“Microsoft Returns” AI Revived the Five-decade-old Tech Powerhouse

By Roze 8 Min Read

In the early 2010s, Microsoft execs had gloomy chats. Google and Apple led the smartphone revolution, while Microsoft struggled to create a mobile business. Microsoft struggled to recruit from colleges as employees left for competition.

“Are we at risk of becoming irrelevant?” asked Seattle-based Madrona Venture Group investor Sivaramakrishnan Somasegar, a former Microsoft executive. How times have changed.

Microsoft posted $62 billion in sales on Tuesday, its sixth straight quarter of record revenue, and last week, its market capitalization reached $3 trillion, making it the world’s most valuable firm.

It even outperformed Apple, the world’s largest tech company, by producing attractive iPhones and novel ways to charge monthly fees. One of the most powerful AI leaders is Microsoft CEO Satya Nadella. Startups and large enterprises are paying Microsoft for AI technologies, even if they don’t always work. The company predicted more profits in the next year as consumers installed its AI solutions on Tuesday.

The company warned investors that its AI investments would raise costs, sending shares down almost 1% on Wednesday morning. Over the past year, company shares have increased 63%. Microsoft has significant influence over how AI is produced and how people will engage with it because to its large AI budget, tight collaboration with ChatGPT developer OpenAI, and hundreds of millions of daily users.

No one asks if the company is unimportant now, Somasegar remarked. “That is absolutely not an issue for Microsoft.” Microsoft may have underestimated mobile phones 15 years ago. It didn’t make the same error with AI’s buzz and investment.

Microsoft Returns

In 2019, it invested $1 billion in OpenAI, a nonprofit AI startup attempting to create human-level AI. When ChatGPT introduced its AI chatbot in late 2022, Microsoft was best positioned among the large tech companies to ride the excitement.

Microsoft rapidly invested billions more in OpenAI to integrate its AI into Microsoft’s tools. Since then, Nadella has worked to integrate AI into Microsoft’s cybersecurity software, Bing search engine, and Word. “Microsoft got to this megatrend first,” said D.A. Davidson senior software analyst Gil Luria. “That started paying off last year.”

Google researchers invented many of the technologies that enable ChatGPT, but OpenAI moved faster to develop and market them. Somasegar said Microsoft’s close cooperation with OpenAI and its links to tens of thousands of small, medium, and big organizations position it to attract corporate AI interest.

“We’ve moved from talking about AI to applying AI,” Nadella said on a Tuesday conference call after earnings. In Q4 2023, the corporation earned $21.9 billion, up 33% from the year before.

“This was another masterpiece quart” Microsoft has enormous hurdles. It uses OpenAI for the greatest AI tech, but the start-up’s leadership crisis and board problems cast doubt on their cooperation. OpenAI CEO Sam Altman is ambitious, therefore the marriage may not last.

The “generative” AI technology behind Microsoft’s growth has issues including fabricating and spreading incorrect information. AI businesses are being sued for training their algorithms on copyrighted data without paying for or permission. Many companies are signing up to use the tech today, but if the hoopla fades down, they may not find it worth paying for.

Microsoft insiders and industry analysts say the firm has changed almost completely in the past decade. The 1975-founded Bill Gates and Paul Allen company ruled the computer industry in the 1980s and 1990s with Windows. After the internet exploded, it wanted to exploit its advantage to control the online, but a large Justice Department lawsuit charging competition law violations stopped it.

Dan Ives, a Wedbush Securities analyst, said Nadella’s leadership will have a huge impact on the tech sector tomorrow as the AI revolution begins. Microsoft survived the lawsuit, but Silicon Valley startup Google became the leading internet gateway. Microsoft trailed behind Amazon and Facebook, which hired the smartest college graduates and built the future.

Microsoft was still a giant thanks to the hundreds of millions of PCs running Windows and Microsoft Office’s grip on white-collar life, but as Apple’s MacBooks became popular with young people and cloud-delivered software like Google Docs took off, its survival was threatened.

“They had missed the shift to mobile,” said Luria, a public tech analyst since the early 2000s. Still insular, the corporation blocked its tools from other companies’ operating systems and PCs. After rising through the ranks since 1992, Nadella took lead Microsoft in 2014 amid those enormous uncertainties about its future.

He fired thousands of employees and halted work on the company’s “Windows Phone” operating system to compete with iOS and Android. He told workers the corporation needed to be more transparent and negotiated to put Microsoft Office on iPads.

Somasegar stated Satya’s first public announcement was that Office would come to other mobile platforms. “That broke a lot of Microsoft employees’ expectations on their abilities.”

The corporation substantially invested in cloud computing, the next big trend. Building on its commercial partnerships, it grew its “Azure” cloud business. Today, it’s the second-largest in the world after Amazon’s cloud business and its major revenue source. The corporation has acquired GitHub and LinkedIn to grow its consumer base.

Ironically, the corporation has dodged much of the regulatory scrutiny that Big Tech companies have experienced in recent years. Google, Amazon, Meta, and Apple have faced many government investigations, congressional hearings, and EU multibillion-dollar fines. Microsoft, until recently, escaped the same attention.

Luria said Microsoft faced “that type of regulatory scrutiny so much throughout its existence”. While its competitors faced government scrutiny for the first time, Microsoft built its “business practices around how not to trip that regulatory wire,” he added.

That’s changing as regulators realize Microsoft is one of the world’s most powerful firms. The company bought Activision Blizzard following two years of negotiations with regulators in numerous nations. Microsoft’s OpenAI agreement is under FTC investigation.

Microsoft is no longer a tech afterthought. In the late 2000s and early 2010s, Somasegar struggled to convince new graduates to join the company instead of Google, Amazon, or Facebook.

“We were getting a run for our money from all these companies,” he said. Today, college students see the company as an AI arms race entry point. Microsoft returns.

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