Getty Images
- Satya Nadella transformed Microsoft by focusing on cloud computing and open-source software.
- Nadella also envisioned shifting Microsoft's culture from "know-it-alls" to "learn-it-alls."
- Here's how Microsoft's big bets on AI have helped boost its market value to more than $3 million.
When Satya Nadella took over as CEO of Microsoft in 2014, he was on a mission to transform the company's culture.
A few months into the role as its CEO, the former engineer laid out his vision in a memo to staff.
He said, "We must each have the courage to transform as individuals…With the courage to transform individually, we will collectively transform this company and seize the great opportunity ahead."
A decade later, it's clear that Nadella followed his own counsel as he seeks to establish Microsoft as a dominant force in AI.
When Nadella first took over, one of his first acts was to make it clear that he wanted Microsoft to stop being a "devices and services" company and to pivot to cloud computing and open-source software, despite the fact that its acquisition of Nokia was only finalized that same year.
But Nadella's predecessor, Steve Ballmer, orchestrated the deal. It was a move he tried to dissuade Ballmer from following, Nadella said in his 2017 book "Hit Refresh." So, by 2016, Microsoft ditched its mobile business and sold the Nokia phone line to follow Nadella's new vision for the company.
Nadella's approach to transformation was not only about strategy but also about mindset. As he expressed in his book, Nadella thinks, "Every person, organization, and even society reaches a point at which they owe it to themselves to hit refresh — to reenergize, renew, reframe, and rethink their purpose."
Over the next two years, Microsoft pushed down on building up its market share in cloud computing and became one of the leading players, second only to Amazon. Then came the $7.5 billion acquisition of GitHub, a platform where developers create and share code. This cemented Nadella's vision to build up its open-source software offering, solidifying Nadella's vision to boost Microsoft's open-source software offerings.
By 2019, Microsoft had become "very, very worried" about Google's progress in artificial intelligence. So much so that CTO Kevin Scott emailed Nadella and Bill Gates telling them that Google's AI-powered "auto-complete in Gmail" was "getting scarily good."
The emails, with the subject line "Thoughts on OpenAI," might have motivated Microsoft to seek partnerships to bolster its own AI efforts. That same year, Microsoft made an initial $1 billion investment in OpenAI. Its reported total investment into the ChatGPT maker has now hit $13 billion.
Microsoft also partnered with OpenAI to infuse its technology into its own products, including its search engine Bing and GitHub Copilot.
Nadella isn't afraid to embrace change, so he pulls the trigger if the business requires outside expertise. In March, Microsoft announced that it tapped DeepMind and Inflection AI cofounder Mustafa Suleyman to lead its new AI organization. As part of the "acqui-hire" deal, most of Inflection's workforce also joined Microsoft, which paid the company $650 million to license its tech.
Suleyman is overseeing the building of an in-house AI model called MAI-1 from a dataset that includes text from ChatGPT and outside sources like public information on the internet.
Nadella's transformation of Microsoft involved changing its culture from "know-it-alls to learn-it-alls." Speaking at a session as part of the 2022 Wharton Future of Work Conference, Nadella said this learning culture is about a "continuous process of renewal," and he credits psychologist Carol Dweck's growth mindset theory with inspiring him to create cultural change.
He said, "You have two students — one of them has more innate capability, and the other has less. The person who has less but is a learn-it-all will ultimately [become] better. That applies to CEOs, and that applies to companies. I think it has been a helpful cultural metaphor for us to say that you can't act like a know-it-all; you have to be a learn-it-all."
Although Microsoft reported $64.7 billion in revenue in its Q4 earnings, marking 15% year-over-year growth, its AI spending is making investors nervous, and shares slumped more than 6% in after-hours trading.
CFO Amy Hood said on Tuesday that Microsoft's AI bets will be monetized "over 15 years and beyond." Still, the tech giant has continued to pour billions into its AI ambitions. Its capital spending rose 77.6% to $19 billion in Q4, with AI and cloud-related spending accounting for most of the expenditures.
Azure cloud unit's revenue grew by 29% in the fourth quarter, and 8 percentage points came from AI services.
Nadella's revisions to Microsoft's strategy have helped raise Microsoft's worth to about $3.2 trillion, making it the second-ever company to reach a $3 trillion market value after Apple. But investors will have to be patient to see if he can deliver on his AI promises in the long run.