Microsoft’s Rise to $3 Trillion Took Much More Than Windows

The first time I met Satya Nadella, I committed what I thought was a cringeworthy faux pas. It was summer 2015, and he was just over a year into his role as Microsoft Inc.’s chief executive officer, and the value of the company that day stood at about $370 billion.

“Is that an iPad?” he asked, on camera, as I pulled out the device so I could have my questions at hand. On reflection, it was really no big deal. But as a still somewhat junior reporter, I was worried I was rubbing his face in it. The success of the iPad had blown all of Microsoft’s tablet efforts out of the water. And the iPhone, of course, had made mincemeat of Windows Phone. Nadella’s predecessor, Steve Ballmer, had not been quick enough to grasp the mobile revolution — “there’s no chance that the iPhone is going to get any significant market share,” he said — and had left Microsoft weak.

What a difference a decade of Nadella makes. This week, Microsoft joined the $3 trillion club — which so far has only two members, the other being Apple Inc., which first hit the milestone two years ago. The two titans are very much toe-to-toe now — and products like the iPad, it turned out, were part of Microsoft’s resurgence.

The Road to $3 Trillion

Before becoming CEO, Nadella had risen through Microsoft’s ranks to build its then-fledgling cloud business. It helped him see into the future. Once in the top job, rather than obsessing on protecting the lucrative Windows business at all costs, Nadella knew it was more important to let bygones be bygones and just put its products wherever it could, shifting to the software-as-a-service model — where revenue comes from recurring subscriptions — that would become the industry norm.1 Nadella told me that day in 2015 that he didn’t care what device people were using or what operating system. As long as they were accessing Microsoft products somehow, that would be the way ahead.

This freedom allowed Nadella to set about greatly diversifying Microsoft’s business. Apple’s reliance on a single popular device, the iPhone, is a persistent investor concern. The smartphone accounted for 52% of the company’s total hardware sales in its most recent reported quarter, and Apple’s Services segment — which includes things like the App Store, Apple Music and Apple Care — would suffer tremendously if iPhone use were to fall.