Microsoft’s stock price since CEO Satya Nadella was appointed to the position on Feb. 4, 2019 has done one thing and one thing only: move up and to the right.
More precisely, it has moved up and to the right more than 305%. Impressive stuff. Nadella has earned every penny of that massive increase in Microsoft’s market cap (which has taken it to beyond $1 trillion) — he has reinvigorated the tech giant’s culture and spearheaded successful new products such as the Surface and Azure cloud. Nadella signed off on two major acquisitions — LinkedIn and GitHub — which by most measures have proven wildly successful.
Despite all the success, as Nadella approaches his sixth year as Microsoft CEO he continues to advocate for employees staying humble and hungry. Nadella believes these attributes will help Microsoft to achieve greater success in the next decade and beyond.
“Technologies will come and go. But that core approach, that core ethos of really approaching it as a platform company, that's going to define what we are going to do in the next decade,” Nadella said.
What follows is an edited and condensed version of our chat.
Brian Sozzi: So we know that the narrative in retail is store closures continue and things are tough. Why do you think tech is so disruptive right now in the retail space?
Satya Nadella: I think, fundamentally, technology's just becoming a key part of the entire economy and entire life. It's not about retail per se. It's just that every part of our economy has to, in some sense, take technology and treat it more like a commodity input so that the art and science of retail gets to the next level. So when I think about, yes, we have some tough times, but at the same time, there's amazing opportunity.
For example, take something like even omni-channel commerce. Any retailer who's able to really do a great job and a seamless job of that is gaining share, gaining customers, gaining loyalty. So it comes down to, in some sense, every retailer building their own, what I describe, as tech intensity so that they can be successful.
Sozzi: Retailers are sitting on so much data. Do they know how to use it?
Nadella: That's the key. I mean, retail and retailers have the most precious asset, which is commercial intent data. And you said it, which is, what they do with it is going to define retail and their own prospects in it. Today, I think what they have been caught up in is, in some sense, sometimes, in fact, letting others benefit from their data. In fact, any retailer who continuously is spending more in online advertising with the classic aggregators is essentially leaking value.
Instead of that, let's say, if they took commerce marketing, built their own advertising prowess as part of their own website experience, their own mobile experience and even offline and brought their data together. First they'll have a high gross margin new business, which in turn will help fund new experiences for their consumers, including shipping as well as, in fact, provide a channel for every supplier on this. So I think it's possible.
I really would love for the 2020s to be defined differently.
Sozzi: There seems to be a lot more haves and have-nots in retail. Retailers, let's say Home Depot, Starbucks, that have the money and that get tech, but then a whole other class that doesn't get tech, what does the future look like for them?
Nadella: I feel that tech — in fact, our goal is one simple thing, which is, how do we commoditize it? So the smallest of retailers, I mean, the examples we talked about is a fashion retailer out of Italy doing a completely great job of how to think about retail-tainment, or Canada Goose, or, of course, the Starbucks and the Home Depots and the Walmarts and the Walgreens. So we want that cross section of retail, whether it's the smallest or the largest. And effectively, our job, if we do it right, is to say, OK, how can technology and the pricing on it become commoditized? The capability needed for the retailer to build their own capability, that learning curve has to come down.
Sozzi: Do you think retailers — they are sitting on a lot of data — built the internal teams to drive trust in that data?
Nadella: It's not just the technology capability but the trust. After all, whether it's ethics around AI, in other words, how do you use the data or security, are you securing it or protecting privacy? First of all, some of these things are going to be regulated. So again, this is a place where we can help by bringing, effectively, some of the technology capability, but the operational side of it, every retailer will need to take as a first-class priority.
Sozzi: As you see retailers today, are they equipped, financially and people-wise, to handle increased cyberattacks?
Nadella: I mean, today, cybercrime and cyberattacks are one of the biggest issues. And again, our job is to help the small retailers. In fact, small businesses and consumers are the most vulnerable to cyberattacks. And so, therefore, one of the things that we're doing is to ensure that the tools, the technologies, are available to protect it.
Sozzi: One thing I caught from your keynote at NRF is the focus on Microsoft Teams. It's making a lot of inroads. What does that business look like right now?
Nadella: I mean, it's a very fast-growing product line for us. But the key thing here is Teams, is no longer just about knowledge workers. Traditionally, a lot of what people thought about in productivity is about information worker and knowledge worker. This is about a retail specialist in a store being able to collaborate, the store manager and the store associates all working together to help meet the needs of the customers who are going through it.
And it also brings together what is store operations and front-line selling together into one scaffolding. So it's a real breakthrough product for us. We're very excited to see IKEA rolling it out to all of their associates. And fundamentally, I think that's what it's going to take — empowering the people in your stores to be able to really serve the customers better.
Sozzi: What's the next big breakthrough in retail?
Nadella: To me, the trends I talked about I think are the ones that I think are big. Personalization is a proxy for me, for every retailer becoming an AI company, that is, use all the data that you have, all the signals you have to personalize, whether it's online or offline. That's kind of one.
And the Starbucks Deep Blue [project] is a great example of that. Another is “Commerce Anywhere.” This is the omni-channel. If you order online, you want to pick up offline, but the seamlessness with which you do that, that's going to define your competitiveness.
Digital marketing and digital commerce marketing, this is effectively every retailer not being dependent on some online aggregator and online advertising, but they themselves becoming a new online advertising channel, that I think is perhaps the single most strategic decision every retailer has to make — take control back.
And lastly, it's that retail-tainment. How are you innovating? Because experience still matters. That's the art and the science coming together.
Sozzi: You mentioned Starbucks. You sit on the Starbucks board. What are they doing that other retailers aren't?
Nadella: To me, Starbucks is a coffee company that cares deeply about coffee. And what they've always done is use technology to keep improving that core ethos of Starbucks, whether it is what they do in their supply chain or what they do in terms of the retail experience or their new mobile convenience experiences. Everything is about using technology but never losing sight as Starbucks Coffee Company that it's about coffee and the coffee experience.
Sozzi: What's the biggest challenge for retail looking out over the next decade?
Nadella: I think it's going to be coming up with the evolution of both their capability, whether it's personalization, retail-tainment, “Commerce Anywhere.” But it's also this notion of having the new business models that give them the headroom. There is, today, death, taxes, and ever increasing online budgets for advertising. We can't do anything about the first two but, clearly, every retailer has to do something about number three because that's what's going to give them the headroom.
What I mean by that is, reduce your online advertising spend, build your own commerce marketing channel, and, in fact, serve the entire economy, which is the consumers get better products and better engagement, and you yourself as a retailer now have a new high gross margin business line. And most importantly, for the brands and the suppliers, they have a new channel. And so I think that that's perhaps one of the priorities in the next decade.
Sozzi: I want to touch a little more broadly on the cloud business. You recently won the JEDI government cloud contract. Does that serve as a halo effect over your overall business at Microsoft?
Nadella: To us, we've always been very focused as a platform company on the public sector. In this case, the Department of Defense has been somebody who has been a customer for many decades. And this represents the natural evolution of that, given what we're doing with the cloud. But overall, I think it comes down to us staying grounded in where is computing going, how do we think about hybrid cloud, which is a huge need out there. It's not just about the cloud. It's about cloud and its edge in AI. And trust, trust in business model, trust as a vendor who is fundamentally going to only benefit when the customer, partner, in this case, is able to derive benefits.
Sozzi: And because of that big deal, do you feel as though you get more government business? You win more enterprise business?
Nadella: Any big deal has a halo effect. But to me, the most important thing is not to take any deal you won as some guarantee for future success but to stay humble, stay grounded on what we need to continue to do, which is be obsessed about customer needs. That's what got us here. And going and doing what got us here is more of it.
Sozzi: This is a risky world, as you know very well. Amid all these concerns about cyberattacks and geopolitical risks, have you gone back and looked at your teams and how you're thinking about protecting the cloud?
Nadella: Absolutely. It's a continuous process. If you think about it, it's not about, again, having the locks on your home and thinking somehow you're secure. It's the operational security posture. Even when you are attacked, the real issue is not the attack itself because there is going to be a continuous cat-and-mouse game here. The question is, how quickly were you able to detect it, how you're able to mitigate it. I know the press headlines are all about what happened. The question is, if you look at the capability, when and what happened, what did you do, that's the core.
So to us, it’s about operational security posture and how are we learning, how are we keeping things more secure. That is going to define how things evolve.
Sozzi: How safe is the cloud?
Nadella: I think the cloud — if you think about it, just go back to what is required. It's an intelligence game. So the more you see, the more you can secure. So by definition, the cloud is more secure than anybody else who may even have a datacenter of their own but only sees partial activity. So by definition, I think technologically the cloud is more secure.
But it'll also make for big headlines because with the concentration in the clouds, you can now point to one or two vendors and one or two breaches. But the bottom line is the cloud is definitely more secure if you don't have either the operational signal or the operational capability in-house.
Sozzi: And lastly, you've driven quite the transformation at Microsoft. You're coming up, I believe, on your five-year mark as CEO.
Nadella: It's six years.
Sozzi: Wow. Six years. What's the next decade look like for you and Microsoft?
Sozzi: I always say there's only two things that both define relevance, and if you have relevance, you have success, which is what's that sense of purpose that made you successful in the first place. Is that still front and center? That's why I always go back to our mission of empowering every person and every organization on the planet to achieve more, what we do about that in the next decade. Technologies will come and go. But that core approach, that core ethos of really approaching it as a platform company, that's going to define what we are going to do in the next decade.