When Satya Nadella took over from former CEO Steve Ballmer five years ago, Microsoft looked very much like a legacy software company, propped up by the success of Windows, but on a long-term decline trajectory. But now the company is hitting new highs on the stock market, and investors think that it has many years left in it still. What happened? How did Microsoft achieve such a stunning turnaround that many investors now believe that it is more valuable even than the mighty Google?
Let’s take a look.
Microsoft Offers Development Platforms
If you dip into the investing world, you’ll hear a lot about the value of “platforms.” The definition of a platform is pretty loose, but it generally describes the digital infrastructure on which other people do business. Amazon marketplace is a platform for sellers. Google is a platform for advertisers. Facebook is a platform for businesses and digital marketers.
Microsoft is building a different kind of platform, one based on programming. Expert .NET development refers to the process of using Microsoft’s .NET technology to code for apps, websites, and other programs. In effect, Microsoft provides developers with the tools that they need to create the rest of the apps in the ecosystem, making it a platform for developers.
It’s proven to be a smart strategy. Companies that develop great software products are extremely valuable. And if they rely on Microsoft to create that value, royalties soon start flowing in Microsoft’s direction.
Microsoft Is Going Cloud-Native
The cloud was never a particularly sexy subject. But when it comes to the future of computing, it’s hard to imagine an IT landscape without it. The cloud is everywhere today and will continue to be everywhere in the future.
Microsoft’s cloud product, called Azure, is designed to go head-to-head with the market leader, Amazon Web Services. Amazon got into the cloud game early on and developed a substantial lead. But Nadella soon realized that if Microsoft wanted to compete in the future of computing, it had to start providing companies with the cloud services that they crave.
Azure, like other cloud platforms, grows by double digits every year, providing Microsoft with a potentially enormous revenue stream in ten years.
Microsoft Is Building A Subscription Model
How do you get the most money possible from your customers without them realizing how much they’re spending? Easy: you launch a subscription service. It’s unlikely that people would pay $120 up front for a year’s membership of Netflix, but if you charge $9.99 per month, then all of a sudden it seems a lot more manageable.
Microsoft is doing the same for business customers. Rather than charge up front for its Office 365 suite of services, it offers them on-demand, meaning that firms can pay for them month-by-month, reducing overall fees.
What’s impressive about the new approach is that it is allowing Nadella to make more money than ever before. Microsoft now has more than 135 million active users of its Office 365 product, all paying predictable monthly subscriptions. It’s a win-win.