— The winter of 2010 brought some of Microsoft’s
the search engine Microsoft built to challenge Google,
was burning cash with little to show for it. Smartphones
for the first time surpassed the personal computer,
Microsoft’s comfort zone, as the world’s most
popular computing device. The must-have tech gadget that
holiday season was Apple’s new iPad.
a company at the center of the technology world for
decades, watched the future pass it by.
Ballmer, Microsoft’s chief executive, couldn’t
afford for that to happen to the company’s sprawling
a surprise move, Ballmer removed Bob Muglia, the leader
of the company’s fast-growing Server & Tools
division. Muglia’s departure in 2011 was the last in a
string of exits that saw much of Microsoft’s brain
was really dreary," Muglia said of the mood at
Microsoft then. "You basically saw a complete
self-destruction of the senior leadership team."
out of that chaos, the nadir of Microsoft’s lost
decade, the company found a rebirth in cloud computing.
years later, Satya Nadella, the man Ballmer tapped to
succeed Muglia, is the chief executive of a
reinvigorated Microsoft that is reaping the rewards of a
bet-the-company push toward web-based software and
stock hit all-time highs this month, a reflection of
investor confidence in Nadella’s pivot away from
flagging consumer services like smartphones and toward
business software delivered on the web. A company that
for much of the 2000s tried in vain to fashion itself in
the model of Apple or Google found a better target in
its back yard in Amazon.com.
Amazon grew up as an online retailer, but the company a
decade ago pioneered the business of renting computer
power and other technology infrastructure over the
internet. Its Amazon Web Services unit, with sales of
$11 billion in the most recently reported 12 months, has
a wide lead in that arena, analysts say.
has pushed hard to catch up, spending billions on new
data centers and rewriting its software for delivery via
investments are starting to pay off. Microsoft’s sales
of web-based computing infrastructure brought in about
$2.3 billion during the last year, analysts with RBC
Capital Markets estimate.
a small portion of Microsoft’s total revenue, and the
service likely isn’t profitable yet. But it represents
a vital new line of business for a company that relies
on a stagnant PC market.
a realization that the conventional wisdom about
Microsoft was wrong," said David Smith, an analyst
with researcher Gartner. "They saw the tremendous
success that Amazon was having, and they adapted because
cloud-computing work started in earnest in 2006, the
same year Amazon launched Amazon Web Services.
goal wasn’t to emulate Amazon. Instead, following the
ill-fated engineering effort that put together the
Windows Vista operating system, a small team of senior
engineers started working on stitching together the
plumbing behind Microsoft’s online services, from
Hotmail to search.
road show and listening tour ensued, with a crew of six
engineers piling into a minivan to learn from Microsoft’s
web-focused units in Silicon Valley.
in the Seattle area, the team set up a skunk-works lab
in Microsoft’s Building 28. It didn’t advertise its
work to colleagues, most of whom were plugging away on
packaged software releases.
hid," said Yousef Khalidi, an engineer who was
among the first to join the project. "The idea of
moving away from shrink-wrapped software was, at the
wasn’t long before Bill Gates asked to review the team’s
work. The co-founder’s official role at the company
was limited to a board seat, but he still kept a close
watch on Microsoft.
Ozzie, Microsoft’s chief software architect, said the
team wasn’t ready.
wouldn’t take no for an answer. He insisted, meeting
the team in a small conference room one Friday morning
and grilling it on its progress.
following Monday, Gates called another meeting. The
project was great, he said, but he wanted the team to go
public with its work.
the mission had changed from building tools for
Microsoft employees to creating a new product for
by the addition of a few dozen employees, the team spent
years building the first version of what was called the
Windows Azure cloud-computing platform. It launched in
initial product wasn’t very good. Azure was difficult
to use, and despite its "Windows Azure"
branding, it couldn’t run off-the-shelf versions of
team’s biggest bet — that businesses were interested
in using web-based tools to build new and futuristic
applications — proved to be a dud. Most companies
wanted the cloud to replicate something they already
BIG GOING ON"
did have a model for what would work.
2008, Server & Tools chief Muglia and Andy Jassy,
the leader of Amazon Web Services, or AWS, struck a
AWS customers wanted to run Microsoft’s software on
Amazon’s infrastructure. Muglia agreed to add Amazon
to a program for companies that rent Microsoft tools to
their own customers, and pay Microsoft at the end of
each month based on how much they used.
at the time wasn’t telling investors much about how
AWS was doing. Microsoft, though, had its own indicator:
the large and growing number of Microsoft products
Amazon was paying for every month.
knew that there was something big going on there,"
said Bob Kelly, a former Microsoft executive.
and Google by then had launched competing services, but
it was upstart Amazon that was capturing the most
HEAD OF TEAM
took over Server & Tools in 2011 with a mandate to
push harder on cloud computing, colleagues say.
didn’t matter whether customers were ready for
web-based tools, the thinking went. The industry was
going that direction, and Microsoft could try to lead or
risk getting left behind.
quickly, the world changed," said Khalidi, who
leads Azure’s networking teams today.
placed Scott Guthrie, a career Microsoft engineering
manager, in charge of the Azure team.
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of Guthrie’s first moves was to gather Azure’s
leaders at an off-campus retreat for an experiment: He
asked them to try to build an application using their
own cloud service.
didn’t go well. Some features didn’t work, and some
managers failed to complete the online sign-up process
to use Azure. "We didn’t have everything quite
right," Guthrie said.
team rewrote Azure, with a focus on ease of use and the
sort of tools Amazon was having success with. It also
had to unlearn lessons from decades spent selling
the old world, how a product performed was a
customer-service issue, walled off from engineers
working on adding new features.
the world of live web services, customer service became
part of the engineering work.
instituted weekly meetings in which senior leaders spent
hours delving into how customers used Microsoft
services, as measured by about 3,000 metrics.
a portion of Azure’s network fails in Southeast Asia,
for example, "We want to know why, and we want to
know in an excruciating depth what we are doing to make
sure it doesn’t happen again," Guthrie said.
isn’t discussed. "We focus on customer metrics,
and what we find is when we improve them, our revenue
keeps going up," he said.
relaunched in 2013 with a set of infrastructure services
that performed many of the same functions as Amazon’s
month after Nadella replaced Ballmer as CEO in 2014, he
signed off on a cosmetic, but hugely symbolic change.
"Windows Azure" was renamed "Microsoft
had been the center of Microsoft’s universe for
decades. Products had to play well with the operating
system or else they wouldn’t last long.
"Windows" was strategic, a reminder to
potential customers that Azure could run more than
Windows. It was also symbolic of the cultural shift
Nadella was trying to engineer as Microsoft, formerly
hostile to software built outside its walls, had decided
to play nice with Azure.
said our business is cloud first, and we have to move
away from the shackles that they were tied to in
Windows," said Dave Bartoletti, an analyst at
Azure has gained traction in the past two years in part
by using an old tactic: building off the company’s
relationship with business-technology buyers.
companies buy one Microsoft product or another. Jerin
May, a business-technology consultant with West Monroe
Partners, says he sees that familiarity paying
"commercial cloud," which includes sales of
Azure, Office 365 and other web-based business software,
was on track in September to bring in $13 billion over a
Guthrie and Khalidi are typical of the new Microsoft:
soft-spoken managers with deep backgrounds in
engineering. The company retains its sprawling
bureaucracy and penchant for meetings, but introspection
and data-driven analysis are in vogue.
particularly when talking about the competition, is out.
in an interview about the rivalry with Amazon, Guthrie,
who now leads Microsoft’s Cloud and Enterprise group,
tipped his cap to his the Seattle company.
have a lot of respect for our friends across the
lake," Guthrie said. "Our approach has always
been, when working on Azure, let’s not sort of thump
our chest and make claims. Let’s actually deliver a