.

Michael Nathan was a senior director at Microsoft until 2016, when he left to take a job in venture capital. Nathan said he told Nadella about the opportunity after leaving a client meeting in Silicon Valley. Instead of getting angry or making the situation awkward, Nadella told them to take what they learned at Microsoft and share it.

“I was like, ‘What?'” Nathan said. “It was amazing. He completely lifted the burden of that conversation.”

He is also decisive. In 2018, Nadella was convinced of the idea of ​​purchasing GitHub when Nate Friedman, then Microsoft’s corporate vice president, started pushing him on it. Immediately, Friedman said, Nadella suggested that Friedman become the new CEO of GitHub. Microsoft paid $7.5 billion for code-storage startup.

Microsoft declined to comment for this story.

No one would mistake Nadella for showman Ballmer. His predecessor was known for dancing on stage at conferences and cheering up crowds of thousands. Ballmer is now the owner of the NBA’s Los Angeles Clippers and can often be seen behaving similarly on the court.

Although Nadella may not bring as much entertainment value, he has proven to be more effective than Ballmer in terms of dealmaking. In addition to GitHub, Nadella has made costly acquisitions such as LinkedIn, Minecraft parent company Mojang and Nuance Communications, which have contributed to Microsoft’s top line. Ballmer was not so lucky. His Aquant and Nokia deals were disastrous.

Most recently, Nadella helped Microsoft complete its $75 billion acquisition of game publisher Activision Blizzard, a deal that investors won’t know how to assess for some time. And in AI, Nadella is credited with investing billions of dollars in the startup OpenAI, driving product growth and cloud revenue from both new and old customers and giving Microsoft a leadership position in an emerging market.

Nadella is perhaps best known in the tech industry for pushing Microsoft deeper into cloud computing. Azure, which delivered 30% revenue growth in the most recent quarter, was born during the Ballmer years. But Nadella brought it to life, turning it from a research project into a product, said Kevin Dallas, CEO of database software company EDB and a 24-year Microsoft veteran.

“I’m shameless in saying that I look up to him as a leader that I’ve learned from, that I’ve grown from,” Dallas said. “I continue to see him.”

Looking at the road ahead for 56-year-old Nadella, here are some of the biggest challenges coming his way:

Microsoft considered purchasing TikTok in the US in 2020, but those discussions did not yield any results. Although some people of the younger generation have working Microsoft software, what they grew up using is not necessarily what they prefer. Companies must prepare for the era when Gen Z is in charge of the IT budget. OpenAI’s ChatGPT, which some students use, could be a start.

Some Microsoft employees have been there for more than 20 years. Many people will leave after a very short time. For years, employees have said they could make more money at other big tech companies. Some have received higher compensation after leaving and then returning. Microsoft has $81 billion in cash and may want to use more cash to retain talent – ​​especially the top tier – for the long term.

Critics of Microsoft often say that the company rarely gets things right the first time with new hardware or software and it is best to wait for the third version. For example, reviewers didn’t like the original 2012 Surface Tablet. Today’s Surface gets better marks, but it’s nowhere near the most popular tablet on Amazon – the iPad. Microsoft remains weak when it comes to creating products in new categories, a former executive said. The company’s dual-screen Surface Duo phone running Android hasn’t gained popularity, and Microsoft Loop, its response to modern productivity apps like Notion, hasn’t yet gained popularity in the App Store.

Antitrust authorities have recently blocked acquisitions at Adobe and Amazon. He tried and failed to derail Microsoft’s purchase of Activision. But Microsoft’s major contributions to AI have come through investment, not purchase. Lina Khan of the Federal Trade Commission said in January that the agency would investigate cloud providers’ investments in AI startups. Microsoft has also faced scrutiny over its cloud practices in Europe. Regulatory action is nothing new at Microsoft, which notoriously changed some of its practices in the 1990s following a high-profile case brought by the US Justice Department.

In regulatory filings, Microsoft calls OpenAI “our strategic partner.” The unusual nature of the arrangement was on display in November, as Nadella worked overtime to bring Sam Altman back to the helm of the startup after Altman was suddenly fired by the board. Microsoft and OpenAI compete to sell AI services to companies and have a relationship that can create internal tensions. For example, in allocating graphics processing units to OpenAI, Microsoft is sometimes depriving its other departments of them, two people familiar with the matter told CNBC. Altman told Nadella at an event in November that the two companies “have the best partnership in technology.” However, OpenAI is not always satisfied relying on Microsoft as its cloud supplier, one of the people said.

After the November turmoil, Nadella was at least able to get Microsoft a seat on OpenAI’s board. An OpenAI spokesperson told CNBC that the company sees Microsoft as a very good partner.

Nadella is constantly searching for the next category that can generate revenue and profits. The company’s HoloLens augmented reality headset, announced in 2016, hasn’t become a big hit. Nadella had expected Copilot, an AI added to the Bing search engine in February 2023, to turn into share gains, but Google remains the clear leader in that category. Nadella said on a conference call this week that Bing gained share in the fourth quarter. Although AI may be Microsoft’s next big thing, the company needs to continue finding new ways to drive growth.

At the moment Nadella has a lot to keep himself busy. According to FactSet, analysts on average see enough expansion to forecast a 12% gain in the stock price next year.

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