Satya Nadella: Microsoft has “permission to build the next Internet” [Interview]

Not long after being promoted to the role of chief executive at Microsoft, in 2014, Satya Nadella had faced calls to ditch the tech group’s Xbox games division and concentrate its resources on cloud computing—to compete with rivals, such as Amazon. But instead, Nadella saw an opportunity to build new customer bases through online gaming communities. His first deal as chief executive was buying Minecraft, the three-dimensional world-building game.

 

At the same time, he further developed Microsoft’s dominant position in personal and business software and expanded its cloud and server offerings. Shares in the group have risen eightfold under Nadella’s tenure, and it remains the world’s largest software group.

 

However, last month’s $75 billion deal to buy video game maker Activision Blizzard will also make Microsoft the world’s third-biggest gaming company by revenue, behind only China’s Tencent and Japan’s Sony.

 

Not only does it extend Microsoft’s vertical integration in gaming, giving it yet more content for its Xbox console and PC games distribution systems, it also shows how Nadella sees the future of online interactions—at work, in education, and in the home. He indicated that the Activision purchase would also power the company’s move into the metaverse—the immersive, virtual, interactive worlds the Big Tech companies are racing to build.

 

Here, in his first interview since the deal was announced, Nadella tells the FT’s West Coast editor, Richard Waters, how gaming will shape the next computing platform.

 

Richard Waters: When you came in, most of Microsoft’s business was in business technology, helping millions of workers do their jobs. And in the years you’ve been there, the company’s been through this amazing change with the move to the cloud. Now, you’re buying a big gaming company, and I guess people are wondering, does this fit together? Is it all part of one story?

 

Satya Nadella: [In] the Microsoft I grew up in, I always think about three things—and we added a fourth. The three things that we always had are: we built tools for people to write software; we built tools for people to drive their personal and organizational productivity; and we built games. That’s the three things that Microsoft has done from time immemorial. The first game, I think, was built before Windows was there. existed on DOS. And so, to me, gaming, coding, productivity, or knowledge worker tools are at the core.

 

The thing that we added pretty successfully—that most people thought we would never be able to do—is become an enterprise company... actually really build enterprise infrastructure... and business applications. And guess what? We now do that as well.

 

I feel those are the new things that we have added, whereas [the other] three things have been there all my life... And gaming, interestingly enough, is more integrated.

 

Even when Xbox came out 20 years ago, it was sort of a thing on the side, whereas now... the future of gaming is [subscription service] Game Pass and xCloud and the console, of course, [and] a PC. One of my coolest features is I can play the game instantly because I don’t even need to wait for it to download. I can just start playing on the cloud and then have it slowly stream down and use the local CPU.

 

So, to me... it’s much more integrated than, “oh, it’s a side bet.”

 

RW: How does helping people play games link to the relationships with your customers and communities that you’re building? How are you helping them live their lives?

 

SN: Take what’s happening with the metaverse. What is the metaverse? Metaverse is essentially about creating games. It is about being able to put people, places, things [in] a physics engine and then having all the people, places, things in the physics engine relate to each other.

 

You and I will be sitting on a conference room table soon with either our avatars or our holograms or even 2D surfaces with surround audio. Guess what? The place where we have been doing that forever... is gaming.

 

And so, the way we will even approach the system side of what we’re going to build for the metaverse is, essentially, democratize the game building... and bring it to anybody who wants to build any space and have essentially, people, places, [and] things digitized and relating to each other with their body presence.

 

RW: But the people who are playing those games, at the moment they’re playing first-person shooter games... It’s pretty clear why they’re getting into them and it has nothing to do with metaverse—it’s simply that they want a bit of fun. What do you see in the future? What are people going to be doing inside this intellectual property that Microsoft is paying so much for?

 

SN: First of all, if you think about it, the genres we’re in are much broader than first-person shooter. I mean, we love Flight Simulator. We love Minecraft. We love first-person shooters or [car-racing game] Forza. Think about how we’re able to tell even the story of car racing through a cultural lens. This entire new game that we produced [Forza Horizon 5] is all about Mexico, and the Mexican setting and car racing... You think “my avatar in Forza is my car” and how I decorate it.

 

To me, just being great at game building gives us the permission to build this next platform, which is essentially the next Internet: the embodied presence. Today, I play a game, but I’m not in the game. Now, we can start dreaming [that] through these metaverses: I can literally be in the game, just like I can be in a conference room with you in a meeting. That metaphor and the technology... will manifest itself in different contexts.

 

Another one would be in the context of a very different business process. If you look at retail or construction, that’s also like when you create a digital twin: you have a factory and you are trying to visualize how to simulate its operation. That’s also a game-playing exercise, except you’re not game playing. You’re trying to simulate how a factory functions.

RW: As you think about the metaverse in the future, is there any overlap between how people behave in games and how they behave elsewhere, like in work settings? A younger generation that grew up on games is now in the workforce. How do they look at these technologies and what they’re doing at work?

 

SN: The beauty of games is, on a secular basis, you’re seeing younger people [play them] every year, every day, and it teaches you what their expectations are of a computer-mediated interface.

 

And so, as that generation approaches some work-related aspect, you can say what their expectation of an immersive environment is. Take some of the research we’re doing on how should people relate to avatars. You and [I] may have a particular understanding of what an avatar is versus somebody who is a young kid who has already built their avatar in Minecraft or in Forza. [They would say] Oh yeah, I want to use an avatar, because having... multiple identities for different contexts is a much more expected thing if you’re going from gaming world to a gaming world.

 

Being mindful of that as we introduce new tools and new features in what may be considered more work-related products... is absolutely something we want to learn.

 

RW: It seems that getting used to being represented by an avatar is a key step here, and it’s something you’re already doing with [collaboration software] Teams. It seems to be a very big shift to me: that I’m going to join a meeting as some kind of cartoon character.

 

SN: Today, you enter websites and you see a bunch of text, video, and images... and you interact with it. [But] what is a more immersive way for you to interact with [digital] content? It’s still about people, and it’s about places and it’s about things, but you put it in spatial form... You can see X, Y, and Z coordinates as opposed to just X and Y. And, then, the most interesting thing is you can be in the space, so you can look around and things will change—that embodied presence in a place. That’s really what our vision is.

 

We are building, quite frankly, metaverse applications, if I could call them that. Or experiences in business applications, in productivity tools, and meetings and games—all three on a common platform. And avatars, 2D avatars... are showing up in our Teams [application]... people just want to be able to have an avatar that is taking signals from both your face and your audio. And it’s a very comfortable way for somebody to participate in a meeting.

 

One of the features we have is the Together mode in Teams... You can put people, for example, in an amphitheater setting. You and I could be sitting there, but with just essentially our video.

 

RW: So are you thinking this would apply to any company with workers and customers? Are they going to have to rethink how these digital interactions work?

 

SN: When you talk to anyone who is in our trade—digital tech—we’ll always say that everything has to be rethought. But the reality is it is going to be just an evolution. In fact, I am very grounded on the best known collaboration tool ever built for work. It’s called a workplace!

 

It’s been refined for over 200 years and we’re not going to just suddenly trade off the workplace. We’ve learned how we use it effectively to drive collaboration, teaming, productivity. Except we’ve also learned that we can’t take [the fact] that we will always have the workplace for granted.

 

In some sense, the silver lining from this pandemic is we’ve learned that we can still continue to team [up], still continue to collaborate, still continue to upskill ourselves while taking care of the overall wellbeing of our people with these digital connections.

 

When the constraints are removed, we’re not going to say: “Oh, let’s go back to 2019.” Nor are we going to be like 2020 or 2021. We’re going to find what we describe as this hybrid workplace... Any meeting at Microsoft will have at least some people, maybe 10, 20, 15 percent of people calling from remote. There will always be people in the conference room and there will be remote participants.

 

The remote participants’ expectation has changed forever. They’re not going to be second class. They want a first-class experience. You now need to accommodate for that with cameras in the conference room, the segmentation of each person in the conference room showing up as their own box, the ability to use chat. We really have some new invention to do—in such a way that the people who are together and people who are remote can come together and team [up] effectively.

 

RW: One thing you raised was that the metaverse is—like the Internet—a platform. It’s a series of connected technologies. People have talked about metaverses that link [so] we aren’t going to end up with a lot of standalone walled gardens. But how can you assure us that isn’t going to happen? Because at this point, just like separate games, the metaverse is a standalone thing created by a company like yours. What’s going to happen in the future to link these things?

 

SN: At some level, that’s the unfinished business of the Internet. If [I] could not go from website to website and have my identity traverse, [or] my content relationships really traverse. Then, in the middle, came the mobile Internet which... because of the way app stores work... truly, truly disintermediated even the linkage that was there on the open web.

 

So, now... let’s, at least, get back even to the basics of, OK, even if I’m going from one game to another game, or I’m going from one website to another website, I can actually go without being disintermediated by somebody else in the middle of it, from a discovery plane or search plane, or what have you.

 

RW: Microsoft has a de facto identity standard that’s widely used. But what are you doing to promote industry standards around identity?

 

SN: I think the first thing that we would want is just to allow for what I would call the syndication of identity, which is how do we really allow you, as a user—whether it’s an organization or an individual—to be able to take your identity... and use it across different properties.

 

How do we really allow for the syndication of identity? You see a little bit of it... with things like single sign-on today, which is essentially: “I can use my identity with multiple products just on the authentication side.” The thing that we are also talking about is on the authorization side. Can there even be more of the sharing? If I transact with one store and I buy things, those things are not in your identity, they’re in the store.

 

The first place [to start], perhaps, is what we’re doing with the Windows Store, allowing for different payment instruments, allowing for the flexibility of having even in multiple stores... [it] is a way to start allowing for multiple identities and multiple store relationships, for example.

RW: Coming back to hybrid work, although working from home was a crisis for many companies and many people individually, nonetheless there was a clear technology solution, which was group video meetings or collaboration software, and everyone was on the same page. With hybrid, all of that changes because people want to be back together, working together, and [not] tied to their screens when sitting in an office—but people out of the office don’t want to miss out on what’s going on. So is this a harder problem to crack than the one you faced two years ago?

 

SN: There’s no question it’s a harder problem. And not because of technology complexity. It starts with the expectations of employees, of people... all of the survey data points to that paradox which is 70 percent of the people want to be together and 70 percent want flexibility. Therein lies the hybrid paradox.

 

[On] the technology plane, I feel we’re pretty good. There are things we have to do, right? For example, the smart cameras that are AI driven that can segment the conference room and give everybody a box, and so on. They’re all solvable problems... they’re all in our labs, so I would say, even by the end of the year, the technology stuff is done. But some of the team norms... the social side... how do I set my agenda, how do I hold meetings, some of the classic leadership, managerial working soft skills have to be re-founded.

 

We need to essentially take our 180,000 people to a reorientation on how to do work. How do you conduct that meeting is probably the biggest change—so that everybody has a voice, everybody can contribute. The chat has to be lit up. The documents have to be shared. That soft skill is probably one of the things that will be as important as the technology.

 

RW: How do companies convince their workers that they aren’t just getting the worst of both worlds—whether they’re at home or in the office—because neither of them are getting quite the experience that they would ideally like?

 

SN: I think this is where leadership matters... the frustration is when I feel I’m not being heard; or I’m not able to make progress on my career or my work product; or I’m not able to collaborate as effectively, I’m not able to team as effectively. So, I think what you need is people around you. It’s not like workplace frustration didn’t exist in the past. It will exist in the future. But what you need, given the change in your expectations, is people to be in touch who can change how you participate, how do you get things done.

 

For example, at Microsoft, we’re putting a lot of emphasis on managerial training—not traditionally something we were that good at or focused on whereas, in the last year I would say thank God we were doing this because it helped us a lot during the pandemic.

 

Coming out of the pandemic, with this framework we called ‘model, coach, care’, the modeling and coaching is perhaps more intuitive, but the last part about caring and understanding where your people are [and enabling] those people to feel very connected and not frustrated is probably the entire ballgame.

 

RW: Coming back to Activision, one thing it’s made people realize is you are a big company now. You can buy this thing with pocket change. So do you have a job now to convince people that you aren’t just like these other technology platforms that we’ve all grown to be more wary of? Or at least regulators have grown to be wary of? Have you put yourself in the regulatory firing line?

 

SN: At the end of the day, all the analysis here has to be done through a lens of what’s the category we’re talking about, and what about the market structure? Even post-this acquisition, we will be No. 3 with sort of low teens [market] share, where even the highest player is also [in the] teens [for market] share. It shows how fragmented content creation platforms are. And so, that’s the fundamental category. Yes, we will be a big player in what is a highly fragmented place.

 

Also, the analysis will have to extend to say: why are these content companies trying to become bigger? It’s because the place where the constraints really are is distribution. The only open distribution platform for any gaming content—guess what?—is Windows... the biggest store on Windows is Steam [the digital distributor of PC games]. It’s not ours. People can do any payment instrument, whereas all the other gaming distribution platforms are closed.

 

To some degree, that’s why we are very hopeful that, by becoming stronger, even with low share, we can create more distribution for many small players... using things like xCloud.

 

RW: Should the regulators be looking ahead to the next platform?

 

SN: In some sense, the regulatory framework needs to both look forwards and look backwards... Take some of the principles that we’re using for the open web or open store policies. We’ll be happy to say... we’re already operating that way [so]... all I care about is having equal rules of the road for all participants... When it comes through legislation, or through regulation, or regulatory enforcement—whatever form—we will be all very open to it, and engaging.

 

The above transcript has been edited for brevity and clarity.