By Courtney Trenwith
The world’s largest software company’s comeback under CEO Satya Nadella has turned heads in the industry, as Microsoft changes the rules with its cross-platform systems, cloud computing dominance and the surprise release of its first ever laptop. The Indian-American executive reveals his strategy and what he has learnt from more than 20 years working with Bill Gates
Rarely would you find the CEO of one of the world’s largest global firms in a classroom, let alone in a small school in Sharjah, one of the UAE’s lesser known emirates.
But this is where we meet the head of Microsoft, Satya Nadella, the most powerful Indian-born tech executive in the world. A tall yet placid man, he attentively watches a handful of deaf students tell him not only how his products are enhancing their learning, but also – unabashedly - how they could be improved.
As Nadella watches from the back of the classroom, a teacher demonstrates how a white board has been transformed into an enormous touchscreen that allows her to conduct an engaging lesson with a few swipes, while the students can participate in practical examples using educational games. She tells him how she also records classes using Microsoft technology for occasions when she is unable to teach or students need to follow up at home. It is all a far cry from the days of chalk and text books that filled schools only a decade ago.
And this is why Nadella is here. Appointed as only the third CEO of the tech giant less than two years ago, he is adamant that his company’s products will change the world by empowering individuals and companies to achieve more.
“It’s not about technology for technology’s sake, it’s really about the human ingenuity and how technology has been used. Even in this school, when you see students using technology to not only learn but to create, that’s what our real focus is,” Nadella tells Arabian Business during an interview in the principal’s office at Al Amal School for Deaf Students in Sharjah Humanitarian City.
“It’s not just about producing technology that drives consumption, but producing technology that drives productivity creation and achievement. That’s what makes us unique.”
This drive has been in higher gear since Nadella came to the forefront of Microsoft in February 2014. The unparalleled leader of technology software during the 1980s and 1990s, Microsoft’s influence and fortunes had rolled downhill during the first decade of the century, under former CEO Steve Ballmer. Microsoft’s shares had plummeted to just $15, barely one quarter of the value under Gates, albeit in March 2009, during the economic crisis.
Since taking over, Nadella has undeniably put the company back on a steady footing. Its share price is up 25 percent since January 30, 2015, while competitors IBM and Oracle have plummeted, and is in its healthiest position since its peak in December 1999, weeks before its founder Bill Gates stepped down as CEO.
The company’s value has returned to about $400bn, although still below the $620bn record it set in 1999.
While revenues ($20.4bn) were down during the most recent reporting quarter (Q3 2015), they were above analysts’ expectations and included a deliberate halving of phone revenue as the company diverts its attention from one of the least viable areas of its business.
Multiple individual businesses have soared: Office 365 revenue was up almost 70 percent during the third quarter of 2015, with 3 million new subscribers; revenue from search engine Bing was up 29 percent; and the prized cloud division grew 8 percent.
However, the improved position has come at a cost – to jobs. More than 18,000 employees were cut almost immediately after Nadella took over, as part of a rescue plan for the $7.3bn mess caused by the acquisition of loss-making Nokia in September 2013. Another nearly 9,000 have been announced since.
Nevertheless, Nadella’s rise to the top has represented a critical juncture in the company’s history, although he insists the strategy has always existed in its philosophy; he has only served to reinvigorate it.
“The change in strategy is more about rediscovering that soul of the company and emphasising it,” the 48-year-old says. “[It’s about] going back to the very question of ‘why do you exist?’ And reinforcing the core of what made us successful in the first place. In today’s world, where technology is much more pervasive, I think the need is to really emphasise creation - learning versus just consumption - because I think the world is better served when people all over the world are not just consuming technology but are using technology to create.
“And so from that perspective I think we’ve made a huge difference. If you look at what we’re doing with our cloud and the success we are having as a business, or if you look at our devices and how they’ve been used not just to consume but to create, that’s where I think we’ve … moved the needle in a pretty significant way in terms of driving success.”
The last year was one of the company’s most defining on record. Not least because it launched its very first laptop, surprising much of the industry. While for decades Microsoft had relied on partners such as HP, Dell and Toshiba to produce devices compatible with its software, the new Surface Book allows it to directly compete against the likes of Apple. And industry critics have been positive, praising the new machine’s detachable touchscreen, which can serve as a tablet, and its computing power.
Microsoft also changed the game with its new universal app platform that allows developers to build apps that work across phones, tablets and computers for the first time. It is the company’s ploy to attract more apps to its platforms and plug what is currently one of its greatest weaknesses. It also worked to strengthen in this field with the acquisitions of several companies behind booming apps such as Wunderlist and Sunrise Calendar.
The launch of Windows 10, made available to retailers on July 31, marked the first new operating system in almost three years and has helped to reduce the double-digit decline in the sales of Windows packages to computer makers.
The adaptability of Microsoft software for any device running on any operating platform is another feature strategy under Nadella; it means giants such as Apple and Google are no longer rivals. Microsoft’s new virtual assistant Cortana also moved to challenge Apple’s Siri by being available on the desktop – as well as Apple devices – and having the ability to remember a user’s preferences over time.
But central to Nadella’s strategy is the cloud computing platform Azure. As the former leader of Microsoft’s cloud infrastructure, it is close to his professional heart, and Nadella says cloud and productivity services are driving the company’s resurgence.
Revenue from Microsoft’s cloud business rose 8 percent to $5.9bn during the third quarter of 2015 (the first quarter of the company’s 2015-16 financial reporting year) and was forecast to reach $6.2-$6.3bn in the last quarter. It now accounts for more than 25 percent of overall revenue.
“If you look at where our growth is coming from, it is coming from our strategy that is very focused on our cloud and the transformation. It’s not just cloud technology but it’s also the ability to convert data into intelligence. That differentiates our cloud; that’s what’s driving the tremendous growth worldwide, and it’s even seen in this region,” Nadella says.
“And then the second area [of focus] for us is our productivity services, which [includes] Office 365 and its fundamental contribution to how people can use the most scarce resource, which is time. Because if you think about it, amongst all the abundance of technology, what is scarce is human attention and time. And we now have a service that helps people organise themselves - use that time, both as individuals and as large organisations, more wisely. And so, to me that’s another place where we’re very differentiated.”
The electrical engineering graduate says Microsoft’s technology is playing a vital role in supporting entrepreneurs and job creation, key issues in the Middle East where several million new jobs are needed annually just to accommodate the rising Arab youth population.
This ambitious need is not lost on Nadella.
“[For] any economy … the heart and soul of it really is small and medium sized businesses and their productivity. If you can equip them with digital technologies, they become more productive, they become more competitive. So that’s another aspect that we are very, very focused on,” he says.
“Especially having grown up in an emerging market, one of the things I’m very, very sensitive to is, how does a multinational company truly contribute to a local economy? The first thing I think of whenever I visit a country … is, what is the local ecosystem? [In the UAE], we have over 800 partners, employing thousands of people, who are doing business around Microsoft. To me, growing that in some sense is the biggest existential priority.”
About 300,000 people in the UAE have been trained in Microsoft technologies, while 600,000 have signed up to the Microsoft Virtual Academy training course, Nadella says. Several GCC-based start-ups are also participating in Microsoft’s BizSpark programme, which gives young businesses free cloud services in a bid to encourage them to stick to the service after the three-year initiation.
It is not only at the small end that Microsoft is pushing its innovations; Nadella says it is boosting the competitiveness of some of the region’s largest firms, such as Emirates Airline or “any of the other larger businesses out of here”.
“That’s another aspect of how we contribute,” he says.
But it is not all about helping to increase profits; Nadella is personally keen to see Microsoft influence education, health and government services.
“How can our technology help educational institutions like this one really do what they do in ways that are more empowering?” he says at the Sharjah school. “The same thing with health, and even for the government’s own functioning, how can something like cloud fundamentally transform how the taxpayer dollar is being used more productively? So those are the three aspects I look at.”
During his visit to the UAE earlier this month, Nadella also signed a deal with the Dubai government to create an electronic font named after the emirate. He says the UAE epitomises what Microsoft is aiming to achieve.
“I feel very, very enthused by what’s happening in UAE. In fact, it’s a beacon of what can happen in this region,” Nadella says. “I think that there is more emphasis on creating a knowledge economy, which is more diverse.
“Take what we just saw with the educational focus around inclusiveness, that’s a pretty enlightened approach to talk about inclusive learning for people even with impairment, to the other extreme, which is how can we really make sure that the entrepreneurial class of this region is using technology to create new businesses. So we’re seeing that spectrum of usage of technology, because I’m a strong believer - and this speaks to Microsoft’s identity - in [asking the question], what are people doing with technology?
“If I just see people consuming technology, that’s probably a good first stage. But the true flourishing of a society or an economy happens when they can not only use technology but they’re using technology to do bigger and greater things. And that’s what I’m seeing [in the UAE].”
Microsoft is also planning greater things for 2016 and beyond, including more devices.
“We’re in the business of inventing new computers - everything from the holographic computer to Surface - which allows you to not only have a tablet but a tablet that can replace a laptop, to some things like Surface Hub, which is a new type of a conference room computer,” Nadella says. “So we think more personal computing is going to be pervasive, but that requires invention of new computers, and we’re absolutely doing that.”
Personal computing will be one of three key elements in which Microsoft competes against other technology firms, including Apple and Google.
“We think of three battlegrounds where we have very differentiated offers. One is the invention of new more personal computing; that is everything from our augmented reality, virtual reality, to tablets that can replace your laptops,” Nadella says. “There is the productivity services that are core to any knowledge economy, and then the cloud, which is not just another cloud infrastructure but really has the ability to make every application intelligent.”
It was Nadella’s vision of how technology will be used in the future that earned him to the top job at Microsoft, according to a statement issued by Gates at the time.
Nadella, who has been with Microsoft for 23 years – more than half of both his and the company’s lives – has a strong technical background, just what was needed as the firm strengthened its focus on product innovation. But he is equally revered for his personable character and ability to inspire staff to work together.
From his own perspective, Nadella says he learnt integrity from Gates, who was succeeded as chairman by John Thompson at the same time Nadella moved to CEO. Gates remains on the board of the company he founded while in college and now acts as a technology advisor.
“What I have most admired and what I’ve most learned from Bill is his intellectual honesty,” Nadella says. “He’s someone who is curious all the time, learning all the time.
“But more than all of that, he’s intellectually honest about assessing both where we are and what is the potential. And that’s just an amazing quality for someone who’s had that kind of success.”
As Nadella patiently absorbs deaf students’ explanations of how they would improve his products, he seems to have learnt well from his mentor. Coupled with his early success, Nadella appears capable of returning Microsoft to its former Gates glory.