The world’s most valuable company

The congratulatory texts and tweets started the last week of November. Microsoft had overtaken 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. Longtime employees, who’d grown accustomed to thinking of Microsoft as far removed from its glory years, when it was run by Bill Gates and feared as the “Evil Empire,” were flooded with messages from friends and family.

Yet not a word of this achievement was uttered when Chief Executive Officer Satya Nadella gathered his senior staff for their weekly meeting that Friday.

In an interview at Microsoft Corp. headquarters in Redmond, Wash., Nadella appears irritated by questions about the company’s ascendancy.

“I would be disgusted if somebody ever celebrated our market cap,” he tells Bloomberg Businessweek. He insists the valuation—which passed $1 trillion on April 25 and is up more than 230 percent since his watch began in February 2014—is “not meaningful” and any rejoicing about such an arbitrary milestone would mark “the beginning of the end.”

The no-nonsense rhetoric is part of his shtick. Nadella, a 51-year-old engineer with multiple degrees who grew up in Hyderabad, India, is known for his librarian’s temperament. “At Microsoft we have this very bad habit of not being able to push ourselves because we just feel very self-satisfied with the success we’ve had,” he says. “We’re learning how not to look at the past.”

Even if it doesn’t last, Nadella’s turnaround over the five years since he replaced Steve Ballmer as CEO has been nothing short of historic. The company had been universally viewed as spiraling toward obsolescence, having missed almost every significant computing trend of the 2000s—mobile phones, search engines, social networking—while letting its main source of revenue, Windows, the operating system that comes preloaded on PCs, stagnate.

Microsoft marketers like to attribute its reemergence as a tech power to a sort of cultural rehab, involving what Nadella calls corporate “empathy” and a shift of his team from a “fixed mindset” to a “growth mindset.” The reality of the company’s turnaround was more painful, according to interviews with more than four dozen current and former executives, board members, customers, and competitors. Under Nadella, it 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.

“I don’t know of any other software company in the history of technology that fell onto hard times and has recovered so well,” says Reed Hastings, CEO of Netflix Inc.

Microsoft’s Office collection of productivity software, formerly a one-off purchase that included the famously inept virtual assistant, Clippy, is now a cloud-based service boasting more than 214 million subscribers who pay around $99 a year; it has more subscribers than Spotify and Amazon Prime combined. At the same time, Azure, Microsoft’s cloud platform, has won marquee customers such as ExxonMobil, Starbucks, and Walmart.

There’s a bit of Silicon Valley cred, too, thanks to its acquisitions of LinkedIn, the professional social network, and GitHub, the software code repository.

Nadella’s peers say Microsoft’s resurgence is as terrifying as it is impressive.

When asked what threat a renewed Microsoft poses to the tech universe, the CEO of a rival software company, who requested anonymity to speak more candidly, begins humming Darth Vader’s Imperial March theme from Star Wars. Put another way: The Empire has struck back.

The Miracle of Microsoft: How Satya Nadella Turned The Company Around


It’s telling that Microsoft continues to instill such feelings in competitors even with mild-mannered Nadella at the helm.

If Ballmer will be forever associated with his sweat-soaked dress shirts and “Monkey Boy” antics—he’d barrel onstage at product launches, bellowing and flailing his limbs—then Nadella’s persona is typified by his preferred hygge hoodies. 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. Windows was still extremely profitable—Microsoft generated a licensing fee on almost every desktop and laptop sold—but people were increasingly replacing PCs with iPhones and Android devices. (Even today, Windows is a $20 billion-a-year business.)

In the past, the importance of PCs had caused executives to compete bitterly for control of various Windows-related fiefdoms and every promising offshoot to get sucked into the Windows vortex. New products were relentlessly branded “Windows,” such as the Windows Phone. Even Microsoft’s fledgling cloud service was called Windows Azure.

Nadella, who’s spent more than half his life at Microsoft, mostly on non-Windows products, stayed out of the Game of Thrones-like war to succeed Ballmer.

He’d been recruited from Sun Microsystems Inc. in 1992, in part because his team’s manager wanted an employee who “gets shit done” and “doesn’t piss off other people,” says Jeff Teper, vice president in charge of Office, who hired him.

These qualities apparently were recherché in Redmond. Nadella started by selling PCs to corporate buyers. He later oversaw engineering for Bing, the company’s search engine, before taking over Azure.

His self-effacing, if not bland, style is what Microsoft, a bureaucracy crippled by egos and infighting, needed. Colleagues swear they’ve never seen him get upset, raise his voice, or fire off an angry email. Shelley Bransten, a Microsoft corporate vice president, suggests that what makes Nadella unique is that he has “no swagger.” One executive even claims, not quite believably, that he’s never heard Nadella say no.

As Ballmer neared retirement, he was so taken with Nadella that he asked Hastings, then a Microsoft board member, to mentor the younger executive.

Hastings recalls Nadella coming to Netflix’s headquarters to observe executive reviews. “Ballmer did not have me do that with anybody else,” he says. “He definitely saw Satya as the full package of technical acumen and personality strength, even though Satya manages in a different way than Steve.”

Nadella’s game plan was to reorient Microsoft around Azure, a nascent business he’d been working on since 2011, which would turn the company from a provider of boxed software (which many users simply pirated) to a global computing engine that would rent out its processing power and online storage to businesses. Of the 100 or so CEO candidates considered, Nadella most impressed then-Chairman Gates and the board with his strategic and engineering chops.

Microsoft was already at least four years behind Amazon.com Inc.’s cloud business, which had annual revenue of $4.6 billion.

Nadella understood that any serious shift in emphasis would mean taking a cricket bat to the Windows division. (A lifelong fan, he keeps a bat autographed by the great batsman Sachin Tendulkar near his desk.) But getting resources from other parts of Microsoft was like “pulling fingernails,” recalls Scott Guthrie, an executive vice president who took over the cloud unit when Nadella became CEO.

He recounts a meeting where the cloud team agreed with Nadella’s strategy, but then realized that as much as 90 percent of the unit’s head count was focused on big Windows-centric businesses. “Classic innovator’s dilemma,” Guthrie says. “I had leaders under me who managed multibillion-dollar P&Ls, and it’s tough when you say, ‘You’re now going to manage a $4 million P&L.’ ”

According to a former executive, Nadella, frustrated with hand-wringing about the new cloud-vs.-Windows hierarchy, scolded a group of top executives early in his tenure. At his Microsoft, there would be only “fixers,” no “complainers.

” If people didn’t buy into his vision, he’d tell them, “Don’t stay. Time to move on.” During this time he showed an ability to make aggressive changes with little drama, a departure from Gates’s infamous temper tantrums of the 1990s and Ballmer’s chest-beating of the late 2000s.

Nadella wrote off $7.6 billion from Ballmer’s purchase of Nokia Corp., cutting 7,800 jobs in 2015, a clear sign he was giving up on an ambition to compete directly with Google and Apple Inc. in mobile.

His first product announcement was an Office version optimized for Apple’s iOS mobile operating system.

Microsoft had resisted such a move for years out of concern that its productivity software running on iPhones and iPads would speed the decline of Windows PC sales

All right reserved for Austin Carr

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