When Nadella took over as the CEO, Microsoft was looked at as dusty especially when compared to other Big Tech rivals. The software company was then heavily reliant on its PC operating system for profit-making and was under risk of having missed every important technology breakthrough since the early 2000s. 

Microsoft had by then spent a lot of time in an expensive pursuit of Google’s search engine via Bing. While Bing still is nowhere close to being the definitive search engine, a peek behind the curtains tells us the reason  why it wasn’t discarded completely. 

Side Hustle that then Failed

Started in 2009, Bing has become a successful side hustle for Microsoft, generating around USD 7.5 billion in annual revenue from web search advertising in 2021. This is pennies compared to Google’s USD 120 billion in ad sales for the same year but substantial enough to make more than the company’s LinkedIn professional network. 

Microsoft’s long bet on Bing might just work out in another way – last week the company announced it will launch a new version of Bing that uses ChatGPT to answer search queries instead of coming up with a list of links. The new feature is tentatively set to be launched before the end of March and clearly hopes to outsmart Google search. 

The move wasn’t entirely unprecedented. Since the release of its buzzy chatbot ChatGPT had set the internet on fire, there were whispers that Microsoft might just revive its search engine dreams. (Google preempted the move and declared ‘code red’ early in December last year which essentially was like pressing the fire alarm).

Project that Became a Hit

A year before launching Bing, Nadella tried his hands at another project – Azure, which now comprises 31% of its business now. It wasn’t a prime business of Microsoft when Nadella joined who after taking over placed Microsoft’s cloud computing division front-and-centre. And he was fast. 

AWS by then had already built a vast cloud business with virtually no competition. Nadella had reportedly stated then that Amazon was leading a revolution and ‘we had not even mustered our troops.’ 

Microsoft leveraged its rapport with IT divisions of other companies to build a solid cloud market. While it continues to dominate in many portions of business software, the company also offers a bundle including Azure with Office and other software. 

Since then Azure has been steadily gaining ground. Azure products were simply easier digested for clients as compared to AWS services. 

To many, what Microsoft is now is because of the turn that cloud computing took and the fact that Nadella was able to step on Azure at the right moment. But that would undermine Nadella’s efforts to diversify the company in new arenas. The reality is that most of Microsoft’s revenue comes from other markets – it sells ads, gaming consoles, operating systems besides PCs and other products. 

This is what distinguishes it from other massive technology companies including the cloud hyperscaler competitors like Amazon and Google. 

The success of OpenAI’s star products and Microsoft’s investment in the AI startup looks like it will change the narrative and help the company shed its image of being slow and uninventive. 

Big changes, More diversity

Nadella started spreading arms in other directions which opened up acquisitions like GitHub and LinkedIn. He also went on to bring Microsoft’s software and services to other operating systems including Google, Apple and cleverly the ‘open source’ Linux. 

In 2019, as Microsoft was looking for ways to compete with Amazon and Google in the aggressively fought cloud computing segment, Nadella’s company made another interesting choice. Microsoft invested in a non-profit project that had been co-founded by former Y Combinator president Sam Altman, Tesla honcho Elon Musk and a bunch of other leaders from the industry. 

OpenAI had dramatic ambitions—it wanted to build software that would eventually behave like humans. And Microsoft was ready to help. It had the compute available that a small startup like OpenAI needed to train their machine learning models. 

The deal has now culminated into a moment in time that could tilt the battle for AI innovation in Microsoft’s favour. 

Ahead in AI

If generative AI was the film of the year, OpenAI was the star of it. Its chatbot, ChatGPT released in November was a smash success being able to respond in human-like conversational style and gathered its first million users within a week. It raised concerns – not everything that the chatbot uttered was the gospel’s truth but it was safer than most chatbots that had been built by other companies. 

Another viral hit, OpenAI’s text-to-image generator DALL.E 2 came out in early November was responsible for splitting the generative AI market wide open.

Microsoft has also stated that it is adding DALL.E to its box of design applications like Designer to select Azure OpenAI cloud clients. For instance, Mattel is using DALL.E via Azure to create blueprint images of toy cars it wants to design. 

The partnership is a definitive result of the shift in culture that Nadella has been cultivating for a long time. As compared to the seemingly fast-paced and innovative Google, Nadella wanted to build a solid and diversified business model for Microsoft while continuing to invest in AI research projects like OpenAI.