This article was taken from the March 2015 issue of WIRED magazine. Be the first to read WIRED's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
On a campus notable for tight security and secret offices, Building 92 is a rare beacon of openness.
Guests can enter without a Microsoft ID and browse corporate history in the visitor centre or pop into the company store for branded water bottles, onesies, and "My Mom is a geek" T-shirts. And yet, directly beneath them, tucked away in the basement, there is a lab so confidential that even most employees have never heard of it. Alex Kipman flashes his badge across the access pads to a set of double doors and bounds down the stairs.
Over the past five years, Kipman and a team of Microsoft engineers, designers and researchers have toiled in this windowless space to create a top-secret product that might be the company's most ambitious since the 2010 release of the motion-sensing gaming device Kinect: an augmented-reality headset codenamed Project HoloLens. The device -- a kind of face-computer that looks like a pair of space-age sunglasses -- is a bit like the Oculus Rift virtual reality headset. But while the Rift immerses its wearers in a completely digital environment, Project HoloLens weaves digital elements into the real world -- a magical merging of the virtual and physical.
Over the next couple of hours I play a game where a character jumps around a real room, collecting coins sprinkled atop a sofa and bouncing off springs placed on the floor. I sculpt a virtual toy (a fluorescent-green snowman) that I can then produce with a 3D printer. I collaborate with a motorcycle designer Skyping in from Spain to paint a three-dimensional fender atop a physical prototype. I traverse the surface of Mars with a Nasa scientist.
But it's a much more mundane task that really gives me a sense of Project HoloLens's potential: fixing a light switch. Kipman places the headset on me, and points me towards a 7.5cm-wide hole in the wall with wires jutting out of it and a nearby sideboard topped with unfamiliar tools. (As is perhaps obvious, I'm no electrician.) An engineer pops up on my screen, Skyping in from another room, and introduces himself. He can see exactly what I'm seeing. He draws a holographic circle around a voltage tester atop the sideboard. Then he walks me through the process of installing the switch, coaching me and sketching quick holographic arrows and diagrams that glow on the wall in front of me. Five minutes later, I flip a switch and the living-room light turns on.
Project HoloLens is extremely ambitious, and it's the first major test of whether Microsoft's new CEO, Satya Nadella, can restore the company's long-dormant reputation for innovation and creativity. Nadella, 48, brings a fresh leadership style to the job, pairing the institutional knowledge he acquired over more than two decades at Microsoft with a collaborative, nice-guy approach to management. "He has allowed ideas to bloom and be considered," says Terry Myerson, the executive in charge of Windows, who has been with the company since 1997. "That's hard to do with big groups of people."
When Microsoft was founded, its ambitious mission to power a personal computer on every desk in every home seemed as radical as Project HoloLens does today. But 40 years later, the going perception in Silicon Valley is that the company's best days are behind it. In a public conversation with entrepreneur and software engineer Marc Andreessen in October, investor Peter Thiel called Microsoft a bet "against technological innovation". Though Microsoft still makes an awful lot of money -- sales revenue jumped almost 12 per cent to $86 billion (£55bn) last year -- its core business is declining, a dynamic that was set in motion more than a decade ago, when nearly every enterprise owned and ran Windows-powered PCs and servers.
Microsoft's fall stems from its attempts to lock users into its products by refusing to work with competitors. Lost in the hubris that can come with market dominance, the company launched a series of me-too hardware products, figuring loyalists would embrace them.
There was the Zune MP3 player that followed the iPod, the Surface tablet that replicated the iPad, and the Kin, a much-hyped 2010 phone designed for social networking that was on sale for just 48 days before Microsoft and Verizon killed it. Consumers turned to better-designed devices that were plugged into other software ecosystems where Microsoft had no stake, rendering the company irrelevant. Meanwhile, the computing industry was changing.
Processing increasingly happened in the cloud, and businesses rented the software they used. Users began to shift more of their work to mobile devices, most of them powered by Apple's iOS and Google's Android. In 2014, Microsoft accounted for an estimated four per cent of the global market share for smartphone operating systems. In the "mobile first, cloud first" world that Nadella is fond of referencing, Microsoft missed mobile and came late to the cloud.
This was the state of affairs that Nadella faced when he took the top job a year ago. In an early analyst call, he quoted philosopher Friedrich Nietzsche, saying Microsoft must have "courage in the face of reality". Since then, he has been doing just that. His predecessor Steve Ballmer described Microsoft as a devices and services company. Nadella has scrapped that, casting it instead as a company capable of working across any platform -- even those controlled by competitors -- to help people be more productive. He has made Office software available on Apple- and Google-powered tablets and phones, and made Windows free to manufacturers of devices smaller than nine inches. He has forged new partnerships with companies Microsoft once considered enemies and spent time with startups to learn how innovative business models work. And he paid $2.5 billion for Minecraft maker Mojang, so that a new generation will grow up on Microsoft's software.
But Project HoloLens is by far the boldest -- and riskiest -- move of the Nadella era. It's not another me-too product but a truly unique experience. It's also the kind of project that few besides Microsoft would undertake -- a lavish, multi-year effort that builds on lots of in-house research, all in service of extending the reach of Windows. Nadella believes that Project HoloLens is nothing less than the emergence of the next computing interface, saying, "It's like the first time you used Excel on a PC with a mouse and a keyboard" (a transformative experience that perhaps only a longtime Microsoft exec can cite). More significant for Nadella, even though Project HoloLens has been in the works since long before he ascended to CEO, it will define the first years of his tenure -- heralding either a new era of innovation at Microsoft or another regrettable chapter in the story of a company in decline.
Satya Nadella is drawing me a picture of Microsoft. We're in his office, the same simple square of Building 34 previously occupied by Ballmer, and before him Bill Gates, and the furniture doesn't seem to have changed much -- the same Ikea shelves line the walls.
Still, there are some indications that signal the arrival of a new occupant. For one thing, there's an empty iPad mini box lying open on his desk. A cricket bat rests right next to it.
Nadella squats in front of a dinged-up black laminate coffee table and sketches three concentric circles on a piece of scrap paper. A wiry man with a shaved head and black-framed spectacles, he has a voice with a range of octaves but only one moderate volume. The outer ring, he explains, is Concepts -- the vision that allows the company to think up new things like Project HoloLens.
Inside this, he labels the second circle Capabilities -- the engineering and design skills necessary to make things. Nadella pauses on the smallest circle, the centre of the bull's-eye, which he labels Culture. "You need a culture that is fundamentally not opposed to new concepts and capabilities," he says.
Microsoft has had no problem with the outer circles. It has combined vision with breathtaking engineering to create a whole bunch of amazing prototypes. But they rarely make it to market.
That's because, over the past two decades, its culture has grown competitive and insular, more consumed with getting and protecting an edge than pushing into riskier new businesses. People were motivated to produce things they knew their managers would like, rather than take risks on new ideas that might fail. The company's money-minting core offerings, Windows and Office, sucked up talent and attention while newer ideas were being overlooked. Under former CEO Ballmer, employees were expected to live the Microsoft lifestyle, using Windows-powered phones and Surface tablets even when the bulk of the innovation was happening on iOS and Android devices. Says one veteran: "I think there's a lot of people that really felt, you know, maybe like Detroit does. You drive American."
It has become something of an accepted wisdom in Silicon Valley that large, successful technology companies can't reinvent themselves. Many have attempted to engineer comebacks, and the industry is teeming with failed empires that have evolved into middling businesses on the decline: BlackBerry. Hewlett-Packard.
Yahoo! But Nadella finds inspiration in an example closer to home:
Microsoft itself. He remembers sitting in a waiting room at Goldman Sachs in 1992, trying to meet an underling of the chief information officer. He never did get in, because Goldman Sachs, like everyone else at the time, thought of Microsoft as a company that only sold software for your home computer. "They wouldn't even bother to see Microsoft people, saying,
'What the heck do PC people have to do with us?'" Nadella recalls.
He lets a pause settle between us, prompting me to reflect on the rise of enterprise computing, which enabled Microsoft to embed its Office software in practically every business in the world. "And so things change," he concludes.
Although Nadella developed much of his management approach on the job, his clarity of vision and empathetic listening style trace their roots to a formative personal event. He'd arrived at Microsoft in 1992 with a master's degree in computer science from the University of Wisconsin-Milwaukee (he'd later earn an MBA from the University of Chicago). He was newly married to a woman he'd met in high school back in Hyderabad, India, where they grew up.
For the first few years at Microsoft, Nadella was on the fast track, progressing quickly through the ranks. Then Zain, the first of his three children, was born profoundly disabled. The reality that Zain would be confined to a wheelchair set in. Initially Nadella asked himself, "Why us? Why did this happen to us?" But after a couple of years, his perspective shifted. "We realised this has nothing to do about us and everything to do about him," he says. His son's condition helped him see beyond himself and compelled him to force-rank his daily priorities so that he could meet his son's needs and still perform his job -- the same skill so necessary for effective management. The experience held other lessons too. "I think back to how I thought about work before and after, and this notion of the words you say and what they can do to the other person," he says, referring to his interactions with his wife and son. "How can you really change the energy around you?
It's a thing that started building in me, and I started exercising it in my day job. It made a lot of difference to how I felt when I went back home. So much of it is mental attitude." He keeps a black-and-white headshot of Zain beneath his monitor, his son's head thrown back, laughing.
Long before he was CEO, this approach helped Nadella start to build a new culture amid seemingly immutable circumstances without making enemies. For example, when he wanted to start a cloud-computing business -- which would mean borrowing technology from the search engine Bing -- he ran up against Microsoft's powerful SQL server business. Normally the SQL team would have instantly squashed Nadella's initiative. But Nadella persisted, eventually convincing the server group that the rise of cloud computing was inevitable. "He won that battle," says James Staten, an analyst with Forrester who has covered Microsoft for more than a decade. "It was a huge political shift."
As CEO, Nadella has restructured Microsoft to function more like the Silicon Valley companies that have eclipsed it. To be fair, it's a process Ballmer put in motion in the summer of 2013 when he reorganised the company into cross-functional teams, abolishing the powerful product divisions for a flatter, more integrated approach he called One Microsoft. Nadella has streamlined these teams, cutting 14 per cent of the staff. He has eschewed Microsoft's traditional R&D cycle, in which products went through a testing phase after development, in favour of a fast-moving process in which these steps happen in tandem. To foster experimentation, the company opened Garage -- a 32-chapter group of in-house tinkerers -- to the public so outsiders could test Microsoft's ideas.
Nadella's new philosophy extends to the org chart, where he's empowering his executives to work across once-siloed divisions. He has named Julie Larson-Green, formerly the executive vice president in charge of devices such as Xbox and Surface, to a new role: chief experience officer. Judging narrowly by the org chart, it was a demotion, since she now reports to Qi Lu, one of Nadella's deputies and head of the Applications and Services Group, instead of directly to Nadella. But in many ways, it's a bold experiment that puts Larson-Green at the forefront of Nadella's new approach to development. Larson-Green now determines how Microsoft's products, from Xbox to Office, can better support one another and also perhaps work with other companies' popular apps and services. This shift, which sets an important precedent for other Microsoft employees, seems to have worked because Nadella, Lu and Larson-Green share common goals and, they say, a trust that runs deep enough to allow for a flatter hierarchy. (Indeed, earlier in his career, Nadella actually reported to Lu.)
To motivate people, Nadella asked Bill Gates to spend 30 per cent of his time as technical adviser to the company. Nadella sees the moral authority of the founder as a critical management tool. "When I say, 'Hey, I want you to go run this by Bill,' I know they're going to do their best job prepping for it," he says. Gates is not a regular at management meetings, however. He interacts primarily with senior staff, including Qi Lu, offering feedback on Microsoft's technical work.
Nadella also revised Microsoft's approach to research and development. The company has long spent upwards of 11 per cent of its revenue on this area, and it has had a reputation for investing in the type of blue-sky undertakings that may not see a commercial outlet. Take Microsoft Courier, a 2008 booklet PC with touchscreens that faced each other; the ill-fated device never made it out of the lab. (Its team left afterwards and later founded FiftyThree, the design startup behind the iPad app Paper and digital stylus Pencil.) Nadella has pushed researchers to collaborate much more closely with engineers in other departments to help them get products out faster. The release of Microsoft's Skype Translator, which translates multilingual conversations in real time, is an early success. Nadella calls Skype Translator "a moment of truth" because it required groups of people to work across divisions, combining features from the Skype team, the Azure cloud-computing team and the Office teams. That's the kind of co-operation that never happened in the old Microsoft.
Jessi Hempel (@jessiwrites) is a senior staff writer at US WIRED
This article was originally published by WIRED UK
