Microsoft’s Satya Nadella shares the leadership lesson in watching Amazon win the cloud business

“We can do that.”
“We can do that.”
Image: Reuters/Baz Ratner
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At a talk in New York on September 27th to promote his new book, Microsoft chief Satya Nadella revealed what he learned about leadership in 2009, after watching the tech giant fall woefully behind Amazon in the multibillion-dollar cloud services business.

In conversation with Steve Swartz, Hearst president and CEO, at Hearst’s headquarters, Nadella explained that Microsoft missed an opportunity to jump into the cloud services marketplace early, even though it had the capabilities in place.

At that time, Nadella was leading Microsoft Bing—the company’s answer to Google search. And Amazon was exploiting a huge new market that few others saw coming.

Microsoft’s cloud infrastructure beneath Bing (and now all of its consumer internet properties) was built for global scale, he said, and was very different from what the company had been building in its own server business, which had been selling to clients building their own data centers.

“In other words, our own needs had far outstripped our customer’s needs and we just built a parallel infrastructure, whereas the high-growth business at the time was selling servers to enterprise customers,” he continued, “and that’s where Amazon got ahead in the cloud business. Because they didn’t have any legacy, they just took what they built for the Amazon website and said, ‘Let’s sell it to other enterprises.’”

The lesson learned: “Capabilities sometimes get built in different parts, but the job of the leadership is to be able to constantly look for opportunities so that this capability is not just coupled to one concept, but can be leveraged across” the company.

Microsoft’s former CEO, Steve Ballmer, tapped Nadella to take over the company’s cloud infrastructure business (now called Azure) in 2011. At that time, as Nadella recounts in his book, Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone, “analysts estimated that cloud revenues were already multi-billions of dollars with Amazon in the lead and Microsoft nowhere to be seen… Amazon was leading a revolution and Microsoft had not even mustered the troops.”

Today Amazon’s AWS still leads that market, but Microsoft, says Nadella, began to catch up, and now Azure is Microsoft’s fast-growing line of business. And since Nadella became the company’s third CEO three and a half years ago, Microsoft’s stock price has nearly doubled.