Hit Refresh

by Satya Nadella

  In the 1990s, Microsoft developed a reputation for being a tough partner, to put it mildly. Documents and testimony in the U.S. Department of Justice’s antitrust case against Microsoft (not to mention news stories and books) were filled with often damning stories of a company moving fast, competing hard, and upsetting many a partner. The government took action, the competitive landscape shifted, and now our mission and culture are different. A company that once was seen as crushing the competition is now focused on achieving business growth by empowering everyone on the planet.

  I was part of the hard-driving Microsoft of the 1990s, but I wasn’t personally engaged in the antitrust case. In fact, back then I was begging for customers and partners to work with us on our fledgling server business, a job that demanded an attitude of humility rather than one of hubris. One lesson I learned from the antitrust case (there were many lessons) was to compete hard and then equally celebrate the opportunities we create for everyone. It’s not a zero-sum game.

  I’ve taken that to heart. Google today is a dominant company in our industry. For years we’ve competed in the marketplace while also feuding through nonstop complaints to government regulators in the United States and abroad. As CEO, I decided to turn the page on that strategy, reasoning that it was time to end our regulatory battles and focus all of our energy on competing for customers in the cloud. Sundar Pichai, Google’s CEO, is a competitor who I also count as a friend. After a series of very productive discussions and thoughtful negotiations between our two organizations, led by Brad Smith, Microsoft’s president and chief legal officer, Sundar and I surprised observers of the rivalry with a joint statement: “Our companies compete vigorously, but we want to do so on the merits of our products, not in legal proceedings.”

  In pushing this change of attitude, I’ve been helped by the simple fact that I am a fresh face, new blood. Losing the baggage of history makes it easier for me to break down old walls of mistrust. But will it be enough?

  * * *

  Early in my tenure as CEO, I decided I needed to talk with Peggy Johnson, who had been doing an amazing job at managing partnerships and business development at Qualcomm, a semiconductor and wireless telecom company based in San Diego. I called her up one Saturday afternoon at her home in the San Diego area and asked her whether she would consider joining Microsoft. I could tell that she was skeptical and even felt a little disloyal having the conversation. I managed to persuade Peggy to meet me for dinner in Silicon Valley.

  Walking into the Four Seasons Hotel for our meeting, a few people recognized me and heads turned with more than a little curiosity. We were seated at a quiet table and soon found ourselves talking excitedly about ambient intelligence—the notion that more and more objects in our homes, offices, and other spaces will automatically recognize our human presence and respond to our preferences. For Microsoft to successfully lead that digital transformation would take new, untraditional, surprising partnerships, investments, and acquisitions. I sensed that Peggy was hooked on that vision too. Later I learned that she’d called her husband immediately after our meal to persuade him that Redmond, Washington, was in their future. She had the job and the direction to help “make Silicon Valley our best friend.”

  Peggy’s ease, humility, and passion for technology impressed me. These were just the qualities I wanted Microsoft to convey to our potential business partners. Little did I know how soon those attributes would be called into action.

  One of our major partnership goals was to build Microsoft applications for competing platforms like Google’s Android operating system and for Apple’s iOS. We needed to have our apps preloaded on phones with varying operating systems so that when a consumer bought a phone, Microsoft apps would already be there.

  One of the important partners we needed to work with on this front was Samsung, the Korean manufacturer of the world’s most popular Android smartphone. We’d partnered with Samsung for more than thirty years. But in the summer of 2014, as Peggy was preparing to move to Redmond, Microsoft’s relationship with Samsung was breaking down. Several years earlier, Samsung had entered into an agreement to license some of Microsoft’s intellectual property, but since then the company’s smartphone sales had quadrupled and its Android phones were now the bestselling in the world. After Microsoft announced it would purchase the devices and services division of Nokia, the Finnish smartphone manufacturer, Samsung informed us they would no longer abide by the contract we had signed. Samsung’s president, Jong-Kyun (J.K.) Shin, had become so upset that he refused to meet with anyone from Microsoft. The partnership was sharply tilting toward litigation.

  We worked to get Peggy up to speed on the Samsung relationship. She read documents from both sides, asked good questions, and offered creative ideas about how we might resolve our differences. Fortunately for us, Peggy had developed a great relationship with J.K. He agreed to meet with her. She and a team from business development and legal journeyed to his office in Seoul, where they found the room filled with people known for their tough negotiation style. Peggy and the team worked to demonstrate respect throughout the meeting. Rather than make demands, she decided instead to listen, reserving judgment and seeking to empathize with Samsung’s perspective.

  She and the team returned to Redmond not as advocates for one side, but motivated to find a solution in the middle. Though new to the company, Peggy already exemplified the culture we aspired to have. She saw what was possible by keeping a growth mindset, not one fixed on pointing fingers or assigning blame. She and her team brought everyone to the table, demonstrating what diversity and inclusion looks like. And she showed us the importance of getting out of our headquarters at Redmond—away from our insular, comfortable world—and inside that of our partners and customers.

  In the end, we still had to resolve some of our issues through the courts, but we also continued to show respect. “Microsoft values and respects our partnership,” we wrote in a statement. “Unfortunately, even partners sometimes disagree.”

  Today Microsoft apps are popular on Samsung smartphones; Windows 10 powers Samsung tablets and its ambitions for the far-flung Internet of Things.

  Around the same time, we were embroiled in a contentious dispute with Yahoo, which used the Bing search engine as its exclusive search partner. Microsoft and Yahoo shared in the revenue from the searches performed by Bing. But, as with Samsung, our relationship with Yahoo was deteriorating as Yahoo’s business model came under pressure, and lawsuits were being threatened. Yahoo wanted to breach its contract.

  We worked to mend the relationship not by presenting a list of demands, but by listening, empathizing with a partner’s situation and exploring ideas. In the end, we decided to forgo the requirement of exclusivity for Bing as Yahoo’s search partner. The issue was generating too much needless friction between the two parties, and we were confident that our technology and our partnership would prevail. We avoided costly litigation, and today Bing continues to handle the majority of Yahoo’s searches.

  These experiences have taught us a lot and refreshed our partnering spirit. Microsoft already has the largest ecosystem of partners in the world. Hundreds of thousands of companies worldwide build and sell solutions that support our products and services. In addition, millions of customers in every sector have built their businesses and organizations using Microsoft technologies. My ultimate goal is to be the biggest platform provider underneath all of this entrepreneurial energy, with an unrelenting focus on creating economic opportunity for others.

  But if we want to convince millions of new companies around the world to bet on our platform, we need to start by earning their trust. In Chapter 7, I will explicitly explore the notion that trust is built by being consistent over time. It’s built by being clear that there are places where we are going to compete to be best in class, and there are places where we can work together to add value for each other’s customers.

  Trust has many other components as well—respect, listening, transparency, stayin
g focused, and being willing to hit reset when necessary. We have got to be principled about it.

  Partnerships are journeys of mutual exploration, and so we need to be open to unexpected synergies and fresh ways to collaborate. Openness begins with respect—respect for the people at the table and the experiences they bring, respect for the other company and its mission. Do we always agree? Of course not. But we always seek to listen intelligently, seeking to understand not just the words we are hearing but the underlying intentions. I try hard not to bring needless history into the room, and I don’t let the limitations of the past dictate the contours of the future.

  Over the years, I’ve found that openness is the best way to get things done and to ensure all parties feel terrific about the outcome. In a world where innovation is continuous and rapid, no one has time to waste on unnecessary cycles of work and effort. Being straightforward with one another is the best way to achieve a mutually agreeable outcome in the fastest time possible.

  When complications threaten to stymie the effort to build a partnership, it helps to stay focused on long-term goals. Rather than being distracted by the endless opportunities to collaborate and the numerous questions they raise, I like to start with one or two areas of focus. Once companies can work together successfully, then they can tackle the next set of ideas and challenges.

  Finally, don’t be afraid to take a pause. Even when both parties have nothing but the best intentions, things can sometimes go sideways and may even come to a standstill. Sometimes it’s critical to look at an existing relationship with a fresh set of eyes. A strategy that failed in the past might work in the future. Technology changes. The business environment changes. People change. It’s a mistake to write off any relationship as a lost cause. Tomorrow always begins with a chance to create new opportunities.

  This approach led to real breakthroughs in our partnership with a standard-bearer in the creative world—Adobe, a pioneer in font development and the maker of PhotoShop, Illustrator, Acrobat, Flash, and many other products loved by artists and designers. Adobe was built on Windows, but we competed on document standards and, over the years, in spite of many common customers we simply drifted apart. My friend from Hyderabad Public School, Shantanu Narayen, had become CEO of Adobe earlier and when I was named CEO of Microsoft our two companies began to reengage. We still compete in areas of overlap, but we have a much deeper partnership in which Adobe’s creative software is now the inspiration for new Microsoft devices like Surface Studio and Surface Hub. Together we are transforming what artists can do with a computer. And we’ve expanded beyond the creative cloud into Adobe’s marketing cloud, which is built on top of our Azure platform.

  I am often asked, “When is a partnership appropriate as opposed to an acquisition?” The answer is best framed as another question, “Can we create more value for customers by coming together as one entity or as two?” In my experience, whether we’re talking about a gigantic acquisition like our deal to purchase the social network LinkedIn or smaller acquisitions like those of app developers Xamarin, Acompli, and MileIQ, the acquisitions that succeed generally start as partnerships born out of careful analysis of customer needs. That was the case with LinkedIn, which Microsoft acquired in 2016 for $26 billion, one of the largest such deals in history. For more than six years, Microsoft and LinkedIn worked together to enable our one billion users and their nearly half-a-billion members—the Venn diagram of our customers would overlap 100 percent with theirs—to synchronize contacts so that Office contacts were available in LinkedIn and vice versa. Microsoft made its technical specifications available so that LinkedIn could build a beautiful app for Windows and partnered on a Social Connector that enabled rich connections and collaboration across both platforms. For us to do even further integration, and create more compelling scenarios and value for our customers, we had to come together as one.

  Together we built not just a track record, but also a shared vision and mutual trust. That’s why on the day we announced the acquisition, LinkedIn’s CEO Jeff Weiner explained the deal to technology reporter Kara Swisher by saying, “You look at how Microsoft is increasingly becoming more agile, more innovative, more open, more purpose driven. And that played a big role in this.”

  Going back to my days as an engineer, I’ve used the following mental model to capture how I manage time:

  Employees. Customers. Products. Partners. Each element needs time, attention, and focus if I’m going to create the value for which I am ultimately accountable. All four are important, and without discipline even the best managers can overlook one or more. Employees and products command attention every day, as they are closest to us; customers provide the resources we need to do anything, so they also command energy. But partners provide the lift we need to soar. They help us see around corners, help us locate new opportunities we might not see alone. Since becoming a CEO I now recognize there are many more constituents in this constellation. Governments and communities, for example, are critical, too. There has to be a disciplined approach in which all of these players see the value of a company, of its products and services. Maximizing value comes from maximizing the well-being and vibrancy of all these constituents.

  Chapter 6

  Beyond the Cloud

  Three Shifts: Mixed Reality, Artificial Intelligence, and Quantum Computing

  Originally, I thought of this book as a collection of meditations from a CEO in the midst of transformation. As someone both navigating a corporate transformation and creating transformational technologies, my aim was to share these experiences in real time rather than look back on them years later. The Microsoft transformation, of course, is ongoing. In the face of global economic and technological uncertainty, we reset our mission, reprioritized our culture, and built or rebuilt strategic partnerships in order to solidify the foundation of our business. We also needed to hasten our innovative spirit and place new, bold bets. This is what has made Microsoft a trusted tech brand for more than forty years.

  We looked beyond the PC and the server to drive success in the cloud. But we also had to look beyond the cloud. Forecasting technology trends can be perilous. It’s been said we tend to overestimate what we can achieve in the short run, but underestimate what can be achieved in the long run. But we are investing to lead in three key technologies that will shape our industry and others in the years to come—mixed reality, artificial intelligence, and quantum computing. These technologies will inevitably lead to massive shifts in our economy and society. In the final three chapters of this book, I’ll explore the values, ethics, policies, and economics we need to consider in preparation for this next wave.

  Here is one way to think about the convergence of these coming technology shifts. With mixed reality we are building the ultimate computing experience, one in which your field of view becomes a computing surface and the digital world and your physical world become one. The data, apps, and even the colleagues and friends you think of as being on your phone or tablet are now available anywhere you want to access them—while you’re working in your office, visiting a customer, or collaborating with colleagues in a conference room. Artificial intelligence powers every experience, augmenting human capability with insights and predictive power that would be impossible to achieve on our own. Finally, quantum computing will allow us to go beyond the bounds of Moore’s Law—the observation that the number of transistors in a computer chip doubles roughly every two years—by changing the very physics of computing as we know it today, providing the computational power to solve the world’s biggest and most complex problems. MR, AI, and quantum may be independent threads today, but they are going to come together. We’re betting on it.

  A technology company that misses multiple trends like these will inevitably fall behind. At the same time, of course, it’s dangerous to chase untested future technologies while neglecting the core of the current business. That’s the classic innovator’s dilemma—to risk existing success while pursuing new opportunities.

/>   Historically, Microsoft has struggled at times to get this balance right. We actually had a tablet before the iPad; we were well along the path toward an e-reader before the Kindle. But in some cases our software was ahead of the key components required for success, such as touchscreen hardware or broadband connectivity. In other cases, we lacked end-to-end design thinking to bring a complete solution to market. We also got a bit overconfident in our ability to fast-follow a competitor, forgetting that there is inherent risk in such a strategy. We were perhaps timid in disrupting our own highly successful business models. We’ve learned from all this. There is no formula to inventing the future. A company has to have a complete vision for what it can uniquely do, and then back it up with conviction and the capability to make it happen.

  I had decided before becoming CEO that we would need to continue to invest, and to do so in an aggressive and more focused way, in new technologies and new markets—but only if we could satisfactorily meet our three Cs—do we have an exciting concept, do we have the capabilities necessary to succeed, and a culture that welcomes these new ideas and approaches?

  To avoid being trapped by the innovator’s dilemma—and to move from always focusing on the urgency of today to considering the important things for tomorrow—we decided to look at our investment strategy across three growth horizons: first, grow today’s core businesses and technologies; second, incubate new ideas and products for the future; and third, invest in long-term breakthroughs. On horizon one, our customers and partners will continue to see quarter-by-quarter, year-by-year innovations in all of our businesses. On horizon two, we’re already investing in some exciting nearer-term platform shifts, such as new user interfaces with speech or digital ink, new applications with personal assistants and bots, and Internet of Things experiences for everything from factories to cars to home appliances. On horizon three, Microsoft is highly focused in areas that only a few years ago sounded distant, but today are frontiers of innovation—mixed reality, artificial intelligence, and quantum computing. Mixed reality will become an essential tool in medicine, education, and manufacturing. AI will help forecast crises like the Zika epidemic and help us focus our time and attention on things that matter most. Quantum computing will give us the computational power to cure cancer and effectively address global warming.