Just just a few years in the past, Microsoft was seen as a lumbering has-been of the know-how world.
It was massive and nonetheless fairly worthwhile, however the firm had misplaced its luster, failing or trailing within the markets of the longer term like cell, search, internet advertising and cloud computing. Its inventory value languished, inching up three % within the decade by the top of 2012.
It’s a really completely different story at this time. Microsoft is operating neck and neck with Apple for the title of the world’s most beneficial firm, each price greater than $850 billion, due to a inventory value that has climbed 30 % over the previous 12 months.
So what occurred?
The firm constructed on its strengths
There is a short-term clarification for Microsoft’s market rise, and there’s a longer-term one.
The near-term, stock-trading reply is that Microsoft has held up higher than others in the course of the latest sell-off of tech firm shares. Apple traders are apprehensive a couple of slowdown in iPhone gross sales. Facebook and Google face persistent assaults on their position in distributing false information and conspiracy theories, and investor issues that their privateness insurance policies may scare off customers and advertisers.
But the extra enduring and essential reply is that Microsoft has grow to be a case research of how a once-dominant firm can construct on its strengths and keep away from being a prisoner of its previous. It has totally embraced cloud computing, deserted an errant foray into smartphones and returned to its roots as primarily a provider of know-how to enterprise clients.
That technique was outlined by Satya Nadella shortly after he became chief executive in 2014. Since then, Microsoft’s stock price has nearly tripled.
It bet big on the cloud and won …
Microsoft’s path to cloud computing — processing, storage and software delivered as a service over the internet from remote data centers — was lengthy and sometimes halting.
Its forerunners to cloud computing go back to the 1990s, with Microsoft’s MSN online service and later its Bing search engine. In 2010, four years after Amazon entered the cloud market, Microsoft introduced its cloud service. But it did not have an offering comparable to Amazon’s until 2013, analysts say.
Even then, Microsoft’s cloud service was a side business. The corporate center of gravity remained its Windows operating system, the linchpin of the company’s wealth and power during the personal computer era. That changed after Mr. Nadella replaced Steven A. Ballmer, who had been chief executive for 14 years.
Mr. Nadella made the cloud service a top priority, and the company is now a strong No. 2 to Amazon. Microsoft has nearly doubled its share of that market to 13 percent since the end of 2015, according to the Synergy Research Group. Amazon’s share has held steady at 33 percent over that span.
Microsoft has also retooled its popular Office apps like Word, Excel and PowerPoint in a cloud version, Office 365. That offering caters to people who prefer to use software as an internet service and gives Microsoft a competitive entry against online app suppliers like Google.
The financial payoff from the shift came gradually at first, but is accelerating. In the year that ended in June, Microsoft’s revenue rose 15 percent, to $110 billion, and operating profit increased 13 percent, to $35 billion.
“The essence of what Satya Nadella did was the dramatic shift to the cloud,” said David B. Yoffie, a professor at the Harvard Business School. “He put Microsoft back into a high-growth business.”
It is the perception that Microsoft is on a high-growth track that has fueled its rising share price.
… while walking away from losing bets
When Microsoft acquired Nokia’s mobile phone business in 2013, Mr. Ballmer hailed the move as a “bold step into the future.” Two years later, Mr. Nadella walked away from that future, taking a $7.6 billion charge, nearly the entire value of the purchase, and shedding 7,800 workers.
Microsoft would not try to compete with the smartphone technology leaders, Apple, Google and Samsung. Instead, Microsoft focused on its developing apps and other software for business customers.
Microsoft does have a successful consumer franchise in its Xbox video game business. But it is a separate unit, and though it generates revenue of $10 billion, that is still less than 10 percent of the company’s overall sales.
Microsoft products, in the main, are about utility — productivity tools, whether people use them at work or at home. And its Azure cloud technology is a service for businesses and a platform for software developers to build applications, a kind of cloud operating system.
Mr. Nadella’s big acquisitions have been intended to add to its offerings for business users and developers. In 2016, Microsoft bought LinkedIn, the social network for professionals, for $26.2 billion.
“It’s really the coming together of the professional cloud and the professional network,” Mr. Nadella explained at the time.
This year, Microsoft paid $7.5 billion for GitHub, an open software platform used by 28 million programmers.
It has opened up its technology and culture
Under Mr. Nadella, Microsoft has loosened up. Windows would no longer be its center of gravity — or its anchor. Microsoft apps would run not only on Apple’s Macintosh software but on other operating systems as well. Open source and free software, once anathema to Microsoft, was embraced as a vital tool of modern software development.
Mr. Nadella preached an outward-looking mind-set. “We need to be insatiable in our desire to learn from the outside and bring that learning into Microsoft,” he wrote in his book “Hit Refresh,” published last year.
The company’s financial performance — and its stock price — suggest that the Nadella formula is working.
“The old, Windows-centric view of the world stifled innovation,” said Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “The company has changed culturally. Microsoft is an exciting place to work again.”
Get more stuff like this
Subscribe to our mailing list and get interesting stuff and updates to your email inbox.
Thank you for subscribing.
Something went wrong.