Author(s): Raghu Gopal
Last week, Microsoft became the world's most valuable company, with a market capitalization of $851 billion, unseating Apple from the coveted position. This marks Microsoft's first return to the number-one spot since 2002. It wasn't long ago that its prospects looked rather bleak as licences for its Windows operating system fell with a sharp drop in sales of PCs.
Microsoft flourished in the 1990s, when its Windows platform helped it become the most valuable business in the world. But its fortunes took a hit after a landmark antitrust case and as smartphones emerged to challenge desktop computing. At the beginning of the decade, Microsoft's arch-rival Apple took over with the highest valuation for a tech enterprise, lifted by the success of the iPhone. In 2011, Apple unseated Exxon Mobil for the overall number-one position worldwide, and has since held on to the top spot largely uninterrupted. In summer 2018, Apple became the first company to reach the trillion-dollar valuation.
With Satya Nadella at the helm since 2014, Microsoft has taken off. The game-changing moment for the firm has been its decision to totally focus its products on its cloud infrastructure, the Azure ecosystem.
Microsoft products are about utility; they're productivity tools that can be used in the workplace or at home. Its Azure cloud technology is a service for businesses and a platform for software developers to build applications, a kind of cloud operating system.
Like its entry into the market for PC operating systems, Microsoft wasn't first to hit the cloud computing space. It was in 2010, four years after Amazon started to address the cloud market, that Microsoft introduced its own cloud services. But it lacked an offering comparable with Amazon's until 2013, and even then, its cloud service was considered inferior. The corporate focus remained Windows, which was still Microsoft's bread and butter, fuelling most of its success.
Over the years, Microsoft has also retooled its popular Office apps like Word, Excel and PowerPoint, into a subscription service. The Redmond company has also stuck with the Xbox gaming business through its lean years, which now contributes $10 billion a year to total revenue.
Open-source and free software, once an anathema to Microsoft, has been embraced as a vital tool of software development under Mr Nadella. The company's rise to the top has been accelerated by its foray into cloud computing, abandoning an errant move into smartphones and returning to its roots as mainly a supplier of technology to businesses.
Perhaps above all, Mr Nadella has also changed the culture within Microsoft, making it more innovative and breaking down old siloes. After becoming CEO, he made critical organizational decisions that have enabled a "flywheel" effect in its tightly aligned cloud infrastructure, security, applications and hardware businesses. Microsoft's financial performance, and its stock price, suggest that Mr Nadella's magic is working.