“Are we at risk of becoming irrelevant?” Sivaramakrishnan Somasegal, an investor at Seattle's Madrona Venture Group and then a senior Microsoft executive, said that's the problem plaguing the company. That's what he said.
On Tuesday, Microsoft reported its fifth consecutive quarter of record earnings, with $62 billion in sales, and just last week, the company's market capitalization (the combined value of all its shares) surpassed $3 trillion, making it the world's largest company. became the most valuable company in the world. world.
The company has leapfrogged even Apple, long the world's biggest tech giant, by churning out sleek iPhones and finding new ways to charge customers monthly subscriptions for its services. Microsoft CEO Satyanadera is considered one of the most powerful leaders of the artificial intelligence boom. Startups and corporations alike flock to Microsoft and pay for access to his AI tools, even if they don't always work as expected. The company said Tuesday that it expects profits to continue increasing as customers continue to adopt its AI products next year.
With huge budgets to spend on AI, a close relationship with ChatGPT maker OpenAI, and hundreds of millions of people using its software every day, Microsoft is already shaping how AI is built and how people will interact with it in the future. wields great power. .
Mr. Somersegger said no one is asking whether the company is irrelevant today. “That's not a problem for Microsoft at all.”
Microsoft may not have been able to predict the shift to mobile phones 15 years ago. The current wave of excitement and investment in AI has not made the same mistake.
In 2019, the company invested $1 billion in a nonprofit AI startup focused on the fanciful purpose of inventing human-level AI called OpenAI. When the startup announced its ChatGPT AI chatbot in late 2022, Microsoft was in the best position of the big tech companies to ride the ensuing wave of hype.
The company quickly doubled in size and invested billions more in OpenAI in exchange for the right to incorporate its AI into Microsoft's own tools. Since then, Nadella has worked to incorporate his AI into as many Microsoft products as possible, from cybersecurity software to his Bing search engine and even his Microsoft Word.
“Microsoft was the first to jump on board with this megatrend, and it really started to pay off last year,” said Gil Luria, senior software analyst at DA Davidson.
Google researchers devised many of the fundamental breakthroughs that made technologies like ChatGPT possible, but OpenAI moved faster to turn it into a working product and bring it to consumers. . Somasegar said Microsoft is well-positioned to garner corporate interest in AI due to its close partnership with OpenAI and existing connections with tens of thousands of small and medium-sized businesses.
“We've moved from talking about AI to applying AI,” Nadella said on a conference call Tuesday after the company's earnings report. The company made a profit of $21.9 billion in the final quarter of 2023, an increase of 33% year-on-year.
“This was another great quarter, and the guidance from Mr. Nadella will have major ripple effects across the technology industry tomorrow as the AI revolution arrives,” said Dan Ives, an analyst at Wedbush Securities. Ta.
To industry observers and Microsoft insiders alike, the company today is almost unrecognizable from what it was a decade ago. Founded in 1975 by Bill Gates and Paul Allen, this giant company won domination of the computer world in his 1980s and his 1990s with the Windows operating system. When the Internet exploded, the company tried to take advantage of it and secure similar control over the web, but was thwarted by a massive Justice Department lawsuit alleging that the company violated competition laws. thwarted.
Microsoft survived the lawsuit, but the nifty Silicon Valley tech startup known as Google quickly became the Internet's dominant portal. And younger companies like Amazon and Facebook have moved faster, hiring the smartest college graduates to build their futures while Microsoft has lagged behind.
While the company remained a behemoth, thanks to hundreds of millions of PCs running Windows and Microsoft Office's grip on white-collar lives, Apple's MacBook became popular with a new generation of young people. As cloud-delivered software like Google Docs became more popular, Microsoft's very existence was in jeopardy.
“They were late to the transition to mobile,” said Luria, who has been analyzing publicly traded technology companies since the early 2000s. The company remained closed off, blocking its tools from being used on other companies' operating systems and computers.
Mr. Nadella, who has risen through the ranks since joining the company in 1992, took over the company in 2014 at a time when big questions were circulating about Microsoft's future. He laid off thousands of employees and halted development of the company's Windows Phone operating system, aimed at competing with Apple's iOS and Google's Android. He told employees the company needed to be more open and struck a deal to bring Microsoft Office tools to Apple's iPads.
“When Satya joined us, the first public announcement he made was to announce to the world that Office was coming to other mobile platforms,” Somasegar said. “This broke a lot of the constraints on what people inside Microsoft thought they could do.”
The company invested heavily in the next big trend: cloud computing. The company expanded its Azure cloud business based on existing business relationships. It is currently the second largest company in the world after Amazon's cloud business, and is the company's largest source of revenue. The company also made several major acquisitions to expand its customer base, including coding platform GitHub and social media platform LinkedIn.
And ironically, the company has avoided much of the regulatory scrutiny that big tech companies have faced over the past few years. Repeated government investigations, Congressional hearings and billions of dollars in fines from the European Union have taken a toll on Google, Amazon, Meta and Apple. But Microsoft has largely avoided similar attention, at least until recently.
“Microsoft has had to deal with this type of regulatory oversight many times throughout its existence,” Luria said. As competitors grappled with government attention for the first time, Microsoft was preparing by building “business practices to avoid getting caught in the regulatory net,” he said.
This is starting to change as regulators wake up to the fact that Microsoft is truly one of the most powerful companies in the world. The company was able to acquire video game giant Activision Blizzard, but only after a two-year battle over terms with regulators in multiple countries. And the Federal Trade Commission is currently investigating Microsoft's dealings with OpenAI.
But the days of Microsoft being an afterthought in the technology world are over. Somasegal remembers the late 2000s and early 2010s, when the company struggled to convince new hires to join the company instead of going to Google, Amazon or Facebook.
“At some point, we were taking money away from all these companies,” he said. Now, college students are looking at the company as a potential place to join the AI arms race. “Microsoft is back.”
