It may have escaped your attention, but Microsoft recently became the third company in history to reach a valuation of one trillion dollars.
To which the standard reaction, I have discovered, is, ‘Eh? Microsoft!!!’
Wasn’t that the boring old monolith fixated on desktop products and operating systems that missed out on the smartphone revolution? The company that Bill Gates used to run before he decided to devote himself fulltime to giving his money away? The company whose Exchange Server is the bane of every office-worker’s daily grind? The ruthless monopolist who missed the World Wide Web and then set out to exterminate the one company — Netscape — that hadn’t?
Yes, that Microsoft. Given the company’s history, this is surely the greatest comeback since Lazarus. But with one difference: Where Lazarus’s resurrection was (according to the New Testament) instantaneous, Microsoft’s took longer. How this happened is a story that will keep MBA students occupied for decades, but with the benefit of hindsight, we can now see that it has three main strands.
The first strand is how the environment in which Microsoft operated changed. It came to power in a world where a ‘computer’ was a desktop PC running Microsoft operating systems — first MS-DOS, and then, from the mid-1990s, Windows. And in addition to the operating systems, most PCs ran Microsoft Office — its suite of business apps: Word, Excel, Powerpoint. Because Windows and Office became the de facto standards for the world, Microsoft was the kind of company that makes monopolists and dictators salivate.
The dream of the company’s cofounder, Bill Gates, of “a computer on every desk, and every one running Microsoft software” effectively came true, and its realization made him master of the universe for a long time.
This comfortable monopoly, however, was challenged by a succession of developments: The rise of the Internet, and especially from 1993 onward, of the web; cloud computing — which meant that much computing need not be done on the desktop; and the launch in 2007 of the first modern smartphones, basically an Internet-connected handheld computer that can also make voice calls. Confronted by these challenges, Microsoft fumbled and bumbled. It tried to get into the smartphone business, first on its own and then by buying Nokia, and eventually beat an ignominious retreat — which led many observers to conclude that the company’s days as a tech colossus were numbered.
A second strand in the story of Microsoft’s rejuvenation is about the importance of personalities. As a young man, Bill Gates was a fanatically competitive, driven sociopath who seemed hell-bent on world domination — though he seemed to mellow somewhat after his marriage to Melinda French in 1994. In 2000, he stepped down as CEO and elevated himself to the role of chairman. But his friend Steve Ballmer — a similarly driven individual — replaced him as CEO, which meant that Microsoft’s corporate personality continued largely unchanged.
The third strand in the story is about how corporate cultures can be altered. In 2014, both Gates and Ballmer retired and handed over the reins to Satya Nadella, a very different character who was born in Hyderabad, India, and had held significant positions within Microsoft. The new CEO set about weaning the company off the introversion embedded in its corporate DNA. Since its inception, for example, Microsoft had been obsessive about ‘backward compatibility’ — which meant that new products were sometimes constrained by the need to run on older versions.
Nadella argued that Microsoft needed to become, in the words of Ben Thompson, one of the tech industry’s most perceptive observers, “a horizontal company, not a highly differentiated vertical one built around Windows”.
It needed to get seriously into cloud computing, embrace a world where Windows was just one client among many, and to target its services at iPhone, Android, Linux, and Mac. Its Office package ceased to be something customers bought and ran for years, becoming instead a download, which they rent for an annual licence fee. Also, perhaps most importantly, writes Thompson, Nadella “brilliantly navigated ‘the End of Windows’ internally, freeing Microsoft employees to build products that customers actually wanted, not that Microsoft needed”. In other words, Nadella liberated the company by getting it out of its own way.
Changing the internal culture of a vast organization is not easy, yet Nadella seems largely to have accomplished it.
There was a time when Microsoft seemed as pernicious to critical observers (including this columnist) as Facebook seems now. In the 1980s and 1990s, it wielded its monopoly power ruthlessly and effectively. It willfully destroyed the most creative startup of the early web. But now, at least in comparison to Google, Facebook and Amazon, Microsoft looks almost like a good corporate citizen of the networked world. It’s still a giant corporation, and as such warrants constant vigilance. But if your pension fund doesn’t own some Microsoft shares, then you should speak to your broker. Gates’s monster is going to be around longer than most of us.
*John Naughton is a professor of the public understanding of technology at the Open University in Milton Keynes, the UK. This article was first published in the Guardian.