How Satya Nadella Re-Founded Microsoft: From Irrelevant Has-Been to $3 Trillion AI Leader
Jaime Teevan signed on with Microsoft long before the tech giant became the hottest name in the industry again. Back in 2006, she was wrapping up her PhD in artificial intelligence at MIT, with no shortage of top-tier job offers. What drew her in was the company’s vaunted, almost cloistered research division, a space that felt more ivory tower than cutthroat corporate lab. She stayed through the years when Microsoft stumbled blindly through the mobile revolution, adrift as rivals seized the future.
By the turn of the 2010s, a seismic tech shift erupted: deep learning, a new approach to AI that promised to supercharge nearly every software product on the market. Google, Meta (then Facebook), and other leading firms went on a hiring spree, snapping up top machine learning talent as fast as they could. But at Microsoft? The mood was anything but frantic. “I don’t remember it being a frenzy, I don’t remember any drama,” Teevan says now. That calm hid a crisis: Microsoft was still laser-focused on squeezing maximum profit out of its legacy cash cows, Windows and Office, while the future of AI passed it by.
In 2014, Microsoft upended expectations by tapping lifelong insider Satya Nadella as its new CEO. Over 22 years, Nadella had climbed the company’s ranks on smarts, grit, and a likability that was almost unheard of at the notoriously cutthroat firm. He knew Microsoft’s broken culture intimately, and he knew it had to be rebuilt from the ground up.
Three years after Nadella took the top job, Teevan became his third technical advisor—and the first with a deep AI background. She would later rise to chief scientist, tasked with weaving cutting-edge AI into every corner of Microsoft’s product lineup. In 2019, Nadella made a bold, high-stakes bet: he pledged $1 billion to partner with OpenAI, the small, trailblazing AI startup leading the global race to build advanced large language models. The deal gave Microsoft unfettered access to OpenAI’s technology, a gamble that even insiders like Teevan, who had watched OpenAI’s progress for years, doubted would pay off.
In late summer 2022, Teevan was invited to a closed demo of OpenAI’s latest creation, GPT-4, at Microsoft’s Redmond, Washington, headquarters. The meeting was held in a windowless, gray-carpeted conference room in Building 34, Nadella’s work hub. OpenAI co-founders Greg Brockman and Sam Altman arrived with a laptop loaded with the new model.
Brockman started with familiar demos Teevan had already seen on GPT-3.5, OpenAI’s previous release. The new model was more polished, but Teevan wasn’t impressed—she knew how to trip up large language models, exposing them as nothing more than very fancy word generators. So she put GPT-4 through its paces. At one point, she asked it to write a sentence about Microsoft where every single word started with the letter G. The model whipped out an answer, but it included the word “Microsoft” which obviously starts with M. When Teevan challenged the mistake, GPT-4 didn’t just apologize for the error—it asked her a pointed question: didn’t you want the sentence to be about Microsoft? It then immediately offered a corrected alternative that didn’t use the company name.
Teevan was stunned—not just by how the model handled the test, but by its level of self-awareness. She never expected that kind of capability for years, if not decades.
She left the meeting and drove the two miles home, but she could barely focus on the road. She pulled off into the parking lot of a local 7-Eleven. “I sat in my car and let out a full-on scream,” she says. “And then I went home and drank.” After her first whiskey, she put on Terminator 2 to process the moment. A few days later, she showed up to work dressed as Sarah Connor, the film’s fierce, forward-thinking heroine.
Teevan knew what moment this was: OpenAI had built GPT-4, but Microsoft had exclusive rights to integrate it into its massive product ecosystem. It was the company’s chance to outpace every other tech giant at the most pivotal turning point since the invention of the internet. Eighteen months later, Microsoft hit a historic milestone it hadn’t reached in its nearly 50-year history: it became the first company worth $3 trillion.
Two years after that life-changing demo for Teevan, I sat among 5,000 attendees at Microsoft’s annual sales kickoff, held in July at the start of a new fiscal year. The full-day event is packed with product demos, morale-boosting talks, and leadership speeches, with the keynote from Nadella as the headline draw. Tens of thousands more Microsoft employees streamed the event from their desks, conference rooms, and for those in far-flung time zones, their home kitchens and offices, to hear from their CEO.
Onstage, an Azure cloud client support engineer— a Microsoft veteran with a Dave Grohl-esque, blue-collar rock and roll vibe—walked the crowd through how OpenAI-powered AI has transformed his team’s workflow. He explained that an AI developer had shadowed him during customer calls, then built a bot that handles much of his routine work, even better than he could, he said. The bot launched in late 2023, and the results are staggering: “We’ve saved $100 million!” he announced. “Thirty-one percent increase in first-call resolution! Twenty percent reduction in misroutes! Next year we’ll save $400 million.”
When he left the stage, Nadella walked out from the wings. The trim, bald CEO, dressed in a plain T-shirt, gray slacks, and sneakers, had barely stepped forward before the room erupted. The crowd rose to their feet for a slow, thunderous standing ovation, the kind of roar that feels unmissable. This is the man who didn’t just pad their 401(k)s—he turned Microsoft from a has-been into the most talked-about company in tech. As one longtime employee put it to me: “People look at Microsoft and think it is cool again.”
Nadella’s body language is a masterclass in humble confidence: his grin accepts the applause while his hands gesture for the crowd to sit down. Once everyone is seated, he cuts straight to the question that brought me to the Pacific Northwest this July: “We are entering our 50th year as a company,” he says. “And there’s one thing I’ve been trying to make sense of … how the heck did it happen? How are we here as a relevant, consequential company in an industry that does not respect tradition?”
He then shares a story from a few years back, when a delegation of Chinese tech analysts traveled to the U.S. to tour Silicon Valley’s biggest companies. They hit every major developer conference: Apple’s WWDC, Google I/O, AWS re:Invent, and Microsoft Build. “They said, ‘God, you know what? For anything that the United States has got, we’ve got equivalents in China. We’ve got ecommerce, search, hardware manufacturers, social networks of our own. But there’s this one company that we visited, Microsoft, that’s pretty different.’” As Nadella tells it, the analysts marveled at Microsoft’s unmatched breadth, from PC operating systems to Xbox, all stitched together into a single cohesive platform. That breadth, he implied, is what lets Microsoft seize the biggest opportunity in tech history: the AI revolution.
It’s a striking anecdote, even if it skips over a messy part of Microsoft’s history: for decades, the company has used its size as a weapon to crush competitors, and today it’s under investigation by both the European Union and the U.S. Federal Trade Commission for those very same tendencies. Nadella moves past that to turn to his greatest success: AI. He told the tens of thousands of Microsoft employees watching around the world that the company’s new goal is to put Copilot—Microsoft’s brand for its AI tools—into the hands of every person and organization on the planet.
Nadella doesn’t need to say what everyone in the room already knows: just a decade ago, industry pundits had written Microsoft off as a dead giant walking.
Back in 1996, I wrote a Newsweek cover story called “The Microsoft Century.” The company, then 21 years old, had been late to embrace the internet, but it used its massive market power to outmaneuver rival Netscape, cement Internet Explorer as the top browser, and win the first browser war. It seemed poised to dominate tech for a generation. Back then, venture capitalist Michael Moritz—who would later go on to fund Google—told me, “In terms of a civilized world, you’d have to go back to the Roman Empire to find any organization that had as great a reach as Microsoft has today.” One antitrust lawyer pushing the Department of Justice to sue the company complained that Microsoft was expanding into every corner of tech, “you may as well send your paycheck to Bill Gates!” Two years later, the DOJ did indeed sue Microsoft, accusing the company of using anticompetitive, exclusionary practices to maintain its software monopoly and extend it to browsers. In 2000, a judge ruled that Gates’ hardball, competition-crushing tactics were illegal, a humiliating rebuke.
Even so, Microsoft avoided being broken up and kept its two massive core franchises, Windows and Office. But for the next decade, the company operated with an uncharacteristic timidity. It slept through Google’s launch of a Chrome browser that eventually eclipsed Internet Explorer. CEO Steve Ballmer, who took over from Gates, laughed off the iPhone as a niche product, and Microsoft, the original platform company, never managed to build a popular smartphone platform of its own.
Ballmer did leave some lasting, positive legacies that still benefit Microsoft today. He pushed for the growth of Azure, the company’s cloud service, and he started the painful but necessary shift from boxed software to cloud-based subscriptions. Even so, the company was stuck in the past. Its strategy revolved around holding onto existing customers with a death grip. “Bill and Steve were paranoid, particularly about Windows,” says a former senior Microsoft executive. “And by the 2010s Windows was a fading paradigm.” Internally, the executive added, employees were far more focused on climbing the corporate ladder than building innovative new products. Jaron Lanier, who joined Microsoft Research in 2006 and now serves as its “prime unifying scientist,” puts it more bluntly: “There was rivalry. I don’t know how else to put this—there were unpleasant, powerful men.”
Tech analyst Benedict Evans summed up the company’s decline in a 2013 essay titled “The Irrelevance of Microsoft.” “No one’s afraid of them,” he wrote. A month later, Microsoft’s board pushed Ballmer out. The list of candidates for CEO included the CEO of Ford and the former president of Skype. But Nadella wrote a 10-page memo arguing that Microsoft’s revival would only come from a growth mindset. As he later put it, he wanted to change the company’s culture from “know-it-all” to “learn-it-all.” The board—along with Gates and Ballmer, who sat on the search committee—agreed he was the right person for the job.
“Obviously, I’m a consummate insider,” Nadella told me in an interview after his keynote and standing ovation in July. He saw firsthand how the company lost its way. “You forget what made you successful in the first place. And hubris sets in.” Microsoft, he says, needed more than a caretaker or an efficient manager. “The metaphor I like is re-founding. Founders create magical things from nothing.”
From his first day as CEO, Nadella set out to dismantle Microsoft’s aggressive, cutthroat old culture. Partly shaped by his experience raising a child with cerebral palsy (his son Zain died in 2022), Nadella is unusually empathetic for a tech CEO. In the old Microsoft, everyone had a story about Bill Gates screaming at them at the top of his lungs for a mistake. In Nadella’s first meeting with department heads, he wheeled in a cart full of copies of Nonviolent Communication and gave one to every leader. “Before Satya it was difficult to show up to a meeting where you didn’t know the answer, or where you had a thought but you couldn’t prove it,” says Microsoft workplace executive Jared Spataro. “Satya was more like, ‘Come with your brain. Be sharp, and let’s talk about it.’ That felt liberating.”
Nadella never blamed his team for mistakes. In 2016, Microsoft faced public humiliation when its high-profile chatbot Tay was easily manipulated by bad actors into posting racist content. Critics eviscerated the company. “I was getting forwarded emails from really angry employees,” says Lili Cheng, who led the Tay project. “I was feeling really terrible about putting the company in that position. And Satya sent me an email that said, ‘You’re not alone.’”
Nadella also tore down outdated corporate policies, most notably Microsoft’s decades-long hostility to open source software, which the company had long seen as a threat to its proprietary business model that locked customers into its ecosystem. “Microsoft had totally neglected the open source world for a decade—in fact they’d been hostile to it,” says Nat Friedman, who ran an open source startup in the early 2010s. “While Microsoft’s relationships with developers have been central to the success of the company, it had lost a generation of developers.”
Nadella was determined to win that next generation over. Even before he became CEO, when he ran Azure, one trip changed his entire approach. He and his lieutenant Scott Guthrie met with a group of startups to pitch them on Azure, and every single one used Linux. When the two stepped out for a break, Guthrie said Microsoft should really support Linux on Azure. “Absolutely!” Nadella said, throwing out decades of company dogma. Guthrie asked if they should run the decision by other top leaders first. “No,” Nadella said, “let’s just do it.”
“In a five-minute break, walking to the bathroom and back, we were able to completely change the company strategy around support for Linux and open source,” Guthrie says. When Nadella told Ballmer, who was in his final months as CEO, he simply signed off on the shift. Two months after Nadella became CEO, Guthrie suggested renaming “Windows Azure” to just “Microsoft Azure.” The change was approved on the spot, sending a clear signal: Microsoft would no longer judge every decision by how it benefited Windows.
Nadella also made the company less insular, ensuring that Microsoft’s cloud apps worked just as well on iPads and Android devices as they did on Windows. He then pulled off a string of major acquisitions that would shape the company’s future.
The first of these, the purchase of Minecraft, left many people confused. “He called me in one day and said, ‘I’m thinking of buying Minecraft, what do you think?’” says Yusuf Mehdi, a longtime Microsoft executive who led marketing for Bing. Mehdi started walking through the financials, but Nadella cut him off: “Tell me how we will land with customers.” Mehdi’s answer matched what Nadella had already concluded: grade-school kids obsessed with Minecraft who had never cared about Microsoft would build a connection to the company, a long-term investment that would pay off for decades. Unlike previous acquisitions, where Microsoft would absorb the purchased company into “the Borg,” as employees called its all-consuming ecosystem, Nadella refused to force Minecraft into the Windows fold.
Mehdi came to call these purchases “reverse acquisitions.” “The philosophy is don’t mess them up. We buy them and say, OK, Microsoft is now your toolbox. They’ve all expanded us into areas that we normally wouldn’t be, like social networking.”
That philosophy guided the next big acquisition: LinkedIn. Nadella began courting LinkedIn co-founder and chair Reid Hoffman around 2015. “I basically got an email from him saying, ‘Hey, I think what you guys are doing at LinkedIn is really cool. Can we get on a phone call?’” Hoffman says. He was impressed by Nadella’s soft, curious approach. “Unlike all of my previous professional interactions with Microsoft, the conversation was grounded in a form of intellectual curiosity,” he says. The call led to months of talks, and eventually a meeting with Bill Gates.
Nadella had always navigated his relationship with Gates carefully—Gates was still the face of Microsoft to most of the world, and he agreed to spend 30% of his time advising the company, so Nadella kept him close. No consultant knew more about Microsoft’s business and technology than Gates. Nadella regularly brought key leaders to Gates’ office to brief him on major initiatives, and the critical feedback helped Nadella sharpen his strategy, according to multiple people familiar with the meetings.
During the LinkedIn negotiations, Gates invited Hoffman to his office. “He spent two hours telling me why LinkedIn sucks as a product and Microsoft could build it very easily,” Hoffman says, who cheerfully defended his company. When Nadella and Gates later told him they wanted to buy LinkedIn, Hoffman said he was surprised, given Gates’ harsh earlier remarks. “I was just testing,” Gates told him. Hoffman retorted, “Do you think everybody responds to that testing really well? Is that your theory of the universe?” Gates loved the pushback, and the two built a lasting relationship. The $26 billion deal closed in June 2016.
For Nadella, having Gates on board was critical, because many of his top executives opposed his approach of keeping acquired companies independent instead of folding them into Microsoft’s core ecosystem.
Arguably the most valuable acquisition Nadella made was GitHub, the open source code repository used by millions of developers around the world. Early in his tenure, Nadella and Guthrie agreed that owning GitHub would give Microsoft a huge advantage in winning the loyalty of developers, but the time wasn’t right. Back then, developers still saw Microsoft as a hostile legacy giant. “The community would rebel, and Microsoft would probably screw it up,” Guthrie says. But by 2018, Microsoft’s reputation among developers had improved dramatically—and it was now or never: Google was also courting GitHub. Microsoft made its move, and when the company approached GitHub’s founders, Guthrie remembers them saying, “‘We’ve seen what you’ve done, we like your culture.’ Years before they never would have said that.” Weeks later, the $7.5 billion deal was done.
That purchase would set up Nadella’s best move of all: a partnership with OpenAI, just one year later.
Nadella has had his missteps too. He always wanted a moonshot that would