How Microsoft Has Changed in the Past 3 Years

By Daniel B. Kline Markets Fool.com

Satya Nadella became CEO of Microsoft (NASDAQ: MSFT) about three years ago, with his formal appointment coming on Feb. 4, 2014. It was an inspired pick that also represented a change in tone from previous boss Steve Ballmer. What wasn't known at the time is just how radically Nadella would divert from the strategies of his predecessor and founder/CEO Bill Gates before him.

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Nadella wasn't another member of the old guard taking over. He wasn't a Gates disciple who'd been around since the early days of the company in the mid-1970s, but having started in 1992. He did have a strong base of knowledge about where the company was and where it needed to go. When he took over, he made it very clear that changes were coming and they were going to come quickly.

"Microsoft is one of those rare companies to have truly revolutionized the world through technology, and I couldn't be more honored to have been chosen to lead the company," Nadella said in a press release at the time. "The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster, and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly."

Those remarks would prove prescient, as it's fair to say Nadella quickly changed how Microsoft does business. It was a radical remake that turned a still-successful tech dinosaur into a company built for the future as well as the present.

Microsoft has changed dramatically in three years under Nadella. Image source: Microsoft.

How has Microsoft changed?

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Under Gates and Ballmer, Microsoft operated in a closed ecosystem. The company wanted people to buy Windows computers, so it generally kept its products inside that system. There wereApple(NASDAQ: AAPL) Mac versions of Office, but even those weren't updated nearly as often as the Windows versions -- and they only succeeded because so few options existed.

Trying to keep everything in the Windows world backfired on Microsoft when iOS and Android phones and tablets exploded. Not having key products such as the various Office programs in the two major app stores started teaching a generation of younger folks that there were alternatives.

Nadella quickly changed that. In November 2014, he brought the signature productivity suite to Apple iOS and Android devices. In addition, the company offered up free versions of programs including Word, Excel, and PowerPoint that allowed for viewing documents, as well as some limited editing.

These moves, which the new CEO pushed through, also helped Microsoft change its business model for these programs. Rather than pushing Office as a one-time sale, the company moved users toward subscriptions. That was made much easier by Microsoft's newfound willingness to allow consumers to use Office on whatever device they wanted, instead of just Windows machines.

A different company

If Microsoft had kept the walls up, it probably would have had a long future as a steadily shrinking business selling to a core group of business users. With its new strategy, the company has been able to introduce Office, Skype, and even Windows to a new generation while creating a steady flow of subscription revenue. For example, revenue for Office 365, the name for the subscription plan, was up nearly 70% in Q2 2016.

In addition to opening up the company's products to Apple and Android products, Nadella has also been a decisive leader. He made the bold decision to scrap Windows 8 and distance the company from it by moving right to Windows 10 -- a revamp that brought back many well-liked features. He was also quick to back away from the Windows Phone, even if that meant admitting that the company largely wasted $7.6 billion buying Nokia's devices division.

Nadella has also been a strong champion of innovation at his company. He supported the struggling Surface hybrid, which has slowly become a strength for Microsoft. In addition, the CEO has backed HoloLens, a future-looking platform that could help bring virtual and augmented reality into the mainstream.

Microsoft is hip now

Compared with Apple, Microsoft was always square. That's why the old "I'm a Mac/I'm a PC" commercials worked. Now, under Nadella, Microsoft no longer feels the same. It still may not be quite as hip as Apple, but the Windows maker has gained some ground, and its media events now also contain surprises, like the SurfaceBook laptop.

In three years, the new CEO has taken his company from one in decline to one that has a bright future. Some moves, such as Microsoft's growing cloud business, can also be credited to Ballmer, but opening up the company's products to all platforms has changed the company's trajectory by exponentially opening up its potential audience.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Daniel Kline owns shares of Apple and Microsoft. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.