Satya Nadella, ten years of success to elevate Microsoft to the top of artificial intelligence

Tomorrow, Satya Nadella will celebrate his ten years at the helm of Microsoft, with an exceptional track record. In a decade, the CEO has multiplied the valuation of his company by ten, which has just surpassed the $3 trillion mark. Only Apple had already reached this summit last year, before coming back down. Microsoft could go even further, as it seems well on its way to climb even higher.

Thanks to its close ties with OpenAI, the tech giant has established itself as the essential locomotive of generative artificial intelligence, a technology described as revolutionary by many top executives. In addition to having exclusive sales of the most powerful AI models on the market, including the famous ChatGPT, Microsoft has taken a lead in injecting AI into its products, whether on its Azure cloud or in its most popular software, such as Microsoft 365 (Word, Excel, PowerPoint…).

As a result, it is already reaping the rewards. In the last quarter (October to December), its revenue jumped 18% compared to the previous year, to $62 billion, with a net profit of $20.7 billion, a 52% increase. A momentum driven by its cloud division, Azure, as well as by AI in the last three quarterly exercises. “Before, we talked about AI, now we apply it on a large scale. By infusing AI into all our technical layers, we gain clients,” the CEO declared on Tuesday evening. And this is just the beginning: according to Evercore’s analysis, cited by Fast Company, artificial intelligence could add between $50 billion and $100 billion to Microsoft’s annual revenue by 2027.

Savvy Investor

Its place at the top of the economic world is due above all to a bet made by Satya Nadella in the summer of 2019, when he decided to invest a billion dollars in OpenAI… against the advice of Bill Gates, his famous co-founder. The latter has good reason to be concerned: if the startup already has one of the best AI research laboratories in the world, it loses hundreds of millions of dollars annually and does not even have a business model in sight. Above all, the investment gives Microsoft no decision-making power over the company’s operations, due to its specific legal status.

But Satya Nadella, who relied on his chief technology officer, Kevin Scott, to validate his intuition, believes that his company must strengthen itself at all costs in the AI race. The leader, who took over the company five years earlier, managed to restart a machine that had been stagnant for a decade. But he has not managed to erase the years of AI research lag from his group compared to Google and Facebook. With OpenAI, he finally gives himself the opportunity to play a leading role, even if it is indirectly. By putting more than $10 billion into the machine in early 2023, he also gained almost exclusive rights to exploit the startup’s models, starting with ChatGPT. Only OpenAI itself has the right to market them as well.

On the other side of the balance, Microsoft’s support gives OpenAI the means to achieve its ambitions, whether in terms of computing power to build models the size of GPT-4 or the necessary payroll to attract the best global researchers. His nemesis, the British DeepMind, relies on the financial power of Google, which acquired it in 2014, while Facebook’s Fair labs, created in 2013, also benefit from the extraordinary resources of an internet giant.

Pilot of Microsoft’s recovery

In reality, Microsoft has only been considered the number one in AI since 2023. It seemed behind when in 2016, Sundar Pichai, newly appointed CEO of Google, declared that his company was preparing to enter an “AI first” world, where “intelligent assistants” would invade users’ daily lives.

But before also focusing on AI, Satya Nadella had other top priorities. When he arrived at the helm of Microsoft in February 2014, he first set about fundamentally transforming the company’s culture, considered “has-been” and too inward-looking. On the business side, he was tasked with finding new sources of growth: the decline in PC sales since the early 2010s has affected the revenues of the company’s two cash cows, the Windows operating system and the Office suite. The problem is that Microsoft successively missed the internet turn, where its Bing search engine faces Google’s monopoly, and then the smartphone turn, led by Apple and its iPhone and well followed by Google and its Android subsidiary. As a reflection of these failures, Microsoft’s share price stagnated between the year 2000 and the arrival of the new CEO.

A pure product of the company, where he climbed the ladder since joining in 1992, Satya Nadella’s profile has enough to make some investors looking for renewal doubt. But the Indian leader quickly proved his ability to make strong decisions. In 2016, he shut down the telephone division dedicated to Windows Phone, which struggled to gain more than 1% market share, resulting in the layoff of 18,000 employees, 14% of the group’s workforce, unprecedented in the company’s history. With major symbolic actions, he introduced a policy of openness. The quadragenarian appeared at conferences with an iPhone in hand, opened the marketing of Microsoft Office on iPads, and offered a Linux offer [the largest open-source alternative operating system to Windows, ed.] on Azure. Unthinkable actions under his two predecessors.

The cloud architect

In return, Satya Nadella focused the company’s efforts on developing its cloud computing platform, Azure, which he led as vice president before being appointed CEO. “Everything will be connected to the cloud and data,” he announced during a conversation with his employees shortly after taking office. In the wake, he carried out a massive reorganization of his engineering teams, giving priority to the cloud over the sacred Windows, and multiplied partnerships, acquisitions, and investments aimed at strengthening Azure. Under Nadella, software such as Word, Excel, Teams, or Dynamics are all marketed as subscriptions in the cloud. Otherwise, the priority is no longer to sell Windows and Office licenses, but to sign up subscribers to SaaS offers in the cloud, likely to provide recurring revenues.

Bingo: the cloud sector is booming, and Microsoft quickly established itself as a strong global number two, behind Amazon Web Service, and ahead of Google Cloud, the trio imposing crushing dominance on the market. The Redmond firm has regained its glory: if in the early 2010s, the press and the political world spoke of the “Gafa” – an acronym composed of the initials of Google, Apple, Facebook, and Amazon – to refer to the tech giants, the “M” of Microsoft joined the end of the acronym at the end of the decade.

However, Microsoft remains discreet in the world of AI. Certainly, Nadella reorganized the company to create a group of 8,000 employees dedicated to AI projects in 2016, but it is mainly noticed for its failures. Its voice assistant Cortana, released in 2014, quickly fell into indifference, due to a lack of interesting use cases. But the real disaster occurred in 2016, when the company deployed on Twitter a conversational bot named Tay, presented as a 16-year-old girl and capable of learning from her discussions with platform users. In less than 24 hours, the bot became racist, misogynistic, and even made Nazi remarks. Disconnected in a hurry by Microsoft and never restarted, Tay remains to this day the most striking example to illustrate the need to supervise artificial intelligences. Moreover, the episode drives the company to become a pioneer in the concept of responsible AI, in order to avoid such a debacle recurring.

Not to miss the AI wave, Satya Nadella therefore does with OpenAI what he does best: invest in promising companies. In ten years, the leader has led more than 100 acquisitions, including a nice list of major operations in very diverse sectors. We find the video game studio Mojang, the origin of Minecraft, for $2.5 billion in 2014; the professional social network LinkedIn for $26 billion in 2016; the GitHub platform for $7.5 billion in 2018; and most recently, the number 4 video game publisher, Activision-Blizzard, for $75 billion. Many successes, which now fuel the group’s growth.

Quiet Strength

But Satya Nadella is not just a visionary, he is also a manager: without him, Microsoft’s bet on AI could have turned sour before he could reap the rewards. On November 18, 2023, the OpenAI board of directors decided to abruptly dismiss its co-founder and long-time leader, Sam Altman. Satya Nadella only received the information a few minutes before it became public, even though Microsoft owns – through a complex financial arrangement – 49% of the company’s shares. It’s a double stab: not only was the CEO not consulted before the decision, but he also lost Sam Altman, a valuable ally with whom he shares a common vision of AI development. To make matters worse, the board of directors appoints a new CEO, Emmet Shear, who paves the way for a drastic slowdown in the pace of AI deployment by the company, justified by strengthened safety measures. A view incompatible with Satya Nadella’s ambitions, already focused on the market.

In the midst of crisis management, the experienced Microsoft director must juggle between his work and his greatest passion: cricket. His home country, India, is playing against Australia in the World Cup final. As reported by the Wall Street Journal, the leader follows the score of a match with one eye and, behind the scenes, participates in negotiations to reintroduce Sam Altman. He will emerge as the big winner of these negotiations, unlike the national team, defeated in a heartbreaking match. And he does it in a style of his own: in the shadows, without raising his voice. A style opposed to the explosive personality of Steve Ballmer, his predecessor as CEO of Microsoft, known for rallying crowds and ending conferences in a sweat-soaked shirt, but also for his outbursts.

In a matter of days, Satya Nadella ensured that Microsoft came out ahead no matter what: either the board bowed to his lobbying and brought back Sam Altman, or the leader opened a tailor-made research unit for the entrepreneur within Microsoft, with an open door to any OpenAI employee who wished to follow him. Successful maneuver. Two days later, over 90% of the AI specialist’s employees signed a letter demanding the return of their longtime leader, without which they too would join Microsoft. Faced with the risk of emptying the company of its substance, the board recalled Altman, whom Shear left the place by resigning.

The Redmond firm, in the suburbs of Seattle, emerged strengthened from the Hollywood-esque saga. The company should obtain at least one seat on the new board of directors, the complete composition of which is still not fixed. His ally Sam Altman now benefits from the unanimous support of his teams to roll out his development strategy. As for Satya Nadella, this show of strength consolidates him more than ever at the helm of Microsoft, which is racing to new heights at full speed.