The Motley Fool

Where Will Microsoft Be in 5 Years?

When Satya Nadella took over from Steve Ballmer as Microsoft Corporation (NASDAQ: MSFT) CEO in February 2014, he inherited a badly damaged company. The technology giant was profitable, but it had stumbled badly with Windows 8. The operating system (OS) was actually pretty revolutionary with its touchscreen-based interface, but it was too big a change for the company’s core user base and it failed.

Nadella took over and righted the ship. He increased his company’s bet on the cloud, and made its products widely available on non-Windows platforms. He also fixed the Windows 8 debacle, launching Windows 10, a return to the classic look of the OS, and setting the company up for future growth.

One area that will provide some of that growth is the Internet of Things (IoT). That’s an expanding market Microsoft can serve in a number of ways that Nadella clearly has his sights set on.

IoT is A-OK

Nine billion MCU-based IoT devices ship each year and are rapidly becoming connected – from washing machines to children’s toys to industrial equipment. Here’s a look at how we’re working to secure them with Azure Sphere.

– Satya Nadella (@satyanadella) September 28, 2018

The MCU Nadella is referring to is a “micro-controller unit.” These are really small, limited-function computers that power IoT devices, an emerging market where Microsoft has been a leader. This has been a very long-term play, with Nadella acknowledging the need to support connected devices as far back as 2014.

“Windows has gone through a rearchitecture to one core Windows that runs everywhere. We architected the right Windows in the right devices with the right features,” he said in October 2014 to ZDNet (before the launch of the OS).

Those comments proved prescient, as Windows 10 has now been installed on over 900 million devices, according to a Microsoft web page. That’s a fairly stunning number that’s more than three times the number of computers and tablets sold each year (of which Windows has about a 75% market share).

Microsoft knows that the IoT may take time to develop. That’s partly why the company decided to invest $5 billion in developing its IoT resources in April 2018. Corporate Vice President Julia White explained the investment in a blog post:

“One year ago, we announced our commitment to invest $5B in IoT (Internet of Things) and intelligent edge – technology that is accelerating ubiquitous computing and bringing unparalleled opportunity for transformation across industries,” she said. “Our commitment is to a build trusted, easy to use platform for our customers and partners to build solutions – no matter where they are starting in their IoT journey.”

There’s a lot of corporate-speak there, but the end result is that Nadella sees an opportunity for growth in supporting IoT. That has been true so far, and opportunities may explode going forward.

Set up for five years (and beyond)

It’s very hard to make a major course correction at a large company. Microsoft could have stayed mostly the same, ridden Windows and its other legacy products into the ground, and slowly gotten smaller. That has been a path countless one-time innovators have followed.

Instead, Nadella shook things up by admitting that his company had to play better with others while also embracing the cloud and IoT. Microsoft, which once acted like a monopoly, has adapted to a world where consumers have OS and software choices.

That’s a change many legacy companies can’t make (look at the struggles cable companies are undergoing since losing their monopolies). In five years, Microsoft will likely still be a market leader even though its core products have significant competition. It will probably be bigger and have its OS on a record number of devices, while its other software remains at or near the top of the market.

The 2024 version of Microsoft could have been a sad shell of what it once was. Nadella seems to have stopped that from happening, and the company looks set up for an impressive second act.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.