Microsoft CEO Satya Nadella returned to the Code Conference this week, and much of the discussion revolved around what it was like to take the reins from Steve Ballmer in 2014, though he did touch on some of Redmond's more current battles.
Asked by moderator and Code producer Kara Swisher about the company's aborted effort to acquire TikTok from Bytedance in the US, Canada, Australia, and New Zealand, for example, Nadella called the experience "the strangest thing I ever worked on."
He noted that "TikTok came to us, we didn't go to TikTok." The two companies initially discussed whether Microsoft could be TikTok's cloud provider and help with security, and Microsoft thought its work on social moderation and child safety would be of interest to TikTok, not to mention its cloud platform, security infrastructure, and the engineers it could supply to separate the codebase. But things fizzled fast. "For a particular time, I thought [the US government] had particular requirements, and then they just disappeared."
Microsoft's Satya Nadella and Code's Kara Swisher
Asked if he would still like to do a deal, Nadella said only that "at this point, I'm happy with what I have," an answer he used on most questions about acquisitions.
On the Department of Defense's JEDI project, a contract Microsoft lost this summer amid complaints from Amazon, Nadella said the DoD has now decided that it wants to go multi-cloud, and that, "we are advocates of multi-cloud and happy to compete." But he added that the government needs to move faster to modernize its infrastructure. The Defense Department has been a big Microsoft customer from day one, but "we aren't a defense contractor; we make commercial technology that is broadly used."
On the SolarWinds attack, which hit Microsoft's source code, Nadella said disclosure is a key aspects of cybersecurity. He referred to Ken Thompson's classic Turing Award lecture, "Reflections on Trusting Trust," saying that "ultimately, you have to trust the institutions from whom you're getting your software from."
We can't solve security by just talking about it, he argued; public-private partnerships are key. "We need the moral equivalent of a Geneva Convention," Nadella said, echoing calls from other Microsoft officials, such as Microsoft President Brad Smith.
Smaller companies and individuals are most at risk, and enforcement should be the job of multilateral organizations. China too has a big stake in being safe. Cyber doesn't have borders, so "this is a place where the world needs to cooperate," he said.
Asked about globalization, he acknowledged that every country has to protect itself first and said there is a real concern about the silicon supply chain, which isn't completely compatible with national security. "We need to recognize that all that globalization did can't be thrown out," he said, but we can take steps to make sure we are resilient.
The Remote Work Conundrum
Asked about the new forms of working from home, he noted that the discussion only applies to a relatively small percentage of the workforce. For this group, he said, we're seeing "real structural change." He said 65 percent of people want more human connection, and 70 people want more flexibility, so we need to build the tools that allow for that.
Microsoft is trying not to make too dogmatic a decision on work flexibility now; the firm wants to get data over time. While the general metrics claim people have been very productive working from home, it's too early to tell what impact that has on things like innovation. In some businesses, such as the company's game studios, people weren't as productive. We need "a bit deeper understanding of what people need," and eventually, new norms will emerge.
In the meantime, there is room for improvement in remote-working tools. Nadella says education is where we have to improve the most.
'We Were Scrutinized a Lot'
Asked by Swisher why Microsoft has escaped the current round of scrutiny being applied to technology companies, Nadella laughed and said, "we were scrutinized a lot," obliquely referencing the antitrust case against the firm in the 90s.
He said there are two forms of core technology—platform technologies that act as factors of production, as input for someone else to create new things, such as the cloud and productivity suites; and platforms of distribution, such as marketplaces, app stores, news feeds, search, and e-commerce marketplaces. He said both have a place, but right now people are evaluating the social impact of factors of distribution. He pointed to search as an area where there was not much competition, asking when the last time someone spent lots of money on search except Microsoft. "The onus is [on] us to compete" in that area, he said, but if the factors of distribution are more competitive, then the impact of any one service will be less.
In the question of social media and disinformation, Nadella said Microsoft has learned that context matters. Disinformation is a hard problem, but the best thing is to use the context of a network to enforce terms of use on the network. He noted that LinkedIn focuses on economic gains. Pressed on how Facebook should act, and about the Apple/Epic lawsuits, he said he wouldn't sit in judgment, but everyone has to listen. "When there are a lot of people complaining, then there must be something you should reflect on."
Taking the Reins
Asked about his ascent at Microsoft, Nadella talked about "refounding" the company, articulating its mission in his own words, being himself, and looking forward.
Nadella joined Microsoft in 1992, and while he's been criticial of the company over the years, it's important to respect what made you successful in the first place. The goal is for the institution to be stronger when you leave. "Respect what came before you and shape what comes after."
Asked about former Ballmer, he said, "Steve made some of the biggest bets I was able to build on," including investing in the cloud business and choosing Nadella to run it. Ballmer got a lot of things right, but as a manager, he would only talk about the mistakes he'd made, Nadella said.
Instead of doing things out of envy, Nadella said it's important for the business to rediscover its core identity. Your brand gives you permission to do certain things; if you do that well, you may get permission to do other things. For instance, he said, Microsoft redid its server space to create its cloud business, reinvented Office as Office 365 in the SaaS place; took its Dynamics businesses and created a cloud-native SaaS solution; and made Xbox more central to the business and built on the company's cloud.
"Let's get back to what Windows is great at," Nadella said, calling it an operating system built for productivity and communications, and the "most open platform."
It's important to make sure you don't miss line extensions; Microsoft created a big new business in security; extended developer SaaS with GitHub and VS Code; and created the Power Platform suite of low-code tools.
When it has gotten into new areas, such as its purchase of LinkedIn, Minecraft, and GitHub, these were "all areas where we had permission," he said, noting that they were adjacent to products and business models the company already had. Acquisitions are only good if Microsoft can create a "platform for that mission to thrive."
And while acquisitions get the headlines, the fundamental bet at the company is organic growth through R&D, which accounts for 80 to 90% of Microsoft's investments in new products.