First: A stock can rise for reasons having zero to do with the reality of the business behind the stock, for example mispricing, availability or the lack thereof of alternative investments, inflation, currency devaluation etc. Second: To me it always leaves a very foul aftertaste when the achievements of a team are ascribed to whoever the visible front-person is. I find it hard to believe that among the other 149999 employees that Microsoft has, there aren't some that deserve to be mentioned in relation to this achievement as much or even more than Satya Nadella does.
Bill Gates built an amazing airplane. Steve Ballmer crashed it in the desert. Satya Nadella rallied the survivors, put it back together, and got it flying again. Yes, he absolutely deserves the credit just as Ballmer absolutely deserves the blame.
Actually, Ballmer did quite well at MS. He consistently increased earnings via Windows and Office during his tenure as CEO. He was a very good businessman.
He was not, however, a product guy. Witness their failures with the Zune, mobile, early cloud computing. His problem was that he always tried to do what would be best for Microsoft and not the customer. You can get away with this if you already have an install base (windows/office), but with net new products people will look at what's best for them first. Even with developers developers developers he tried too hard to get people to use pure MS tech and made developing for the web on MS ugly if you using anything other than .NET. The result is a generation of developers on Macs and to a lesser extent linux.
Funny enough, thinking of the customer is what MS did with the xbox and it worked out well enough.
I feel that reflects quite well Steve Jobs vs Tim Cook as well. Jobs just wanted to make 'insanely great' products [for their users], with the side effect of profit, while Tim Cook is probably fixated on efficiency and Shareholder value. Apple has had record profits and performance, but most will tell it's not the same and its future is not so certain.
It seems paradoxical that trying to maximize shareholder value at all costs could have the opposite effect long term; but think of it this way: almost every company in the world is fixated on profit -- that's not a differentiator. What makes the company is amazing products that people need, even depend upon -- once you have that, it is very hard to fail.
Profit singlemindedness can definitely lead you astray, be fragile (of course, the 'user-oriented' robust strategy can be thought as ultimately also a form of profit seeking).
What Nadella seems very competent at doing is also pleasing his workforce as an additional important stakeholder.
> Tim Cook is probably fixated on efficiency and Shareholder value.
Tim was the 2nd in command of Apple for years. Easy to forget this, but Apple's success in the 2000s is partially attributable to Tim as well (not to forget all the other brilliant folks at Apple).
I'd probably agree. It might also be a Peter Principle thing where Ballmer/Cook were great at busdev/ops respectively while Gates/Jobs were more inspiring leaders.
Product development, especially in brand-new markets, requires a visionary with excellent taste, and the trust and respect of his team to revise with confidence.
I can imagine what happened with Zune, cloud, etc is that (an enormously successful) MS assigned senior engineers to head up potentially prestigious new projects as professional rewards, but what they should have done was acquire-hire startup founders with fire in their belly (and strong vision) about the space. Ironically anyone with that much belly fire probably would have left MS to pursue it, basically disqualifying everyone left. :)
I oversimplify both the MS and Apple examples as the "builder vs. caretaker" pendulum. Though Tim Cook could hold the reins for the next 10-20 years, I have no doubt that Apple will transition to another builder in the future. Once per generation? Every other generation? The computers (plural, laptops, PCs, phones, etc.) industry is still young.
Eight years post-Jobs, it remains to be seen what Apple's evolutionary thrust turns out to be, Amelio/Sculley. For now the market expectations (user desires) would seem to support innovation and design as a business priority.
This was right on point. The TouchBar and the problematic keyboard on those recent Macbook Pro laptops were clearly features that no Apple users ever wanted or asked for. Apple has lost some global market share as a result even though their net profit still went up. I'm afraid they are trading long term brand reputation for short term profit gains. They need to re-align product innovations with customer's best interests in mind.
It was pointed out recently that in this year's product lineup apple have started responding more actively to customers (it was also noted that these are post Ive too so there might be something in that)
Of course success with a vision often also includes a significant degree of luck and being in the right place at the right time. The iPod was just another MP3 player, albeit one with a certain style and design that captured lots of attention in spite of a premium price.
But it certainly wasn't ordained that Apple would parlay that into the runaway success of the iPhone.
Luck and timing play into it, but so does design and usefulness. Keep in mind the state of the world when the iPod came out. College kids sharing MP3s across school networks, etc. If you used microsoft's media players, by default they often "protected" the music by converting it to WMA files that were locked. Now you're unable to share with the other kids in your dorm. The cute boy/girl who asks "what song is that" that's blaring out your open dorm room can't just receive a copy. MS tried to win the war by cozying up to the labels.
Contrast this with Apple, which (then) used MP3s and you could plug in the player and have friends copy the music; add in the premium pricing and you've also got a status symbol. "Sharing" mp3s was the modern equivalent of sharing CDs or cassettes, something the labels took way to long to figure out in their early attempts at strict online digital music.
I have no idea if Apple intentionally did this, but it mattered. MP3 players were in their infancy and when people compared, the ipod looked better.
The iPod had, famously, "No wireless. Less space than a Nomad. Lame." It won for various reasons, but the iTunes music store started off with DRM, with tracks limited to 5 devices, so it didn't win for lack of DRM. (Well-executed UX and design played a huge part.)
Well pre-Zune (which was pretty mediocre; I got one for free and gave away as a gift) there were lots of other MP3 players. But I agree Apple had the premium offering especially once you got to the click wheel generation. And the music store sealed the deal.
Words cannot express my contempt for the stack-ranking system that Ballmer liked. I saw perfectly good engineers being forced out because managers had to find five or ten percent of their staff to let go. Some groups deliberately hired under-performers so they could fire them and protect the "real" members of their teams.
His "everything has to be Windows" philosophy was toxic, too. (Then I realized that he didn't really care about the underlying technologies of things, and as long as you called your embedded system that had an event loop and some interrupt handlers "Windows Event Loop And Some Interrupt Handlers, Enterprise Edition" you would be politically safe).
Short term thinking can make for excellent quarterly financials, but detrimental to long-term growth in ways that aren't obvious. With the benefit of hindsight, we can see that Ballmer's Microsoft missed the boat on several important major technologies.
Imagine a world where the "iPhone" was a Microsoft product and Apple was a company left buying out other phone companies in a futile effort to catch up. That would would look very different.
IMHO, there is an alternate universe where Ballmer was never Microsoft's CEO, and instead, they had someone who could envision a future of mobile and cloud offering years before the competition did. Which means a world where the Windows Phone outsells iPhones and Androids combined, where Azure has 70%+ of the cloud computing market, where the Microsoft store is streaming original video content to customers through Xbox Live, etc. In this world, Microsoft crested the trillion dollar market cap several years ago and is well on their way to hitting the $2T mark.
The current One Microsoft is Ballmer's vision executed by Nadella. Ballmer absolutely deserves some credit for putting the plan in motion that lead to Microsoft's resurgence. Nadella did NOT take over the company and lead an about face on Ballmers plan. He did extend the plan to be even more open to letting other Microsoft products cannibalize Windows.
Vista was necessary. Forced people to upgrade devices. Introduced the security prompt - where everything doesn't run with admin privilege. Windows 8, 8.1 and 10 also came under Ballmer.
>His problem was that he always tried to do what would be best for Microsoft and not the customer
What on earth is this doublespeak? If he always did what was best for Microsoft, we would not be discussing what his problem was in managing Microsoft. That's not how "what's best for Microsoft" works.
Firstly, notice the word tried. But in leads into the problem with many business people. "Best for mircosoft" would have been customers locked into a MS ecosystem where people were forced to buy the whole album to get a few songs the way the labels wanted it. That's what they tried to do, but obviously the customers didn't agree.
His problem, as an executive, was not "trying to do what is best for Microsoft". His problem, as an executive, was failing to do what is best for Microsoft.
The Zune was a great product, IMHO better than the ipod, if for no other reason than you didn't have to deal with itunes. The hardware may not have been as sexy looking as the ipod, but the software was far superior, and it was better in all other ways- I loved that it had an FM tuner.
Go look at the stock history, the moment Ballmer became CEO in 2000 the price stopped growing, lulled back down into the ~20-30's and stayed there until he stepped down in 2014. He did "exceptionally well" at keeping it where it was...
If you looked at historical p/e, the low for msft was the last year of ballmer. I think their p/e was 8... it was never a dog stock but an 8 is kind of like what you get if your p&g or coke. It’s not a growth stock anymore. That was about the time we started seeing the precursors to office365. So good things had started back then, but to assume a the role it has today where it’s equally a peer to Apple and google and not just relegated to be a waning player with a solid book in the enterprise (ie, sap, Oracle, etc) is quite an accomplishment. It’s as if msft finally did what gates and ballmer both failed to do: Become cool and strategic to an emerging / now dominant tech paradigm. It’s hard to give credit to one person ... credit goes to everyone there who not just went along with the pivot to cloud but took it to a whole new level.
> Go look at the stock history, the moment Ballmer became CEO in 2000 the price stopped growing
Nah, not really. 2000 was the dot-com bust (which was the start of the death spiral for a lot of formerly high-flyers, including Sun Microsystems) and 2001 was the DoJ consent decree, which brought a lot of MS's attempts to expand to a screeching halt. Ballmer, while being thoroughly mediocre in a lot of ways, deserves at least some credit for not tanking MS in that era.
Actually Ballmer did many things correctly. There was an incorrect call / arrogance in approaching the mobile phone market a certain way, and delay in building something like their hardware organization. But I don't think this means Ballmer was a complete failure. Microsoft delivered stellar results in many dimensions during Ballmer's years as well.
Ballmer built the amazing airplane that Bill Gates owned. Ballmer was there from close to the beginning, knew much more about business than Gates, and was intrumental.
Here's what I propose we should do to figure out the causality
1. Split Microsoft into three parts, each with its own exactly equivalent market.
2. Have Satya Nadella as the CEO of one of them, Steve Ballmer as the CEO of the other, and a control group with no CEO in the third.
The lift obtained from the first may be because of Satya Nadella. It's possible that Steve Ballmer may be getting worse over time, which is why you have a third control buckets to compare against.
Another reason for a stock to rise these days is stock buybacks. Great work if you're in upper management and can compensate yourself via corporate buybacks using "free money".(with interest rates being near zero and artificially suppressed)
Interesting that similar comments don't appear on the top when blaming Ballmar or some top exec for failures. Don't you find it hard to believe that things going badly are not the fault of the other 149999 employees that Microsoft has, as much or even more than Ballmer?
Take him away then. Imagine he just vanished. Took a sabbatical, didn't say where he was going, and just disappeared for a year.
What would happen? Things would function. They'd probably be fine for the first couple months, and they might even pass their first quarterly earnings without anyone noticing he's gone. If the department heads all were quiet and didn't notify the shareholders, things would seem completely fine.
But then the next quarter comes up. Money shifts around a little bit creating a small deficiency here, and a surplus over there. Department heads start to assist each other towards shared goals which may be detrimental to other departments.
Tribalism starts to take hold. Each department head is now their own top dog, and some will start to breed a culture within their areas where they believe they are absolutely more critical than other areas. Some individuals may start to actively sabotage the other departments if they feel it serves to benefit their own dept.
Without a CEO, you no longer have a company, you have a community of companies that are in direct competition with each other.
This doesn't mean the individuals within a company are unimportant. They get plenty of recognition within their own circles, but when you're talking about money, there's a reason the CEO is the focal point.
A country doesn't need a king to protect it from falling into tribalism. And a CEO is not the king of a company. The Board of Directors is the CEO's boss, and if the CEO did his job right, he is replaceable. If the Board of Directors did their jobs right, the CEO is replaceable.
What you are saying seems to me to be completely groundless in every dimension.
Also: I did not state the antithesis "Satya Nadella had nothing to do with MSFT adding $850b to their market cap". I'm just stating "It's not true that MSFT adding $850b to their market cap is attributable solely to Nadella".
The king analogy feels like a straw man, and tribalism is a generic social construct used well beyond the concepts of nations. I didn't state the CEO is irreplaceable. What I'm saying isn't groundless, you just either disagree or don't share my perspective.
I like your point about the board though, and I wonder how the MSFT board specifically feels about Nadella.
You can make the same argument with a member of the board or specific engineers or designers. Johnny Ive leaving apple could leave the apple design team to tribalism like the Apple II days.
It's trivial for a CEO to issue a puff piece as a marketing tool. Steve Jobs tried to advertise himself next to Ghandi. Assigning credit is a difficult game. Studies show people over and under assign credit. The best/most realistic crediting of work to successful performance ratio ended up with the team crediting to one another something like 115% over how much work was actually done.
Debating over blame and credit is mostly a waste of time, even though people fundamentally need positive feedback for good work and negative feedback for bad work. It's mostly used politically in big corps and that's a big void I try to stay away from.
At least from what I hear, Microsoft was huge enough that tribalism was already a thing even with a CEO there, going as far back as the Gates era. The slowdown in growth in the '00s that shrank the reward pool and the dog-eat-dog mentality fostered by their vicious stack ranking system just made the tribalism and cronyism there worse.
No one is saying a company should operate without a leader. And also, no one is claiming that just anyone can be a good CEO. Some competence in the unique CEO skillset is required. Every CEO is expected to keep their organization from devolving into tribal chaos, for example.
Whilst that doesn't read well, is that quote confirming that he's "gaming" HN? To me that could be read as "We're focusing on interacting with the community to answer questions, gain feedback, and address concerns."
I do tend to give people the benefit of the doubt though...
If Microsoft employees are 'working hard to make sure that Azure is growing in popularity' on HN - what do you think the chances are that they are not upvoting as part of that? (I don't know - perhaps they are secretly following some monkish creed to abstain from clicking on triangles...)
Well there's a fine line between employees having a job duty as "participate in online forum" and straight up astroturfing.
Especially on sites like HN and reddit which are relatively easy to manipulate.
I don't know how comfortable I am with any company posting and promoting their own product/content. Even employees voting on posts seems like a potential conflict of interest to me.
I'd rather not judge the journalist's sourcing abilities by a perception of their expertise in the field that comes from two words. To put it another way: assuming good faith, it's entirely possible that the journalist was told some sort of statistic that agreed with the statement they made; I'm simply curious as to what it might be.
That's too charitable. I wouldn't accept the vetting of any football-related news by a journalist who referred to the NFL as a "ball management organization."
I would if they cited their sources so I could verify their claims for myself. In my eyes it's OK for the journalist of an article like this to not to be an expert in the field, but they should be able to provide a somewhat coherent summary of a topic and allow readers to perform their own analysis on the parts they care about.
We're not talking about whether or not someone is an expert, we're talking about whether they have even a passing familiarity. What an operating system is isn't esoteric knowledge.
You'll find that it's not common knowledge among the general population, and presumably to some extent among the readership and authors of a financial newspaper.
It's fine to not know what an operating system is. There are lots of areas of life where I'm almost totally ignorant. The difference is I wouldn't try to report on them before I learned very basic, elementary things about them. It's not too much to expect someone to learn "it's like Android or iOS" before professionally writing about it.
"Linux" is as much "an operating system" as "Windows" is. Single words aren't expected to catch the nuances of decades long ecosystems, but are still very useful.
I would argue that one of the foremost responsibilities of a journalist is to make a condensed and correct retelling of a story. If any part of the story could be wrong and requires readers to second-guess and look up stuff for themselves, the article is basically worthless or perhaps even of negative value, since people may have to spend resources correcting its misconceptions in the future.
Right. The specific part that made me second-guess it was a counterintuitive statement about Microsoft's support to Linux, not the choice of words or nontechnical background of the author.
I absolutely despise these hero worship type headlines, even if the individual made an important contribution. I realize headlines are written by editors (not by the author) so I don't blame the writer (the article is well written) but such headlines contribute to the already awful cult of celebrity worship and CEO salary inflation which doesn't need any more fuel.
Headlines like these are the equivalent of scientific papers with no citations, no coauthors, no acknowledgements - as if the author was solely responsible for creating all the value merely by thinking in the aether. These types of scientific papers don't exist outside crank pot science for good reason - they are ludicrous. Just like this headline.
Microsoft has defintiely made great business decisions under Nadella. His vision in recognizing cloud investment must not have been an easy thing for the board to accept.
Two things I dislike about this article
1. It's tone is so favorable to Nadella and Microsoft, it feels like it was written by a fan. Amazon and Bezos are described as childish. They may be but it feels like the article has an agenda
2. Why is this a novel? The first third of this covers the main points but it keeps going
Unfair to give him credit for all 850, but he’s done a phenomenal job as CEO. The cloud focus is obvious in hindsight, but Ballmer would still be milking Windows, and imagine if they installed a non-tech CEO.
Well, these days you _can_ run a company without a single Windows machine.
What you cannot do (once you are more than a handful) is to not use any Microsoft cloud services (exchange online, office 365, skype fb, teams, ...) while doing business with other companies.
Far-far aside: I watched his recent appearance on the daily show. Regardless of your views of him (he gave off a more sympathetic sheen as a basketball team owner and public service contributor [usafacts] than he did as a business man), but man does he not have an inside voice. He (or rather anyone around) would not function in an open plan office.
Semi-related to your aside, but I sometimes feel like the impression that people hold against Ballmer as CEO at Microsoft, was that he was a bit of a "basketball team owner". He was absolutely fired up with team spirit (sometimes to a fault). He never really "played" (wasn't very technical), but he loved to watch the sport and figured he knew good plays when he saw them. In the end, he needed to have better "coaches" working for him on the team, or to stop incentivizing (stack-ranking) the "coaches" to play mostly safe plays.
Good/bad/and indifferent a lot of the takes on Ballmer seem to reflect how much you think a tech company needs a "basketball team owner".
The title is bs. Microsoft had a lot of legacy software which served as an on-ramp for Microsoft Cloud. MS success in the cloud is all a result of MS's past monopoly and has nothing to do with any individual who works for Microsoft.
I bet Satya Nadella is just another corporate bureaucrat who is skilled at taking credit for success which has nothing to do with them.
I don't buy it for 1 second that someone who is good at creating value could have the patience to spend almost 30 years working in a bureaucratic and monopolistic corporation like Microsoft and I doubt that it's even possible to learn these kinds of skills there. On the other hand, I think there is probably no better place to master the art of social manipulation and backstabbing.
He made the right call by putting the cloud first, that's where real revenue come from.
Nevertheless, let's remind that $MSFT has around 150k employees, where literally thousands are top tier in their position all across the industry.
Check out their Q4 earnings release; Azure and cloud services are the products with highest growth. IIRC While Office desktop is still a major revenue source the market is trending towards Office 365, and Windows is behind cloud services revenue.
That may be, but each incremental dollar of cloud revenue is assigned a much higher multiple by investors because it is growing quickly and seen as being more defensible over the long term.
The large group of strategy executives that had hubris related to touch screens. RIM got killed by the iphone AND android. Perhaps it was inevitable - the iphone is the only real premium smartphone on the market. It's a zero sum game?
This is a typical cherry picked business leader article where you can find examples to make any point that you want (or don't want). This is the reason that I stopped years ago even reading business magazines (you know the ones with the airport candy shop headlines).
They all follow the same 'hero' or 'zero' angle and typically have no access to the nuance (or underplay it) and complexity that goes into any success or failure. Nice reading though.
Note: Then I see this of all things: 'Disclosure: The author's self-managed super fund owns shares in Microsoft."
I would argue that even though the surface line has been a regarded as a financial failure, it is one of their most important developments to this date. Microsoft has been developing hardware for user interface design behind closed doors for years, and never released anything to the public before surface. Sure, the surface line was originally pushed by Ballmer, but I am so very glad that Nadella did not just look at financial statistics and just kill it. Hats off to you Nadella.
Really, it’s the fact that MS had enough cash to burn through all the bad mistakes and arrive at the next technology leap in cloud computing. They were able to fail their way toward success because of the monopoly they enjoyed for two decades. I am afraid the same thing will happen (or is already happening) to Apple.
The share price is not correlated the current revenue, otherwise it would be extremely simple to predict the share price.
It's correlated to the predicted future profit.
Person of the year should go to Amy Hood - she brought the divide under control by starving funding and driving consolidation. It’s hard to have internecine fights when you can’t afford the guns.
I am skeptical about the whole Cloud story. Has the faint stench of the housing bubble.
It made sense when the story was about renting out spare data center capacity. Amazon and Google had a ton of excess which started the story.
Microsoft, Oracle, IBM et al did not, but had to react to Amazon and Google Cloud and had to build up capacity. Then the game turned into ensuring all that new capacity was utilized. Enterprise needing to make the shift to Cloud is driven almost mindlessly by that fact, much more than actual Enterprise needs and issues. Utilization is achieved by smart marketing, a ton of it, targeted at dumb Enterprise.
> Enterprise needing to make the shift to Cloud is driven almost mindlessly by that fact
Is your claim that there are almost no legitimate reasons to move enterprise applications to the cloud? I don't want to hire more engineers, buy more servers, etc. I just want to pay money and skip everything else.
I don't think it's dumb for most small to mid-size enterprise companies to migrate to the cloud. Being able to outsource IT/infrastructure is quite beneficial when your needs aren't so big that it makes sense to set up your own datacenter. And it's far more flexible, if you suddenly start getting a lot more or less traffic you can quickly upgrade/downgrade to what you need.
tbh I think its eventually going to be an enviromental requirement to put everything in the cloud.
At work we have an application used by financial advisors in offices during working hours only.
Why do we need to have 4 whole machines spinning 24/7 (in the name of reliability and availability) when we only need a fraction of that computing power and only between 08:00 and 17:00?
The fact that Microsoft is still alive and somehow kicking is a surprise in itself. Computing market swerved wildly and they could have fall apart easily
I sounded exagerating but you know that they were under attack in many fields.
They failed on the phone market. The tablet market. (although it may be coming back now). Office got pressure from Google Docs. The desktop market has shrunk.. Even their server side was not strong.
Also this Nadella period coincided with a massive rise in passive investing and buyback of shares.
Investors are buying the stock because it’s one of the largest in the indexes weighing in at nearly 5% of the SP 500 market cap. Because of passive investments and mutual funds trying to match passive (index) returns, a nickel of every dollar invested in the stock market goes directly to buy Microsoft without any human consideration.
Does anyone know what this $850,000,000,000.00 looks like in reality? Where was that value created?
Did they sell that many more … what exactly? I am just trying to understand where that value is.
Or was this essentially all stock buybacks that artificially inflate the "value" as established by the market cap?
Ironically too is that when you control the MSFT market cap against the Trump inflated stock market, there is actually no actual gain, especially when you control for stock buybacks, aka, corporate stock self-inflation.
All of this reduces to "discounted future revenue". Say you have a 10 year target on MSFT. Do you think MSFT will make $850 billion dollars more in the next ten years than they did in the last ten years? MSFT revenue has doubled in the last ten years. Even if it does not grow at all, they will earn around $1T in the next ten years as compared to (about) $800 billion in the last ten.
Edit: and if you DO think it will grow then perhaps $850B of value is perhaps the top line.
He didn't add anything! Most of the fluctuation in a stock are due to market conditions. Second, almost all the work was done by workers in that company. The narrative that CEOs can do anything by themselves is a stupid myth that needs to be combatted.
