Three lessons to help Microsoft avoid falling into the footsteps of Kodak and BlackBerry

Microsoft was also once complacent as the most valuable company on the planet, but it woke up just in time to avoid fading away like Kodak or BlackBerry.

"It's like the 1990s are coming back," said Satya Nadella, Microsoft CEO, at a new product launch in New York on September 21. The 90s were the glory days of the American software giant. At that time, the Windows operating system was popular across computers worldwide, helping profits skyrocket and revenue regularly increase by more than 30% each year.

Thanks to that, for a time, Microsoft became the most valuable company in the world. But success breeds complacency, according to Economis t. By the early 2010s, sales growth slowed down and profit margins also decreased.

Another decade has passed, and in the 2020s, Microsoft found a new golden age. This time, CEO Nadella bets his focus on cloud computing instead of Windows like before. This helps Microsoft cut costs and increase profits. Operating profit margin increased from 29% in 2014 to 43%, the highest among the 50 largest non-financial companies in the US by revenue.

Investors seem happy. Since the prospect of tighter monetary policy triggered a sell-off in tech stocks in November 2021, Microsoft's stock price has beaten all major rivals except Apple. Closing the trading session on September 29, Microsoft's capitalization reached 2,350 billion USD, the second most valuable in the world after Apple with a capitalization of 2,680 billion USD.

Satya Nadella, CEO of Microsoft. Photo: AP

Now Mr. Nadella is undertaking another bold reorganization, this time in artificial intelligence (AI). Thanks in large part to its investment in OpenAI, the startup that owns ChatGPT. This strategy has helped Microsoft become a company providing AI tools, when just a year ago most observers thought that leading this game would be Alphabet - Google's parent company or Meta - the company Facebook's mother.

There is a prospect that AI can push Microsoft even higher, helping it regain the title of the world's largest company from Apple, according to the Economist . And Microsoft's journey to regain its throne brings three lessons for businesses.

First is vigilance. When Steve Ballmer took over Microsoft from Bill Gates in 2000, Windows was sacrosanct. As a result, Microsoft failed to exploit major changes in technology, such as the emergence of smartphones and cloud computing.

This could easily put them on the path to ruin like Kodak or BlackBerry. But in time, when taking over the CEO position, Nadella was acutely aware of the company's lagging status. Since then, Microsoft has paid close attention to promising new technologies. That mindset helps them quickly keep an eye on AI.

The second lesson is that businesses do not need to invent themselves. Microsoft is adept at finding ways to aggregate and sell technologies created by others. At a recent event in New York, they launched "Copilots", an AI assistant similar to ChatGPT, an application for many different software services. Core to this strategy is the company's ability to combine OpenAI's tools with its cloud computing business.

Microsoft now wants to apply the same formula to its gaming business. Owning Xbox, they plan to combine cloud technology with the gaming business and expertise of Activision Blizzard - one of the world's largest video game companies. Recently, European Union regulators gave the green light to Microsoft's effort to spend $69 billion to acquire Activision Blizzard.

Microsoft's approach through M&A is different from Google, the company is obsessed with invention. Google has lost a total of $24 billion in business called "Other Bets" since 2018. Similarly, Amazon also invests heavily in scientific technologies. vision but so far there are no customers.

Its holographic displays for smartphones have failed, and adoption of palm scanning technology at grocery stores has been slow. Amazon and Google have both thrown money at delivery drones.

The final lesson is that exposure to the stock market creates the discipline needed to rein in founders. Mark Zuckerberg, the boss of Meta, spent $40 billion to build his dream of a virtual universe (Metaverse) and has plans to spend even more. He can decide this because the shares give him 61% of the voting rights at Meta. Similarly, Google founders Sergey Brin and Larry Page, hold 51% of voting rights at Alphabet. This may explain why the company has had difficulty growing beyond the search engine sector.

In contrast, Apple and Microsoft have been around longer, are no longer dominated by their founders, and are much more valuable.

Of course, Microsoft's strategies to regain its throne also have downsides. For example, too much vigilance can cause distraction. Conversely, a founder with concentrated power and ambition can also open up large-scale new income opportunities. But nonetheless, Microsoft is still a rare example of a giant that has been successfully reborn. And this time, if their bet on AI pays off, the company is likely to go even further, according to the Economist .