Now that Windows is no longer the core growth engine, the next question is: Where is Microsoft’s next growth engine? This is the second article of Nadella’s strategic transformation: announcing the strategic layout of “cloud first”. “Cloud” means cloud computing services. In this field, Amazon’s cloud service AWS has developed rapidly a few years ago and has become the industry leader; while Microsoft’s cloud service Azure started late and cannot compete with Amazon in terms of technology and scale. So, why does Nadella firmly believe that the cloud business is Microsoft’s next core growth engine?

Because there are still great opportunities in the market, the needs of large enterprise customers are not being met. The main customers of Amazon Cloud Service AWS are small and medium-sized enterprises and innovative enterprises. Their IT architecture is relatively simple, and the amount of historical data is small and easy to migrate. But for large enterprises with decades of IT construction history, it is very troublesome to migrate the entire system to the cloud. Moreover, for some confidential units, such as financial institutions, government agencies, etc., it is impossible to put all data on the cloud.

For these enterprises and institutions, the best solution is the hybrid cloud model: that is, put the most core and most confidential data on their own systems, and at the same time put other data on the public cloud for processing to maximize efficiency. This can effectively solve the pain points of large enterprise customers. Taking this as an entry point, Microsoft focuses on providing hybrid cloud services for large enterprises and competes with Amazon in a differentiated manner.

With the external market, we also need to straighten out the internal relationship. Before Nadella was promoted to CEO, he had two key resumes: he first served as the head of Microsoft’s search engine and successfully developed “Bing” (Bing); he was then appointed as the head of Microsoft’s cloud business to lead the development of Azure. These two resumes have laid a good foundation for Nadella to promote the “cloud first” strategy.

A search engine is an application based on an online, cloud platform. During the process of developing Bing, Nadella has accumulated a lot of knowledge about the cloud, such as basic stress testing, operating experience, and so on. After officially taking over the cloud service business, Nadella found that the main reason for the slow development of Microsoft’s cloud business was not that the technology could not keep up, but the conflict of interests within the department.

At that time, Microsoft’s cloud business and products such as Windows servers and databases belonged to the same department, called “Server and Tools Business Unit”, or STB for short. Among them, Windows servers and databases are the main sources of profit for this department, while the cloud business is not only unprofitable but also needs to invest a lot of resources, which will lower the profit margin of the entire department.

It is not clear whether the cloud business will eventually be profitable. From the perspective of the route, Windows servers and databases mainly serve the internal IT architecture of the enterprise, while the cloud business is to replace the internal IT architecture of the enterprise with the public cloud. These two businesses are inherently in conflict. Therefore, although the business executives of this department pay attention to the cloud business in words, they secretly resist it.

At this time, Microsoft’s “hybrid cloud” model played a great role in promoting. Within Microsoft, the promotion of hybrid cloud means that taking advantage of the powerful advantages of Windows servers can drive the development of cloud business; in turn, cloud business can promote the growth of Windows server and database business, and the two businesses go hand in hand. This immediately ignited the enthusiasm of the executives, from passive resistance to enthusiastic support for the cloud business.

In other words, Nadella basically straightened out Microsoft’s cloud business and cleared internal and external obstacles before taking office as CEO. After officially taking office as CEO, Nadella only needs to go one step further and officially announce the core strategy of “cloud first”-this is tantamount to “rectifying” the cloud business, clarifying the priority of the cloud business within Microsoft, and focusing on The superior force increased investment in the cloud business.

It is not difficult to understand that in the 2015-2018 fiscal year, Microsoft’s cloud business revenue grew at an astonishing rate of more than 90% per quarter, shocking the industry. In just a few years, Microsoft quickly surpassed Google and became a cloud service giant on an equal footing with Amazon; Azure also successfully replaced Windows as Microsoft’s next-generation growth engine.

Well, the above is the first key point for you. At the business level, Nadella has promoted two transformation strategies: the first is to face the reality, no longer use Windows as Microsoft’s core growth model, but gradually let Windows move towards Free while opening up Microsoft’s applications to rival platforms. The second is to announce the “cloud first” strategy, allowing Azure to replace Windows as Microsoft’s next-generation growth engine.