As children, we’re told patience is a virtue, that slow and steady wins the race. But in Silicon Valley, where the “build fast, break fast” ethos guides companies, being a turtle is a sin. With this backdrop, Microsoft, that lumbering giant nestled among the forests of the Pacific Northwest, took the financial and tech worlds by surprise in late November by briefly surpassing Apple as the most valuable company on the New York Stock Exchange.
With a market cap of $812.93 billion, it was the first time in nearly a decade that the Redmond, Wash.-based tech company had squeezed ahead of its Silicon Valley rival. Apple—which had become the first company to reach the $1 trillion mark earlier this year—wasn’t in second for long. (It was less than a day.) However, the rankings shake-up was enough to make everyone wonder: How did Microsoft, the parent of Clippy and the Zune, become hip enough to unseat, if momentarily, the King of Cool?
Microsoft’s story has had more ups and downs than its iconic Windows hilly home screen. Rising to power in the 1990s before being hit by the dot-com bubble and a major antitrust case, the company missed the mobile boom of the aughts. Meanwhile, its Bing search-engine business was dwarfed by Google, while Apple ate away at both the smartphone and PC markets and Facebook defined social media. While many wrote off Microsoft as nothing more than that nerdy guy in those old Mac vs. PC spots, the past few years of hitting refresh have led Microsoft into an entirely different company and culture.
Analysts and investors say 2018 was the best year Microsoft has had in a decade. Over the past year, Microsoft has acquired 15 companies, ranging from cloud-computing and gaming to artificial intelligence and open source. Its tablets and laptops have received rave reviews. According to Gartner, Microsoft shipped 602,000 PCs in the third quarter of 2018—up from 591,000 in third-quarter 2017—and placed them in the top five vendors in the U.S. (Fourth place went to Apple, which shipped 2.02 million during the same period.) Software, including its Azure cloud and Teams workplace chat, have posted large gains, with Spiceworks predicting Teams will capture 41 percent of market share by 2020. And somehow—in a year full of industry headwinds and obstacles for two of its biggest competitors, Google and Facebook—Microsoft has remained steady.
“Microsoft is excitingly boring,” notes Piper Jaffray analyst Alex Zukin. “And that’s a really big positive for investors because they’re not dealing with peak iPhone, peak social, macro or regulatory headwinds. They’re not dealing with lawsuits around misconduct. They’re able to stay below the radar because the trends that they’re playing at are decades-long trends. They’re not a flash in the pan.”
Past and present employees say the company has undergone a radical transformation of culture and mission. It’s no coincidence that, as next month marks the five-year anniversary since CEO Satya Nadella took over Microsoft from Steve Ballmer, Nadella’s focus on empathy—a stark contrast to other tech CEOs that are often seen as emotionless, out of touch or profit driven—is viewed as the driving force behind the company’s reversal. That focus on empathy applies to everything from internal mindset to client relations to competition. And, yes, even to marketing.
According to Microsoft CMO Chris Capossela, the company has spent the past year focusing on its “fans” to better understand them across verticals. And that doesn’t always mean fans in a consumer mindset kind of way, but rather doubling down on existing customers rather than trying to take market share away from Microsoft’s competitors. He says the company has spent more time listening to its customers this year than in the past decade. With so many different fan bases to monitor, this approach has led to refinements across multiple products. Microsoft has created an adaptive controller for Xbox gamers with disabilities, for example, and designed the Surface Go with a smaller form factor to accommodate women who asked for a device that fit in a purse.
“You need to have people who understand how to talk the language of a gamer, and how to talk the language of a chief security officer,” he says.
Perhaps counterintuitively, the boost in the Microsoft brand over the past year has not meant an increase in its marketing budget. In fact, the company has spent less money over the past few years, investing $1.5 billion in 2017, $1.6 billion in 2016 and $1.9 billion in 2015. Kathleen Hall, Microsoft’s corporate vp of brand, advertising and research, says the company has evolved over the past year from being product led to blending storytelling with engineering.
“I think the point is we have a very good balance between selling products and selling value and commitments,” she says. “And I think that’s the yin and yang that works with us.”
Positioning Microsoft as a collaborator has been a key selling point. According to Capossela, “The days of being beholden to one company’s tool chain are completely gone.” As a result, Microsoft has shifted toward becoming a more open, collaborative environment for both its own products and those of outside developers. And it’s begun scattering seeds in everyone else’s fields, positioning the company as the antithesis of the so-called walled garden that other Silicon Valley giants such as Apple and Facebook have become known for. By acquiring GitHub, the software development platform, last year for $7.5 billion, Microsoft sent a strong nod to developers that wish to work beyond the ecosystems of Apple and Android. Then, in October, the company announced plans to mirror Android apps on devices that use Windows.
Another platform where Microsoft is thinking outside of Windows is with its Cortana voice assistant. Unlike Apple’s HomePod, Amazon’s Echo or Google’s Home, Microsoft has not yet released its own smart speaker. Instead, it’s integrated Cortana into the Xbox One while also partnering with Harman Kardon to place Cortana inside the Samsung subsidiary’s smart speaker. For the Xbox, Microsoft also recently added Alexa, giving the gaming console two smart assistants to choose from. (It also recently redesigned the Cortana app for iOS.)
“We live in a world that’s not a zero-sum game,” Capossela says. “You’re not going to have one cloud provider that wins it all … and once you realize that about the entire tech industry, it becomes much easier to embrace companies that might have formerly been seen as a competitor.”
That mindset also will be subtly on display this week at the Consumer Electronics Show in Las Vegas, where large and small companies alike showcase their products and services to some 175,000 attendees. Microsoft often opts to take a backseat at CES, working with partners such as Dell, Lenovo, HP and others to highlight both enterprise software and consumer hardware.