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- Cloud computing has been a mixed bag for most traditional tech companies.
- Microsoft is the only old-school software company that’s become a cloud computing powerhouse, and is now considered the only credible threat to Amazon’s dominance of the cloud market.
- In an interview with Microsoft chairman John Thompson, Thompson says there were two major factors to how CEO Satya Nadella pulled that off.
- Microsoft had to become willing downgrade the importance of its flagship business, Windows.
- But, more importantly, Microsoft had to change its overall attitude.
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Cloud computing has drastically changed the enterprise tech industry. Businesses no longer want to spend their nearly $4 trillion a year buying all their own IT equipment and managing it themselves. They want to rent that stuff, hosted and maintained by their IT suppliers, and pay only for what they actually use each month.
Companies that grew up as cloud players — like Amazon Web Services, Salesforce, Workday, ServiceNow, Dropbox, Slack, or Twilio — have all zoomed to prosperity under this new love for cloud, while Google quickly expanded into that niche.
But old-school vendors like HP, SAP, or VMware failed at their original ambitions to become cloud kingpins themselves. Instead, they’ve partnered-up with those who had successfully built clouds. Oracle, for example, came late to the cloud, and is trying to play catch up now, with mixed results so far.
Only Microsoft has successfully crossed the chasm from old-school IT company into cloud powerhouse, with businesses like the Azure cloud platform and Office 365 subscription suite both doing gangbusters with customers.
By all accounts, Microsoft is second only to market leader Amazon Web Services in the cloud world, and there are a lot of indicators that it’s gaining ground. For instance, in Morgan Stanley’s most recent quarterly survey of 100 CIOs, all of them said they expected to spend more on cloud computing, specifically with AWS and Microsoft.
Microsoft chairman John Thompson tells Business Insider that the secret to Microsoft’s cloud success hinged on a difficult decision that CEO Satya Nadella made early on in his five-year reign as the boss.
He had to downgrade the importance of Microsoft’s flagship products: Windows and Office. And he had to overhaul the company’s culture to make it happen.
Microsoft’s cloud success is "clearly attributable to Satya. And while Windows was a very powerful platform for the company for many, many years, it clearly has evolved. And that it’s not just about cloud. It’s about what services you offer in the cloud," Thompson told Business Insider.
Not only did Microsoft have to offer its most popular, and highly profitable, software on the cloud — something it had actually been doing for years — it had to push customers to buy the cloud products instead of the more traditional products.
From enemies to friends
Equally importantly, Microsoft had to change its not-invented-here culture to win at cloud.
"At the core, the company has evolved to be an open source company, not just a Windows company. It used to be called Windows Azure, not just Azure," Thompson points out.
Remember that Microsoft grew into one of the world’s most powerful tech companies under founder Bill Gates and former CEO Steve Ballmer by swooping into every market with its own products: software, Xbox, even mice and PCs. It then competed so fiercely, it landed itself a decade of antitrust government oversight.
Yet, with cloud computing, Microsoft makes money on renting software and hardware services — even services that weren’t built by Microsoft.
If the company’s cloud wasn’t welcoming to rival products, if the whole cloud was nothing but Microsoft, it wouldn’t win much businesses. For instance, while Amazon’s cloud offers thousands of its own home-grown features, it has a giant marketplace of wares and features from others, some of them in direct competition to its own products.
So Microsoft couldn’t just tolerate rivals on its cloud; it had to embrace them.
The best example of that is the company’s changed attitude toward Linux. Years ago, Microsoft tried to kill Linux, even threatening legal action against companies who bought it or sold it. But that didn’t stop companies from flocking to it.
But today, Microsoft has embraced the freely available, open-source operating system. Microsoft now has dedicated Linux engineers and has become one of Linux’s biggest contributors. Microsoft even built its own version of Linux for connected devices, and has included a version in Windows 10.
Taking on the culture
That idea of openness has had far-reaching influence inside of Microsoft, Thompson has witnessed.
"The more important change, however, I think has been the cultural transformation that Satya’s led. The attitude that the team has about each other, their engagement with customers and partner’s, their belief in openness and inclusiveness, all of those things have changed under his leadership," he said.
Microsoft has done things like change executive pay so that bonuses depend in part on how well managers build inclusive teams.
Remember, Microsoft was a company founded and run by a brilliant but notoriously hard-driving software programmer, Bill Gates, who built a workaholic culture. In recent years, Gates has become retrospective about those early days, admitting that his drive helped make Microsoft successful, but might have been over-the-top sometimes.
And Nadella was quite familiar with the culture. He has worked at Microsoft for decades, spanning most of his career.
Pockets of Microsoft’s early culture still exists, some employees say. Microsoft recently came into hot water when internal emails from women complaining about glass ceilings and other issues went public. It’s also fending off a gender discrimination lawsuit.
And, as we previously reported, a software developer who came from a non-traditional background felt his Microsoft coworkers were disrespectful to him.
But Nadella has unquestionably done a lot to overhaul the culture. The company even bases a small part of managers’ bonuses on how well they build inclusive teams. It is winning in the cloud and investors are excited about the company’s future, giving it a market cap of over $1 trillion.
"I give him credit for that because that is at the core what drives the performance of the company day and day out," chairman Thompson says.
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