Microsoft CEO Satya Nadella recently shared insights on past technological shifts, the rapid rise of artificial intelligence, and how businesses must evolve to remain competitive. In a candid admission, he acknowledged that Microsoft failed to capitalize on one of the most significant business opportunities on the internet—search engines.
During an interview with Indian-origin podcaster Dwarkesh Patel, Nadella reflected on the early days of the internet when many believed it would remain decentralized. However, Google recognized that search was the key to organizing the web and built a business model around it.
“…we missed what turned out to be the biggest business model on the web, because we all assumed the web is all about being distributed, who would have thought that search would be the biggest winner in organizing the web? And so that’s where we obviously didn’t see it, and Google saw it and executed super well,” Nadella remarked in the podcast interview.
He emphasized that simply identifying a technological trend is not enough; businesses must also recognize where the value will be generated. He pointed out that changes in business models are often more challenging to predict and adapt to than shifts in technology itself.
“So that’s one lesson learned for me: you have to not only get the tech trend right, you also have to get where the value is going to be created with that trend. These business model shifts are probably tougher than even the tech trend changes,” he stated.
Nadella also addressed a common belief that industries such as artificial intelligence and cloud computing operate on a winner-takes-all basis. Drawing from Microsoft Azure’s competition with Amazon Web Services (AWS), he recalled how investors once questioned Microsoft’s ability to challenge AWS’s dominance.
“Having competed against Oracle and IBM in client-server, I knew that the buyers will not tolerate winner-take-all. Structurally, hyperscale will never be a winner-take-all because buyers are smart,” he explained. Nadella highlighted that enterprise customers actively seek competitive markets, ensuring that no single company can completely monopolize cloud computing or AI.
Unlike consumer markets, where dominant players can emerge, businesses and IT departments prefer multiple suppliers to maintain flexibility and competition. “Consumer markets sometimes can be winner-take-all, but anything where the buyer is a corporation, an enterprise, an IT department, they will want multiple suppliers. And so you got to be one of the multiple suppliers,” Nadella added.
Regarding the future of AI, Nadella predicted that artificial intelligence models would not be controlled by just a few companies. He drew a comparison to the competition Windows faced from open-source operating systems, suggesting that AI will have similar open alternatives to prevent monopolization and drive innovation.
“I think in models there is one dimension of, maybe there will be a few closed source, but there will definitely be an open-source alternative, and the open-source alternative will actually make sure that the closed-source, winner-take-all is mitigated,” he said.
Nadella’s insights highlight Microsoft’s evolving approach to technology and business strategy. His reflections on past missteps and current market dynamics suggest that Microsoft is keen on ensuring a more competitive and diversified future, particularly in AI and cloud computing.