• Microsoft is more valuable than Apple for the first time since 2010. 
• Here's how Satya Nadella came into the CEO role in 2014 and led the company to its present heights.

When Satya Nadella first took the reins as Microsoft CEO in February 2014, the company was losing steam fast.

Microsoft Windows 8 had been a disaster. Microsoft employees were constantly battling behind the scenes for supremacy. And all the while, consumers and developers alike were losing the faith. 

Times change.

When the market closed on Friday, Microsoft's market cap had exceeded that of Apple's — something that hasn't happened since President Obama was in office and the Zune was still a thing. It's an exclamation point on Nadella's almost five-year reign, in which he refocused the company and led it to new heights. 

Here's how Satya Nadella came to Microsoft and executed a startling turnaround that led it to be worth more than Apple, with details taken from his book "Hit Refresh" and elsewhere:

This is an update to an article from 2016.

SEE ALSO: Learn any of these 16 programming languages and you'll always have a job

Satya Narayana Nadella was born in Hyderabad, India, in 1967. His dad was a civil servant and his mother was a professor of the ancient language Sanskrit.

From a young age, Nadella wanted to be a professional cricket player, and played in school. But he realized that his athletic talent was outmatched by his passion for science and technology.

Nadella received his bachelor's degree in electrical engineer from the Manipal Institute of Technology in 1988. "I always knew I wanted to build things," Nadella once said.

• Microsoft briefly overtook Apple this week as the world's most valuable company.
• The development speaks volumes about investors' faith in the respective companies' futures and the leaders driving each company there.
• While Tim Cook has demonstrated that he's a great manager for Apple, he's repeatedly shown he's "not a product person," and he's left shareholders wondering about the company's next act.
• By contrast, Satya Nadella has resolutely directed Microsoft to its next act, and his vision is starting to pay off in a big way.

Microsoft reclaimed the title of most valuable tech company from Apple this week — at least briefly — and the shakeup in the leaderboard says a lot about the direction the companies are heading in and who's leading them there.

Right now, investors seem to have a lot more faith in Satya Nadella than they do in Tim Cook.

And arguably for good reason. Under Nadella, Microsoft has found its next act. He made a big and bold bet on the cloud, and it's paying off.

Meanwhile, at Apple, Cook has left shareholders wondering just what kind of next act the company has after the iPhone — if any.

The concerns about Apple have been particularly acute since the beginning of this month when it announced its latest earnings results. Although the company's revenue and profit topped Wall Street's projections, it sold fewer iPhones than expected and offered a somewhat disappointing outlook for the holiday quarter. Worse, it announced that it would soon stop reporting the number of iPhones and other devices it sells each quarter, leaving many worried that those sales are going to start declining markedly. Since then, those fears have become only more pronounced.

The potential of a decline in iPhone sales is a huge concern for investors because Apple is basically a phone company; the iPhone accounts for more than 60% of its revenue and has for years now. As the iPhone goes, so goes Apple.

Apple has done well under Cook, but he's not a product guy

Cook may be a bit bewildered about the seemingly sudden loss of faith in his leadership. After all, Apple has done extraordinarily well since he took over from Steve Jobs seven years ago. Over that time, both Apple's revenue and profits have well more than doubled. The company has returned hundreds of billions of dollars in cash back to shareholders in the form of stock repurchases and dividends. It became the most valuable and most profitable company in the world, and, at its peak, its market capitalization topped $1 trillion.

But in truth, the concerns about Cook are longstanding. Apple is a product company, but Cook, as Jobs so memorably told his biographer shortly before he died, "is not a product person." He's great at operations. He's proven to be a good manager, but he's no product visionary.

It's not that Cook hasn't tried. In fact, he's repeatedly attempted to broaden Apple's business with new products. For years, he's pushed iPads as Apple's next big product line. Apple launched the Apple Watch under his leadership. The company's made major investments in automobiles, television, augmented reality, and streaming media under his direction.

But little of that has paid off — or, at least, nothing's been a big enough hit to make Apple noticeably less dependent on the iPhone. After an initial boom, iPad sales declined, then stagnated. The Apple Watch has been a minor hit at best. Apple TV has never been more than a self-described "hobby" for the company.

And the failures and disappointments continue to pile up. Apple Music is stuck in second behind Spotify on a global basis. The streaming-video series the company has released to date have been widely panned, and Apple's big rumored effort to remake the TV industry never materialized. And who knows if or when we'll ever see a production-model Apple car?

Cook says Apple's next act is in services

Despite all this, Apple's stock has held up, because the iPhone has continued to be a cash machine, and the company has repeatedly found ways to juice sales, whether by signing up new carrier partners, by supersizing the device, or by jacking up prices. But those are marketing and business innovations — not really product ones. And now that Apple seems to be running out of such tricks, Cook's shortcomings on the product front are coming back to the fore.

The company's answer to what comes next is that it's becoming a "services" company. It's increasingly been able to convince customers who own its phones and other products to sign up for services such as Apple Music, its iCloud storage service, or its AppleCare warranty coverage. Many analysts expect Apple to launch a streaming video service next year and potentially bundle it together with some of its other offerings as part of a monthly subscription.

To date, though, Apple's success at transforming itself into a services company has been limited. In the last year, it got about 14% of its revenue from services. That was up from 13% the year before and 11% in 2016. That's nothing to sneeze at, but it's not exactly a corporate makeover.

And the company's services effort could prove difficult if its phone sales do start to fall. Fewer device customers would likely mean fewer customers for warranties and other services.

Nadella has shown he's a visionary

That Apple finds itself in this position at this moment is somewhat ironic. The last time it and Microsoft vied for the title of most valuable tech company — back in 2010 — it was Microsoft whose future investors questioned.

Back then, with Steve Ballmer as CEO, Microsoft was big, blundering, and slow. Like Apple and iPhones under Cook, Ballmer's Microsoft dominated one business — the PC industry — but had repeatedly failed to develop new lines of business and missed out on big new trends.

But then came Nadella. In a sense, he's been for Microsoft what Jobs was for Apple. He's turned the company around and not only given direction; he's given it a new act.

Nadella, who took over in 2014, bet on the cloud, and he's been relentless — ruthless even — at focusing Microsoft on that business. He's shaken up the company's management, organization, and product lines to redirect Microsoft to that opportunity.

Read more:Microsoft's cloud transformation has it on track to be the next $1 trillion company

And it's paid off — big time. In Microsoft's most recent fiscal year, 23% of its total revenue came from cloud-based products and services. That was up from just 3% four years ago. That's what a rapid transformation can look like.

Microsoft's Azure cloud service has proven to be a formidable rival to Amazon Web Services and is growing twice as fast. Meanwhile, it's becoming a leading player in another part of the cloud market: that for hosting applications in the cloud.

Investors are betting there's more to come. Microsoft is now valued roughly the same — and at times more highly — than Apple, even though its revenue in its most recent fiscal year was less than half of the iPhone makers' and its profit was less than a third.

That's a good indication of investors' faith in Nadella and their enthusiasm for Microsoft's future. It's also a sure sign they think that under Cook, Apple's best days may be behind it.

• Now read:
• Microsoft's results beat Wall Street on the top and bottom lines — but it reported disappointing Azure sales
• Microsoft could be the next company to join the $1 trillion club — here's what will get it there
• Apple's $1,000 iPhones are turning it into a luxury brand — and it could lose a whole generation of customers
• Apple's colorful new iPhone XR could trigger a long-awaited upgrade cycle

SEE ALSO: The memoir by Steve Jobs' daughter makes clear he was a truly rotten person whose bad behavior was repeatedly enabled by those around him

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• This week, Comparably— a website that rates companies across a number of different areas — released its list of Best CEOs of 2018.
• Of the 50 chief executives on that list, 29 were from tech companies.
• Below, we've compiled the list of best tech CEOs of the year. 

For tech, 2018 was a year full of scandal. 

From Facebook's dealings with Cambridge Analytica, to Elon Musk smoking weed on-air, the tech industry had its share of controversy in 2018. 

When tech executives weren't being questioned on Capitol Hill, however, some were being praised by employees for their leadership and the companies they've helped create. 

This week, Comparably—a website that rates companies across a number of different areas — released its 2018 list of Best CEOs. Of the 50 chief execs on that list, 29 were from tech companies.

Here are the 29 best large tech company CEOs of the year: 

SEE ALSO: The 29 tech companies with the best company culture in 2018

29. Bill McDermott, SAP

Headquarters: Newtown Square, Pennsylvania

Year they became CEO: 2002

What their company does: Enterprise software for business operations and customer management

28. Scott Wagner, GoDaddy

Headquarters: Scottsdale, Arizona

Year they became CEO: 2018

What their company does: Internet domain registry and website hosting 

27. Daniel Schulman, PayPal

Headquarters: San Jose, California

Year they became CEO: 2014

What their company does: Online payments 

• Under new CEO Satya Nadella, Microsoft has tried to reform its corporate culture as it tries to get the whole company rowing in the same direction. 
• To that end, Microsoft in 2016 started working on the "Alternative Interview Framework," a new way of conducting how it does interviews in its developer division to reduce bias and do a better job of testing candidates for the skills they'd actually need on the job.
• The team tested the interview process on themselves first, and improved it as they went along.
• After rolling out the process to actual candidates, the team received positive feedback — we spoke to one Microsoft employee who says she chose to work there because the new process made her feel so good about the job.

Under the five-year reign of CEO Satya Nadella, Microsoft has made major strides in reforming its once-cutthroat corporate culture — an effort that's even seeped into how it interviews software developers.

John Montgomery, partner director of program management at Microsoft, tells Business Insider that the core of cultural change is about making sure that teams are working with each other, all over the company, solving real problems for real customers. And so, Microsoft began rethinking its interview process to match that goal. 

Traditionally, interviews at Microsoft and elsewhere can be highly technical — like, "reverse a linked list"— and include math games, like asking candidates to figure out how many ping pong balls would fill a 747. Both these types of questions really have little to do with what employees would actually do day-to-day at work — but even Google decided to discontinue its infamous brainteasers, because they didn't actually test for anything worthwhile. 

To that end, starting in early 2016, Microsoft's developer division began rolling out the "Alternative Interview Framework," which Montgomery detailed in a Medium blog post. It's designed to better match an applicant's skills to what the job really requires, says Montgomery, who spearheaded the effort. Now, it's used by Microsoft's developer division to interview product managers and program managers. 

"We wanted it to be more like what people are expected to do at work," Montgomery told Business Insider.  "People are expected to collaborate. You can ask questions. We wanted it to be more like what you're expected to do at work."

The 'Alternative Interview Framework'

Under the new process, Microsoft shares the interview questions in advance so that candidates can prepare. During the interview itself, a candidate might run through a real scenario or problem the team is trying to solve.

"When you walk a candidate through that process, every candidate brings something to each of those phases and each of those interviews," Montgomery said. "Some candidates are great at a particular phase but not so great at others. It still makes them great hires. From that perspective of inclusion, it enables us to ask a broader array of questions."

What's more, rather than doing things one-on-one, a candidate talks to two interviewers at once — usually a senior employee and a junior employee. This gives the team two opinions on the candidate to consider, and it can actually make the candidate feel more comfortable as they get double the perspective on the team they're trying to join.

Furthermore, the team uses blind feedback, meaning that all interviewers withhold their opinions on the candidate until the process is complete, at which time they all pool their opinions and come to a final decision. This can help reduce bias: It means that a second- or third-round interviewer won't come into a meeting with the candidate with any preconceived notions from the first or second. 

Redesigning the interview process

The team first tested the process on its own members over the summer of 2016, says Montgomery, interviewing each other to see if worked in practice as well as it does on paper. 

"We haven't had that much fun in a long time," Montgomery said. "We also tested interview processes on people who are more senior. It's a lot of fun when you're effectively interviewing someone from your own team. We kept on learning and iterating to make it better."

In so doing, says Montgomery, the team tried to apply the principles of product development to refining the new interview process. As they went, the team constantly reassess what was working and what wasn't, iterating on the process on the fly. 

In the last half of 2016, the team finally started running its first candidates through this brand new interview process, which has gradually expanded to more of the company since. 

There's still more Montgomery would like to improve on. Right now, the interview process is long, requiring candidates to take out an entire day. He thinks it would be useful to figure out if there ways to either shorten the process entirely, or at least spread it out over multiple days and gives candidates more time to reflect and think.

Also, he'd like to improve on making the scenarios more realistic and approachable for people who don't have a background in professional software development, but may still be qualified candidates.

"We want to design an interview process centered around the interviewee," Montgomery said. "It's a manifestation of Microsoft culture and being more inclusive in identifying talent that a normal interview process might not identify."

More empathy

Montgomery believes this new framework is more inclusive: By relying more on finding solutions to real problems, and less on esoteric or in-depth technical knowledge, it's easier for people who didn't come from traditional tech industry backgrounds to shine. Microsoft also works to make sure the interviewers reflect the company's diverse workforce.

Montgomery points out that he himself took an unusual path to Microsoft. He majored in Russian literature, and then worked at trade press magazines and startups before joining Microsoft in 1998.

"I am introverted and I like to have time to reflect," Montgomery said. "It turns out that that's true for a lot of people. Everyone needs time to think. It has helped hugely for us to find people who are a little more thoughtful but good at what they do."

Carol Smith, a senior program manager at Microsoft for the Open Source Programs Office, was one of the first candidates hired through the Alternative Interview Framework, and she says that interview process was the reason why she chose to work at Microsoft.

"The scenario-based interviewing process gave me an excellent sense of what my job at Microsoft and working with my coworkers would be like, much more so than any other interview process I’ve ever gone through," Smith said. "It was the most difficult interview process I’ve ever gone through, and it was also the best."

You can read Montgomery's full blog post here.

Join the conversation about this story »

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• Microsoft is building a service that intends to be the "Netflix for games."
• The goal of the service, named "Project xCloud," is to stream high-end video games to any device.
• "We have as much a shot to build a subscription service as anybody else," Microsoft CEO Satya Nadella said on Monday at an invitational editors' meeting at Microsoft's headquarters.

SEATTLE — "We describe it as, shorthand, 'Netflix for games,'" Microsoft CEO Satya Nadella told journalists at an invitational editors' meeting at Microsoft's headquarters on Monday.

Nadella was speaking about Microsoft's cloud ambitions outside of enterprise software — and more specifically, the company's ambitious push into video game streaming with Project xCloud.

The idea is simple: play high-quality, blockbuster games on any device.

Internally, Microsoft refers to it by the nickname "Netflix for games," Nadella said. That's what the industry generally calls this idea.

Rather than your device powering the game, a more powerful computer somewhere remote would power it — you only have to stream it to your phone, game console, laptop, or whatever other device.

Though the concept is simple, executing it is far more difficult. Video games often demand precision timing, and the kind of unpredictable latency introduced by streaming over the internet is difficult to mitigate.

Nearly every major tech company is working on a form of video game streaming technology right now.

But Nadella thinks Microsoft is in a better position to tackle the issue than the competition. "We have as much a shot to build a subscription service as anybody else," he said on Monday.

Some have been announced or are already operating, like Google's Project Stream and Sony's PlayStation Now, while others are little more than whispers at the moment, like streaming services from Verizon and Amazon.

Nadella said Microsoft had the upper hand with its Xbox gaming arm, which gives Microsoft a strategic advantage that much of the competition is lacking.

"We have a huge back catalog, which is: We have our own games," he said, referring to the Microsoft-published back catalog of games on the Xbox that includes "Halo,""Forza," and much more.

He also pointed to services like Xbox Live, which draws tens of millions of paying users monthly, and the company's ability to synergize between its Windows and Xbox businesses.

"We have a structural position in that we have both a console business as well as a PC business," he said, "which happens to be bigger than the console business when it comes to gaming."

Look no further than Microsoft's "Play Anywhere" initiative for evidence of that cooperation.

The initiative has been huge for stoking goodwill with players: You buy an "Xbox Play Anywhere" game on either Xbox or Windows 10, and you immediately own it in both places at no additional cost. Even your game-saves transfer between the two platforms.

It's part of a bigger push within Microsoft's Xbox group, led by Microsoft's vice president of gaming, Phil Spencer, to make Xbox into a platform rather than a piece of hardware.

"There are 2 billion people who play video games on the planet today. We're not going to sell 2 billion consoles,"Spencer told Business Insider in an interview in June.

"Many of those people don't own a television; many have never owned a PC. For many people on the planet, the phone is their compute device," he said. "It's really about reaching a customer wherever they are, on the devices that they have."

For now, Project xCloud — the "Netflix for games" service Nadella spoke about — is still in development. Microsoft is planning to run public tests of the service in 2019.

For a closer look at the service, check out this video:

SEE ALSO: Microsoft's Project xCloud will let you stream Xbox games straight to your smartphone or tablet

DON'T MISS: The 6 biggest things we expect from Xbox in 2019

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• Amid Amazon's ongoing drama over its AWS Rekognition facial recognition service, Microsoft CEO Satya Nadella had some words of warning.
• The uses of facial recognition are "terrible" and a "race to the bottom," he said, and the situation is not good for society.
• Microsoft has been vocal in calling for government regulation of the tech, after it spent its own turn on the hot seat.

Microsoft CEO Satya Nadella thinks that some technologies are so potentially dangerous to society if misused that governments should regulate them. And the first example on his list is facial recognition.

So he said to a room full of journalists on Monday at an invitational media day at the company's headquarters, in a response to a question from a reporter about the spectre of regulation looming over the industry.

"We think the regulatory world is going to get complex," he said adding that in some instances, Microsoft is actually calling for new government action.

Read:Microsoft CEO Satya Nadella describes 2 new kinds of software that will change everything for businesses

"Take this notion of facial recognition, right now it's just terrible. It's just absolutely a race to the bottom," he said. "It’s all in the name of competition. Whoever wins a deal can do anything. That’s not going to end well for us as an industry or for us as a society. It is better to have some modicum of rules by which we all play so we protect what actually matters the most."

The genteel Nadella did not stoop to name names, but his remarks come against the backdrop of a drama currently unfolding at Amazon over its Rekognition facial recognition service. 

In May, the ACLU revealed that Amazon was providing Rekognition to law enforcement agencies for purposes of government surveillance, and wrote an open letter demanding the company knock it off, signed by a coalition of civil rights organizations.

To prove its point of the dangers to civil liberties with this tech, in July the ACLU found that Rekognition incorrectly identified 28 members of Congress as people who had previously been arrested. (Amazon countered in a blog post questioning the validity of the ACLU's tests, claiming the ACLU used incorrect settings. It said with the correct settings its tech performed extremely accurately.)

Over the summer, hundreds of Amazon employees petitioned the company to stop sales of Rekognition. And just this week, a coalition of five activist Amazon shareholders, who collectively own $1.32 billion worth of stock, have filed a resolution calling for Amazon to stop selling Rekognition to government agencies.

Back in July, as the uproar against Amazon peaked, Microsoft first called for regulation of facial recognition tech.

Microsoft doubled down on the call for regulation again in December in a blog post written by its top lawyer Brad Smith. He named three uses of facial recognition as dangerous: an intrusion into people's privacy, use by governments for mass surveillance at the expense of "democratic freedoms" and the risk posed by the racial bias in the tech.

That's a reference to how poorly facial recognition tech has been found to work when it comes to identifying people of color. Such misidentification could have devastating consequences, particularly when used by law enforcement.

Interestingly enough, Amazon wasn't the first company or only called out over this tech. Facebook has also had its share of controversies over the tech, such as how it tried to reintroduce it in the spring in Europe after GDPR privacy regulations took effect.

And long before the spotlight shined on Amazon, it was Microsoft's turn on the hot seat over facial recognition tech.

A year ago the New York Times reported on research done by Joy Buolamwini at the M.I.T. Media Lab. She found three leading face recognition systems — by Microsoft, IBM and Megvii of China — doing a terrible job identifying non-white faces. Microsoft’s error rate for darker-skinned women was 21 percent (compared to 35% for the other two). 

On Monday, Nadella acknowledged that whenever the company gets such a black eye, it takes the criticisms seriously.

Indeed, Smith's second call for regulation of the tech, in his December blog post, came shortly after The National Institute of Standards released the results of ongoing testing of the tech that found Microsoft's facial recognition had greatly improved.

Meanwhile, the number of companies offering facial recognition tech is proliferating. NIST tested algorithms from 39 developers worldwide in its last test in September.

Read:CEO Satya Nadella didn't think it was worth celebrating when Microsoft became the world's most valuable company: 'That’s just not stable'

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• Microsoft CEO Satya Nadella says that it no longer sees its Cortana smart assistant as a competitor to Amazon's Alexa. 
• Instead, Nadella says that he wants Cortana to be thought of as a skill, or app, for Amazon's Alexa — something that Alexa users can already try for themselves. 
• But Nadella doesn't want to stop there: He says that there's no reason why Cortana shouldn't be available on Google Assistant, too. 
• Rather than fighting Alexa and Google Assistant, Microsoft wants to be friends — in the same way that Microsoft puts Office on Android and iPhone, Nadella thinks that Microsoft can benefit from having Cortana available across platforms. 

Microsoft CEO Satya Nadella is signalling that change is on the horizon for Cortana, its voice-powered smart assistant.

Rather than focus on challenging Amazon's mega-popular Alexa assistant directly, Nadella says that Microsoft will focus on making Cortana available as a skill, or app, on other platforms. Indeed, last year, Alexa users got the ability to summon Cortana and vice versa, as part of a major partnership between otherwise-rivals Microsoft and Amazon.

"Would it be better off, for example, to make Cortana a valuable skill that someone who is using Alexa can call? Or should we try to compete with Alexa? We, quite frankly, decided that we would do the former. Because Cortana needs to be that skill for anyone who is a Microsoft Office 365 subscriber," he said.

But Nadella doesn't want to stop with the Alexa integration: He wants Cortana to offer a similar integration with the Google Assistant, which powers the Google Home speakers and other devices. Microsoft and Google haven't officially announced any such partnership, but Cortana is available as an app on both Apple iOS and Android. It is also integrated into the Windows 10 operating system.

"And you should also be able to use [Cortana] on Google Assistant. You should be able to use it on Alexa, just like you use our apps on Android or iOS. So that’s at least how we want to go," he said. 

Nadella's comments came on Monday at an invitational media day at the company's headquarters. Representatives for Microsoft and Google did not respond to a request for comment at the time of publication. 

Read: Microsoft CEO Satya Nadella took a subtle swipe at Amazon and other rivals by calling the uses of facial recognition 'terrible'

Nadella says that the decision to pursue this strategy came down to this: He looked at the speaker market and decided that if Microsoft created its own rival to the Amazon Echo or Google Home, it would be an also-ran. And he believes he doesn't need to enter this young, burgeoning market category to take advantage of it.

This ties directly into Nadella's broader strategy for Microsoft, which has seen the company open up to competitors in unforeseen ways — including releasing its own version of the once-hated Linux operating system, or working on a version of its Edge browser for Apple's Macs.

"We are very mindful of the categories we enter where we can do something unique. A good one is speakers. To me the challenge is, exactly what would we be able to do in that category that is going to be unique?," Nadella said on Monday.

Notably, Microsoft has dipped its toes into these particular waters: In late 2017, Harman Kardon introduced the Invoke, the first and so far only smart speaker running Microsoft's Cortana. However, great hardware wasn't enough to offset its $200 introductory price point, or the limitations of Cortana itself, and the Invoke never really took off.

The context of Cortana

Also of note is that Cortana itself is going through some changes: In November, recently-appointed Cortana head Javier Soltero announced that he was leaving Microsoft. Meanwhile, the company has indicated that the next major iteration of Windows 10 will move Cortana away from its place of prominence in the search bar.

Still, Nadella believes that there's a lot of upside to Cortana, which offers deep integrations with the Microsoft Office 365 business productivity suite. Cortana can help users control their corporate e-mails and work calendars with their voice in an easier way than with Amazon Alexa or the Google Assistant.

In that light, Microsoft seems to be betting that Cortana becomes something of a Trojan horse: Rather than get into the notoriously difficult hardware game — something Nadella knows all about, in the wake of the failure of Windows phones — it can use Amazon and Google to give it one more way to reach Office 365 customers. 

After all, Office 365 is a major revenue driver for Microsoft, and this strategy could keep it more relevant in a world increasingly reliant on voice technology. With Amazon and Google getting aggressive about selling millions of smart speakers, Microsoft can ride the wave.

Furthermore, Nadella is taking the long view that eventually software will get so smart that the voice assistant speaker you use won't matter. Instead, people will tell lots of types of software to do all sorts of things for them, via voice, typing, gesture or what-have-you, and different agents 

"You are going to have devices, just like you have anything else, that you would grant to do things for you, even with voice," he said, adding that the idea that there will be just one way to talk to an assistant "makes no sense" to him.

Time will tell whether this strategy will pay off for Microsoft and Cortana. 

Read more:

• Microsoft CEO Satya Nadella describes 2 new kinds of software that will change everything for businesses
• CEO Satya Nadella didn't think it was worth celebrating when Microsoft became the world's most valuable company: 'That’s just not stable'
• The president of Microsoft says top leaders at the world's biggest tech companies meet regularly to talk about the major issues facing Silicon Valley and the world

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• Microsoft CEO Satya Nadella took the reins about five years ago, and in that time he's credited with making the company cool again.
• A large part of that, he's said, is encouraging a growth mindset, as explained by Stanford psychologist Carol Dweck's book, "Mindset."
• As opposed to a fixed mindset, which believes skills and talents are innate and can't be learned, a growth mindset encourages people to keep learning and growing, because just about anything can and should be taught.

It's been about five years since Satya Nadella became the third chief executive of Microsoft. When he took over, the company was in the midst of an identity crisis. Many felt Microsoft had become lethargic, content to ride a rapidly dissipating wave of success while competitors charged forward with new, innovative ideas.

But in those five years, Nadella has conducted a stunning turnaround. With increased efforts on attracting young talent and changing the "old guard" culture, along with a focus on artificial intelligence and cloud computing tools, Nadella has done more than return the company to relevance.

He's made Microsoft cool again.

But how did he do it? How did Nadella inspire change in a company as massive as Microsoft?

"You need new ideas and you need new capabilities, but the only way you're going to get those new ideas and new capabilities is if you have a culture that allows you to grow those," Nadella said in an interview with Caixin Media.

Nadella went on to credit famed Stanford psychologist Carol Dweck and her book "Mindset" as the inspiration for his company's culture change. 

In "Mindset,"Dweck extols the values of cultivating a growth mindset. Citing decades of research, she shows that individuals who believe their talents can be developed through hard work, good strategies, and input from others (i.e., a growth mindset) tend to achieve more than those who believe their talents are innate gifts with finite development potential (i.e., a fixed mindset). 

"In [the growth] mindset, the hand you're dealt is just the starting point for development," explains Dweck in "Mindset.""Everyone can change and grow through application and experience." 

Nadella describes the concept as "very simple."

He says, "If you take two kids in school, let's say one of them has a lot of innate capability but is a know-it-all. The other person has less innate capability but is a learn-it-all. You know how that story ends. Ultimately, the learn-it-all will do better than the know-it-all. And that, I think, is true for CEOs. It's true for companies."

In my new book, "EQ Applied: The Real-World Guide to Emotional Intelligence," I delve into Dweck's work and explain how you can you build and maintain a growth mindset.

It all begins with these three steps:

1. Never stop learning

Nadella correctly identifies one of the biggest obstacles to achieving a true growth mindset:

"The day the learn-it-all says, 'I'm done' is when you become a know-it-all," says Nadella. "And so to understand that paradox and to be able to confront your fixed mindset each day is that continuous process of renewal."

To maintain a growth mindset, you can't consider yourself an expert--because the minute you do, the learning stops. 

Instead, consider yourself a student, and you'll continue to grow indefinitely.

2. Learn from the past. But keep looking forward

Once you've achieved a measure of success, the tendency is to simply rinse and repeat.

But there's a problem with falling into that pattern — it leads to complacency and stagnation.

"What has happened in the past has happened," says Nadella. "The way I'm going to be measured going forward and the way I should measure myself going forward is, 'What exactly am I going to do tomorrow and the day after?'"

If you keep your eyes focused on the rearview mirror, you're going to crash. Instead, learn from the past, but keep focused on what's ahead.

3. Experiment

Without experimentation and mistakes, there can be no true learning. In contrast, if people feel safe to share new ideas and try new things, the result will be a culture of learning and growth.

This was illustrated perfectly at Microsoft a couple of years ago, when the company launched a Twitter bot named Tay. The goal was to advance how artificial intelligence communicates with real people in real time.

But things quickly went wrong when hackers and trolls manipulated Tay into spewing racist profanity. Microsoft shut down Tay after just 16 hours, issuing an official apology.

The key lesson, though, was in Nadella's email to the team after this spectacular fail:

"Keep pushing, and know that I am with you," Nadella wrote. "[The] key is to keep learning and improving."

It appears that Microsoft's chief executive practices what he preaches. 

Kudos to Nadella for striving to make Microsoft a company full of "learn-it-alls."

So far, it's been great for business.

SEE ALSO: When CEO Satya Nadella took over Microsoft, he started defusing its toxic culture by handing each of his execs a 15-year-old book by a psychologist

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NOW WATCH: What will happen when Earth's north and south poles flip

• Microsoft is making a big push to develop a streaming service for gaming.
• The service, which is planned for a public trial this year, aims to deliver high-end, blockbuster gaming experiences on whatever device you're using.
• Microsoft calls the service "Netflix for games" internally, as a shorthand for what the service intends to do.

Microsoft's ambitious vision for the future of gaming doesn't involve a high-powered, expensive box sitting underneath your TV.

Instead, it's as simple as Netflix. 

Just as Netflix allows you to watch movies and TV shows from any device, a streaming gaming service would let you play high-end, blockbuster video games anytime, anyplace and on any device — your phone, or tablet, or laptop, or TV. No game console required.

With "Project xCloud," Microsoft aims to establish itself as the de facto standard in video game streaming services. And, in 2019, the service goes public.

Here's everything we know about Microsoft's ambitious plan to change how we play games:

SEE ALSO: Microsoft CEO Satya Nadella just laid out the company's vision for its 'Netflix for games'

The goal: to reach more people who play games.

"There are 2 billion people who play video games on the planet today. We're not going to sell 2 billion consoles," Xbox leader Phil Spencer told Business Insider in an interview in June 2018. "Many of those people don't own a television; many have never owned a PC. For many people on the planet, the phone is their compute device," he said. "It's really about reaching a customer wherever they are, on the devices that they have."

The best way to do that is by lowering the barrier to entry — stuff like owning a TV, nonetheless owning a game console and having a stable internet connection, are barriers to entry for the potential userbase Microsoft is targeting with its streaming initiative.

The same could be said for the move from DVD — physical media — to streaming services and digital entertainment. Far, far more people are able to watch TV and movies thanks to smartphones and the digitization of so much media. 

Since games can require serious processing power, digitization alone only opens the door so much — making high-end, processor-intensive games available through streaming services kicks open the door.

The competition: Several major tech companies, from Amazon to Verizon to Google and Sony, either already have game streaming services or are working on game streaming services.

Nearly every major tech company is working on a form of video game streaming technology right now.

Some have been announced or are already operating, like Google's Project Stream and Sony's PlayStation Now, while others are little more than whispers at the moment, like streaming services from Verizon and Amazon.

The competition is stiff, to put it very lightly.

Broadly speaking, the next two years appear to be the general launch target for most of these new game streaming services. Both Microsoft and Google have been testing their streaming services with limited, invite-only audiences, while Amazon's and Verizon's streaming services are little more than talk at this point.

Google's Project Stream demonstrated the ability to stream blockbuster games — "Assassin's Creed Odyssey," specifically — in web browsers. A public, limited test ran from late last year until mid-January 2019.

Microsoft promised "public trials" of Project xCloud in 2019, but has yet to give specific dates; it's otherwise testing the service privately on an invite-only basis.

Sony, meanwhile, has been operating a subscription-based video game streaming service in PlayStation Now for five years. The service enables players on PlayStation 4 and PC to stream PlayStation 2, 3, and 4 games without a download. It costs $20/month or $100/year.

How Microsoft plans to do it:

As seen above, Microsoft already has data centers all over the world — and that helps tremendously given the demands of video game streaming. 

It's relatively simple for Netflix or Hulu to stream video data to your television, smartphone, laptop, PC, or whatever other device. If you have a stable internet connection, even if you're on a smartphone, you can probably stream video. Occasionally it might need to buffer, or maybe it'll drop in resolution in an attempt to mitigate buffering, but those stutters aren't such a big deal if you're just watching an episode of "The Office" idly during your lunch break.

Those stutters matter much more if you're playing a game, and can mean the difference between playable and unplayable in some cases.

Microsoft intends to offset those issues as much as possible by harnessing its worldwide data centers, matching players geographically with the connection closest to them.

• 2018 was a fantastic year for Microsoft shareholders.
• But Microsoft CEO Satya Nadella told journalists Monday that the price of Microsoft's shares, or its stint as the world's most valuable company, wasn't the kind of metrics that thrill him.
• Instead, Nadella says that it's more instructive to measure the impact that Microsoft has on the economies in which in participates. 

2018 was a standout year for Microsoft shareholders. But that success wasn't a focus for Microsoft's CEO Satya Nadella, he told journalists Monday at an invitational media day at the company's headquarters.

To recap: In July, the stock hit an all-time high of above $108 a share. It hit another all-time high over $115 a share in October. Microsoft even dethroned Apple as the most valuable company in the world in November, and held the distinction until early January when it was overtaken by Amazon.

Nadella told the gathered journalists that he's not the type to celebrate these milestones, though.

"I’m not one of those guys who says, 'let's celebrate some market cap measure.' That’s just not stable," he said. 

He said he was far more interested in how the many people outside of the company who rely on its products for their livelihoods, are faring, instead. 

"Our business model is about creating more surplus outside us. We will only be long-term success when the people are making more money around us," he said.

This is a nod to a theory espoused by former Microsoft CEO Bill Gates, an advisor to Nadella, that you can only call something a platform when the total value of the ecosystem around it is more valuable than the company that created it. In other words, other companies need to succeed for Microsoft to call itself a success on its own terms. 

Nadella added that his upbringing in India makes him particularly sensitive to the need for companies to contribute to the economies in which they participate. 

"As a guy who grew up in a country that was colonized by multi-nationals without necessarily contributing, I’m always cognizant of that — this thing about showing up and saying I collect rent and no local contribution," he said.

That said, Microsoft doesn't share much data about the impact of its ecosystem, except in the occasional press release. For instance, in October, IDC releasedseveral reportspredicting Microsoft's cloud will create about 125,000 jobs collectively in several Arab nations over the next five years. 

That said, despite Nadella's lack of enthusiasm, there may still be many more days of share-price highs for him to not celebrate.

Although Microsoft's shares have floated back down to the low $100s, Wall Street analysts are generally bullish on the growth of the company's cloud computing business, and believe the stock will zoom up again. Some analysts think Microsoft could be the next company to reached become worth a trillion dollars, after Apple and Amazon. Its market cap is currently over $780 billion.

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• Microsoft CEO Satya Nadella has two very specific examples of what's next when it comes to business software.
• Specifically, he sees two new categories of software emerging.
• One new category will track the performance of products as customers use them. It is business software built on the concept of Internet of Things, where objects get sensors and apps.
• The second adds a layer of artificial-intelligence magic on top of it all, which will be designed to anticipate problems (like something breaking) and act to prevent them (like sending out a repair person).

Two new categories of business software will soon be coming to the corporate world, to hear Microsoft CEO Satya Nadella tell it.

And he ought to know: Over his 27-year career at Microsoft, one of the world's largest makers of business software, he has helped bring his fair share of new corporate technologies into the world.

On Monday he told journalists at an invitational editors meeting at Microsoft's headquarters that two new categories of software were on the cusp of taking off.

• One of them he calls "systems of observation," which is software for the Internet of Things, the umbrella term for internet-connected gadgetry such as home appliances or autonomous vehicles.
• The other he calls "systems of intelligence," which uses artificial intelligence to predict what will happen and respond.

These two new categories follow what he calls "systems of record," his term for financial-planning applications that track everything a company buys and earns, known also as enterprise resource planning software. They follow what he calls "systems of engagement," his term for the sales software also known as customer relationship management.

Read more: CEO Satya Nadella didn't think it was worth celebrating when Microsoft became the world's most valuable company

While the jargon is thick, the concept isn't that hard to understand, as Nadella described it.

Companies already track everything they buy from suppliers and all the products they sell. They already track who is doing the buying. Next up they will be making their products smart, adding sensors and apps that track how their products are used, how those products perform, and when they are showing signs of failing, he said.

So they will use "systems of observation" to watch this "digital trail" these products, in customers' hands, create.

At that point, companies can add software with artificial intelligence to the mix and "triangulate" on issues or opportunities, Nadella said.

An artificial-intelligence app will be able to watch for patterns and then predict them. The top example is identifying signs of failure in the product and then, before the product actually breaks, ordering a replacement part from the supplier (using the enterprise resource planning software) and coordinating a service professional to go the customer site (through the customer relationship management system).

Read more: The president of Microsoft says top leaders at the world's biggest tech companies meet regularly to talk about the major issues facing Silicon Valley and the world

Nadella calls this a "big shift"— knowing who bought something, how they're using it, and what will happen next can open all kinds of nifty new opportunities.

"Once you have these three things, you now can say, let me do a system of intelligence, which really triangulates these three and adds new value," he said.

And, as you might imagine, Microsoft already has versions of this software, in the form of the Microsoft Dynamics 365 suite of apps. And it also already offers Internet of Things software and artificial-intelligence technology.

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NOW WATCH: What will happen when Earth's north and south poles flip

• Apple CEO Tim Cook and Microsoft CEO Satya Nadella were spotted having dinner at the same table as the far-right Brazilian President Jair Bolsonaro.
• Cook and Nadella were attending the World Economic Forum's Annual Meeting, which is taking place in Davos, Switzerland, this week.
• The dinner was held Tuesday night in Bolsonaro's honor, and it was attended by politicians and business leaders.
• Bolsonaro has a history of making misogynistic, homophobic, and racist remarks, making it an awkward look for the two Silicon Valley luminaries.

Apple CEO Tim Cook and Microsoft CEO Satya Nadella were spotted having dinner at Davos with Jair Bolsonaro, the far-right populist Brazilian president.

The two executives were attending a dinner at the World Economic Forum's Annual Meeting, where the world's elite gather each year in Davos, Switzerland. The dinner was held at the Morosani Hotel in honor of Bolsonaro — who took office in January — and was attended by other business leaders and politicians.

The Axios reporter Felix Salmon tweeted a photo of Cook and Nadella seated at Bolsonaro's table. Bolsonaro appeared at the center of the photo, wearing a blue tie. Nadella was leaning over, speaking with a woman who appeared to be Queen Mathilde of Belgium.

It's unlikely that Bolsonaro would have been either Nadella's or Cook's dining partner of choice.

The president, formerly an army captain, has caused outrage in his country and abroad for prejudiced remarks about women, minorities, and LGBT people. The tide of populism that saw him elected president has been compared to US President Donald Trump's election in 2016.

Read more:The 'Brazilian Donald Trump' just became president in a landslide. He got there despite saying that he couldn't love a gay son and that a colleague was too 'ugly' to be raped.

In an interview in 2011, Bolsonaro said he would rather have a son die in an accident than turn out to be gay. "I would not be able to love a homosexual son," he said. Cook is gay.

And in April, while he was running for president, Bolsonaro was charged with inciting hatred against minorities, women, and gays. He has also faced legal scrutiny for once telling a female lawmaker that she was too ugly to rape.

Bolsonaro said in tweet, per Twitter's translation: "We have just attended dinner with great business leaders and heads of state at the invitation of the president of the World Economic Forum, Professor Schwab. A tremendous satisfaction sharing this moment and sharing experiences."

It wouldn't be the first time Cook and Nadella have been positioned to court a controversial leader. The pair met with Trump soon after his election in 2016, along with other high-profile execs such as Alphabet CEO Larry Page and Facebook's chief operating officer, Sheryl Sandberg.

Microsoft and Apple did not immediately respond to a request for comment.

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• Microsoft CEO Satya Nadella praised the European data regulation GDPR at Davos on Thursday.
• He said it was a "fantastic start" to treating privacy as a human right, and he'd like to see similar regulation introduced in the US.
• Nadella added that he hopes Europe, the US, and China will come together to form a "global standard."

Microsoft CEO Satya Nadella is a major proponent of the the recent European data regulation GDPR, which came into force in May 2018.

"My own point of view on GDPR is it's a fantastic start on really treating privacy as a human right," Nadella said in an interview at the World Economic Forum in Davos, Switzerland on Thursday.

"I'm hopeful that in the United States we will have something that is along the same lines," he said.

Nadella isn't the only big tech CEO to back an American version of GDPR — Apple's Tim Cook has called for federal regulation of data hoarding.

Read more:Acxiom, a huge ad data broker, comes out in favor of Apple CEO Tim Cook's quest to bring GDPR-like regulation to the United States

Microsoft's president Brad Smith also made privacy a talking point at Davos this year, describing 2018 as a "watershed" for the tech industry, and adding that new US federal privacy laws are inevitable.

Nadella didn't limit his call for data regulation to the US.

"In fact I will hope that the world over, we all converge on a common standard. One of the things we do not want to do is fragment the world and increase transaction costs, because ultimately it's going to be born in our economic figures," he said.

"I hope we all come together, the Unites States and Europe first, and China. All the three regions will have to come together and set a global standard," he added.

At the same time, Microsoft has reportedly been part of lobbying efforts to shape any future federal legislation approaching GDPR.

Along with Facebook, Google, and IBM, Microsoft "aggressively lobbied" Whitehouse officials to put in place a more lenient set of federal rules than those passed in California in June, according to a New York Times report from August 2018.

SEE ALSO: Microsoft is quietly testing a project that aims to hand people complete control over their online data

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• When Microsoft introduced the Xbox One in 2013, it was still the industry standard-bearer in video game consoles with the Xbox 360.
• In the course of a few months, Microsoft torpedoed its goodwill with its most dedicated fans, while Sony repeatedly dunked on Microsoft with the introduction of the PlayStation 4.
• But Microsoft has been repositioning its Xbox business in smart ways, introducing programs that people love and paving the way for a future that sounds promising.
• Meanwhile, Sony has made several easily avoidable mistakes.

Microsoft's Xbox One is losing to Sony's PlayStation 4 — badly.

With over 90 million PlayStation 4 consoles in the wild, Microsoft's Xbox One is getting trounced. Estimates put Xbox sales number somewhere in the range of 30 to 50 million — Microsoft stopped reporting hardware sales numbers some time ago.

But don't count Xbox out just yet.

Between its Netflix-like Game Pass service, the company's game streaming ambitions, its push into cross-play gaming, and the brilliant decision to add backwards compatibility, Microsoft is building a strong foundation for the future. 

Meanwhile, Sony is making easily avoidable mistakes.

SEE ALSO: Sony is making the same mistake that hobbled Microsoft and almost killed the Xbox

What happened with the Xbox One, anyway?

In early 2013, Microsoft's Xbox 360 was still more popular than the PlayStation 3. Not only was it competitive in sales, but the Xbox brand had gaming's evangelists — the so-called "core" gaming audience — on its side.

But in May 2013, Microsoft introduced the Xbox One in a press briefing at its Redmond, Washington headquarters. It did not go well.

"That Xbox One Reveal Sure Was A Disaster, Huh?" wrote Kotaku's Luke Plunkett at the time. An edited "supercut" version of the Xbox One reveal even went viral — it offers a stunning look into how Microsoft screwed up the launch of the Xbox One so very badly:

Here are some highlights of the disastrous introduction of the Xbox One: 

-The Xbox One would require a persistent internet connection.
-The Xbox One wouldn't play used games — you'd put in a disc, install it to the console's hard drive, take out the disc and it would effectively be useless.
-Every Xbox One would come with a Kinect motion sensor.
-The Xbox One cost $500 at launch, $100 more than the PlayStation 4.

Between unclear messaging (Microsoft flip-flopped on the first two of those four bullets), a major push into non-gaming applications (the Xbox One has an HDMI-in port, so you can plug your cable box right into it), and an incredibly high price point ($500!), Xbox fans were angry.

Can you blame them? Microsoft introduced a video game console that wasn't focused on video games. The company demonstrated repeatedly that it wasn't listening to its most core consumers, and in doing so lost a lot of early momentum.

Soon after, Microsoft's then-Xbox leader Don Mattrick took to the company's Xbox blog to roll back major features of the Xbox One that people were upset about. One month later, Mattrick was out at Microsoft, quickly replaced by longtime Xbox exec Marc Whitten. Another nine months later, and Microsoft would replace Whitten with current Xbox leader Phil Spencer.

And in the years since, under Spencer, Microsoft's Xbox group has changed course.

As a result of a variety of initiatives, the Xbox One has become a more appealing platform. And as the current gaming generation draws to a close across the next few years, the changes reflect Microsoft smartly setting itself up for the next generation of gaming.

1. Microsoft's Xbox Game Pass, the Netflix-like subscription service for gaming, is a great reason to buy an Xbox One.

For $10/month, Xbox Game Pass offers access to over 100 games. That includes every first-party game that Microsoft makes, loads of indies, and even some heavy-hitters from third-party publishers like Bethesda Softworks.

Launched in 2017, the service is one of gaming's best deals. 

Instead of streaming the games, a la Netflix, you download each game to your Xbox console. As long as you're paying for Game Pass, you keep all the games you download.

Best of all, any new games that Microsoft publishes are included with Game Pass.

When "Crackdown 3" arrives in February, you could drop $10 on a Game Pass subscription to download and play the game — a whopping $50 savings over the normal $60 price of a new game. Microsoft's betting that you'll like the arrangement so much that you'll keep paying for the service every month, like Netflix.

"We're finding people in Game Pass actually play more games," Xbox leader Phil Spencer told me in an interview last June at E3, the annual video game trade show in Los Angeles. "And they're trying some franchises where, if they had to buy the franchise — even if they're $30, $60, whatever the amount might be — it's way easier for them to be invested at $10/month."

Games like "Strange Brigade,""Ashen," and "Mutant Year Zero" are all standouts from Xbox Game Pass in the last six months — games that might've otherwise been missed by a lot of players, but had a chance to succeed through a very low barrier to entry. Not only does Game Pass offer a chance to showcase great games, but it offers an additional revenue stream to older games looking for a second chance. 

2. Project XCloud, Microsoft's video game streaming service — what Microsoft CEO Satya Nadella recently referred to by the shorthand "Netflix for games"— is on the horizon.

With "Project xCloud," Microsoft is creating its own game streaming service. No downloads, and no waiting — high-quality, blockbuster video games streamed directly to whatever device you're using. Where Xbox Game Pass is similar to Netflix, XCloud is a direct analog: A subscription-based streaming service for an entertainment medium.

In 2019, Microsoft is planning public tests of Project XCloud.

The company demonstrated its service in a video released in October 2018:

"There are 2 billion people who play video games on the planet today. We're not gonna sell 2 billion consoles," Spencer told Business Insider in an interview following his stage presentation in June 2018. "Many of those people don't own a television, many have never owned a PC. For many people on the planet, the phone is their compute device," he said. "It's really about reaching a customer wherever they are, on the devices that they have."

Several companies have tried this type of service before, like Gaikai and OnLive. Neither succeeded, though Gaikai lives on in PlayStation Now — Sony's video game streaming service.

"We have as much a shot to build a subscription service as anybody else," Microsoft CEO Satya Nadella told journalists at an invitational editors' meeting at Microsoft's headquarters in late January.

Nadella says Microsoft has the upper hand with its Xbox gaming arm, which gives the company a strategic advantage that much of the competition is lacking.

"We have a huge back catalog, which is: We have our own games," he said, referring to the Microsoft-published back catalog of games on the Xbox that includes "Halo,""Forza," and much more.

That certainly helps, but Sony's arguably stronger back catalog hasn't made PlayStation Now into a massive hit. 

• Last week, more than 50 Microsoft employees released a letter to Microsoft CEO Satya Nadella demanding that the company pull out of a $749 million contract with the US Army to provide HoloLens augmented-reality tech for soldiers. 
• On Monday, Nadella said he doesn't plan to withdraw from the contract. 
• “We made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy," Nadella said. 

Microsoft CEO Satya Nadella isn't backing down in the face of an employee uproar over the company's contract with the US Army. 

In an interview with CNN Business on Monday, Nadella said: “We made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy. We were very transparent about that decision and we’ll continue to have that dialogue [with employees].”

Last week, more than 50 Microsoft employees released a letter to Nadella demanding that the chief exed pull out of the company's $749 million contract with the US Army to provide HoloLens augmented-reality tech for soldiers. 

"We did not sign up to develop weapons, and we demand a say in how our work is used," the letter reads. "As employees and shareholders we do not want to become war profiteers." 

A Microsoft worker told Business Insider on Monday that the number of employees that have signed the letter to Nadella has reached more than 200. 

Read more:A group of Microsoft employees are demanding the company ditch a US Army contract that they say makes them 'war profiteers'

The contract — which Microsoft won over competitors like Magic Leap last November — focuses on building "a single platform that Soldiers can use to Fight, Rehearse, and Train that provides increased lethality, mobility, and situational awareness necessary to achieve overmatch against our current and future adversaries."

The recent backlash at Microsoft is the latest in a string of protests by tech employees upset about their companies' involvement in controversial contracts with government agencies ranging from the military to the immigration department.

Amazon CEO Jeff Bezos has been among the most outspoken about his intentions to continue to pursue government deals despite employee outcry. "If big tech companies are going to turn their back on the US Department of Defense, this country is going to be in trouble," Bezos said last October.

SEE ALSO: Microsoft and the creator of 'Fortnite' have formed an alliance that could put a ton of pressure on Apple and Google

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• College is where many figure out what they're actually interested in and determine the career they want to pursue.
• We researched the degrees and schools attended by well-known tech CEOs, many who launched their companies or landed on the idea for their first startup while studying at college.
• Here's where 45 CEOs in the tech industry went to school, and what they studied.

For new college students, choosing a major can feel like a decision that shapes one's life trajectory. But a degree in computer science is no guarantee that you'll create the next billion-dollar startup, and a philosophy degree won't necessarily keep you from starting a business. 

The best and brightest CEOs in tech come from a wide-range of educational backgrounds.

Some of their chosen majors link up perfectly with what they ended up accomplishing, while others decided to drop out before reaching graduation. 

But whether you major in international studies like Bumble's Whitney Wolfe, or metallurgical engineering like Google's Sundar Pichai, there are plenty of ways to make it big in tech.  

Here is where 45 tech CEOs went to college and what they majored in:

SEE ALSO: The hype around foldable phones has reached a fever pitch — here’s every company working on one right now

Reed Hastings — CEO, Netflix

Alma Maters: Bowdoin University (B.A.), Stanford University (M.S.) 

Majors: Mathematics (B.A.), computer science (M.S.)

Hastings deferred his college acceptance for one year to continue his summer job: selling vacuums door-to-door. While at Bowdoin, Hastings ran the Outing Club, which organized climbing and canoeing trips. 

Jack Ma — CEO, Alibaba

Alma Maters: Hangzhou Normal University (B.A.), Cheung Kong Graduate School of Business (MBA.)

Majors: English (B.A.), MBA. 

Ma didn't get into college on his first attempt. Or his second. Or even his third. In all, Jack Ma applied to college four separate times before he was accepted and got an English degree. Now, he is worth almost $40 billion. 

Susan Wojcicki — CEO, YouTube

Alma Maters: Harvard University (B.A.), U.C. Santa Cruz (M.S.), University of California Los Angeles (MBA)

Majors: History (B.A.) and literature (B.A.), economics (M.S.), MBA 

Wojcicki comes from a family of academics, and fully expected to become one herself. Her plan was originally to get a Ph.D. in economics, but she changed course after finding she was passionate about technology. She would eventually go on to become the 16th employee hired by Google, and has been on a steady rise ever since. 

• For many of the Valley's elite, the right pair of kicks is a trademark accessory carefully selected to convey a mix of power and nonchalance, creativity, and exclusivity.
• With help from the team at the sneaker marketplace Flight Club, Business Insider compiled some of the most fashionable, expensive, and downright wild sneakers worn by tech founders and CEOs.

The inhabitants of Silicon Valley are not exactly known for haute couture.

It's a land where jeans, T-shirts, and hoodies reign supreme, and where sneakers are the footwear of choice.

But don't let the pedestrian fashion item fool you. These sneakers can be as rare and as status-defining as the fine watches adorning the wrists of Wall Street bankers or the designer handbags clutched by elite art dealers.

For many of the Valley's elite, the right pair of kicks is a trademark accessory carefully selected to convey a mix of power, nonchalance, creativity, and exclusivity.

With help from the team at the sneaker marketplace Flight Club, Business Insider compiled some of the most fashionable, expensive, and downright wild sneakers worn by tech founders and CEOs. The Flight Club team helped confirm the brands and styles and provided expert commentary and analysis.

We did our best to find photos of female tech executives wearing sneakers, but our search didn't yield many results. Women such as Sheryl Sandberg and Marissa Mayer wore low heels, flats, or loafers, which says something about how much freedom women have to dress down in the corporate world.

If you dream of becoming the next Mark Zuckerberg, lacing up a pair of these sneakers probably won't get you very far. But at least you'll look the part.

Check it out:

SEE ALSO: Inside the crazy-successful, controversial life of billionaire Uber CEO Travis Kalanick

Mark Zuckerberg: Nike Flyknit Lunar 3 in Wolf Grey

Since Nike's Flyknit franchise was introduced in 2012, Flight Club says it has seen resale values in "the hundreds, and some well over a thousand."

The Wolf Grey sneakers favored by Zuckerberg, Facebook's CEO, aren't currently sold in stores, but you might be able to find them on eBay.

Price: A similar pair costs $110.

Satya Nadella: Lanvin Suede & Patent Leather Low-Top Sneaker

When the Microsoft CEO took the helm in 2014, it quickly became clear he was stylish. So it's no surprise he opts for a more fashion-forward take on sneakers, with a pair from the French high-end brand Lanvin. Even sneaker lovers on Reddit have inquired about Nadella's kicks.

Price: $525

• Epic Games CEO Tim Sweeney used to be one of Microsoft's harshest critics — in 2016, he penned an op-ed in the Guardian lambasting Microsoft for what he saw as a power grab to take full control of the PC.
• Now, he's singing the praises of Microsoft, which he calls a "new company" under CEO Satya Nadella: "The new leadership at Microsoft has been an incredibly good partner to the PC ecosystem," he tells Business Insider.
• Sweeney says that Microsoft's commitment to openness on augmented reality, which could be the next big thing in computing, is "going to make it very hard for any closed platform to compete in the future."

Back in 2016 — well before "Fortnite: Battle Royale" hit the scene — Epic Games CEO Tim Sweeney lambasted Microsoft in an op-ed in The Guardian, slamming the Windows 10 app store as "the most aggressive move Microsoft has ever made." 

"With its new Universal Windows Platform (UWP) initiative, Microsoft has built a closed platform-within-a-platform into Windows 10, as the first apparent step towards locking down the consumer PC ecosystem and monopolizing app distribution and commerce," Sweeney wrote at the time. 

Fast forward to today, and the two have mended bridges: Sweeney actually appeared on-stage at Microsoft's keynote session at this year's Mobile World Congress to pledge Epic's support for the new HoloLens 2 augmented reality headset, and any Windows-powered headset like it. 

Sweeney tells Business Insider that his about-face on Microsoft has everything to do with CEO Satya Nadella and his team, including Phil Spencer, Microsoft's executive vice president of gaming, and Alex Kipman, who leads HoloLens development.

"The new leadership at Microsoft has been an incredibly good partner to the PC ecosystem," says Sweeney. "Microsoft is a new company," he also said.

Read more: The CEO behind 'Fortnite' says the entire video game industry is missing the 'inevitable' trend as the barriers between consoles and smartphones get obliterated

His original skepticism is an "artifact" of the days of former CEO Steve Ballmer, which saw Microsoft undertake initiatives like Windows RT, which locked users into only installing apps from the Windows Store. 

With Windows 10, Microsoft introduced the Universal Windows Platform — an ambitious initiative that let developers write an app once, and have it run across Windows PCs, Windows 10 Mobile phones, the Xbox One console, and even the HoloLens.

In Sweeney's view, this was bad news for developers, and a way for Microsoft to force developers into the Windows Store, where the company got a 30% cut on most transactions. He renewed his criticism when news first broke about Windows 10 S, a version of the operating system that could similarly only run Windows apps. 

"I was really worried about the Windows RT project and these other efforts where Microsoft was creating versions of Windows that would be locked down and could force you to only install software through the Microsoft store," says Sweeney. 

But he says that time proved him wrong, and "Windows has remained fully open."

Indeed, Windows RT was something of a flop, Windows 10 S mutated into "S Mode," a feature of Windows 10 aimed specifically at classroom and educational use, and the demise of Windows 10 Mobile poked a big hole in the UWP strategy. In general, Windows 10 has remained as open as previous versions of the operating system before it, and Microsoft has extended olive branches to Windows partners like Spotify and, more recently, Steam.

Which brings us to Microsoft's HoloLens 2 announcement. Sweeney says he was impressed by Microsoft's public, on-stage commitment to allowing anybody to operate an app store for the HoloLens 2 and headsets like it. To his mind, augmented reality — as exemplified by the HoloLens and similar headsets like the Magic Leap One — is the next major phase of computing, and Microsoft was committing early and loudly to keeping it an open platform.

"[Augmented reality] is going to have a major contender who's already fully committed to being an open platform, meaning that every developer is going to be highly confident in Microsoft as a trusting and trustworthy partner in everything they do," says Sweeney. "And it's going to make it very hard for any closed platform to compete in the future."

Read more: Microsoft and the creator of 'Fortnite' have formed an alliance that could put a ton of pressure on Apple and Google

Ultimately, Sweeney says, he's now a big believer in Microsoft, and believes that its current position of most-valuable company in the world is well-deserved, and a reflection of how far it's come. He points out that Microsoft has open-sourced much of its software, and even owns the popular GitHub service for developers. Like Sweeney, Microsoft's former archenemies at the Linux Foundation have changed their tune, as well.

"It's a great time for the industry, and I don't think it's any coincidence it's also seen Microsoft become the most valuable company in the world. It's a deserved status, and the honor should only go to a company that's completely trusted to be a partner to all its customer, and not try to, you know, impose your will on everybody," says Sweeney.

SEE ALSO: I tried Stadia, Google's big play to conquer video games. It's really promising, but there's still too much we don't know.

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• Most of Microsoft's blockbuster products and cloud services originated long before Satya Nadella became CEO.
• But there's one product launched immediately after he became CEO that has grown like crazy.
• It's called Enterprise Mobility and it's used by enterprises to protect their mobile devices.
• Microsoft says that at the end of its more recent quarter, this product is being used by over 100 million "seats."  
• Visit Business Insider's homepage for more stories.

Microsoft absolutely clobbered its third-quarter earnings, beating expectations on every level from revenues to profits and even cloud growth. All three of Microsoft's major business units posted double-digit growth with two posting more than $10 billion in revenue for the quarter (and the last one coming in just below the $10 billion mark).

Even the margin-bears — those who said Microsoft's cloud was 'hugely unprofitable' and would drag down overall profitability — don't have much to find fault with this quarter. The company's gross margin was a healthy 67%, up from 1% from the year-ago-quarter.

Read: A male Microsoft programmer who came from the military, not a university, describes how his career got tanked by the 'brilliant jerks' culture

And yet, if you had to quickly name a successful Microsoft product released since Satya Nadella took over as CEO five years ago, could you?

There's definitely one. It's called Enterprise Mobility. This is cloud software that helps organizations secure and track their mobile devices. It competes with products from VMware, Blackberry, MobileIron, among others.

On Wednesday, Microsoft said that Enterprise Mobility's installed base grew over 53% to more than 100 million seats. That means that companies are paying Microsoft to use this software on 100 million devices.  

The product was launched with fanfare in 2014, right after Nadella took over as CEO, and a year later it was growing so fast that Microsoft executives hailed it as a potential new $1 billion business. Microsoft hasn't released revenue numbers and this cloud software is often bundled into larger enterprise contracts with volume discounts applied. So we don't know how much money Microsoft actually brings in each year per seat. In fact, this product is part of a bundle called Microsoft 365, which also includes Office 365 and Windows 10.

Microsoft's advertised price for Enterprise Mobility as a standalone service is $8.74 per user/month for a simple version, or $14.80 per user/month, for a version with more features. If you just use those numbers, Enterprise Mobility could be a billion dollar business right now.

To be fair, under Nadella many new versions of Microsoft products have been launched, most famously Windows 10. Still, for the most part, Microsoft's blockbuster products have been around since long before he took over as CEO, including its cloud, Azure (although he ran the cloud unit before becoming CEO); its biggest cloud software, Office 365; even its Salesforce competitor which compelled him to buy LinkedIn, Dynamics 365.

While Microsoft named Enterprise Mobility as a highlight of Microsoft's cloud growth this quarter, it wasn't the only one. Azure revenue grew 73% overall, it said.

SEE ALSO: Microsoft earnings blew away Wall Street

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Editor's note: The following is a transcript from Microsoft's second-quarter earnings call. The transcription was provided by Microsoft.

Michael Spencer: Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, chief
executive officer, Amy Hood, chief financial officer, Frank Brod, chief accounting officer, and Carolyn Frantz, deputy general counsel and corporate secretary.

On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures.

Unless otherwise specified, we will refer to non-GAAP metrics on the call. The non-GAAP financial measures provided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's second-quarter performance in addition to the impact that these items and events had on the financial results.

All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only.

We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website.

During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

And with that, I'll turn the call over to Satya.

Satya Nadella: Thank you, Mike, and thanks to everyone for joining on the phone.

We delivered $32.5 billion in revenue this quarter with double digit topline and bottom line growth, driven by strength across all our commercial clouds.

Our commercial cloud revenue grew 48%, anchored by Azure revenue growth of 76%.

These results speak to us picking the right secular trends in large and growing markets – many of which are still in their infancy – as well as focused innovation and execution.

Leading companies in every industry are partnering with us to build their own digital capability to compete and grow.

This is creating a broad opportunity for everyone, including our ecosystem. As one example, the co-sell program we introduced 18 months ago has already generated $8 billion in contracted partner revenue.

Now I'll briefly highlight our momentum and innovation across our businesses.

Microsoft 365 empowers everyone – enterprises, small businesses, and the more than 2 billion firstline  workers – with an integrated, secure experience that transcends any one device. We are helping every business build out their system of communication and collaboration to drive their productivity as well as their business transformation.

Microsoft Teams is the hub for teamwork and a powerful on-ramp for Microsoft 365, and we are seeing increased usage of OneDrive, SharePoint, Yammer and the entire Office suite of applications. Teams is the only enterprise-grade solution that brings together messaging, meetings, video conferencing, as well as document collaboration,and as of this quarter, enhanced voice capabilities like group call forwarding, delegation and location-based routing – are all being brought into Teams.

We are seeing rapid adoption of Teams with more than 420,000 organizations of all sizes and 89 of the Fortune 100 using Teams – including customers like Pfizer which chose Teams as the collaboration platform for their 115,000 employees. And we are expanding into new and underpenetrated markets.

This quarter we introduced new capabilities to empower firstline workers in the service and taskoriented roles to communicate and collaborate more effectively on-the-go, with mobile schedule management, location sharing, as well as the ability to easily record and share secure audio messages.

We are expanding our opportunity in Education with Microsoft 365, innovating in hardware and software to improve learning outcomes, from more collaborative classrooms with Teams, to personalized learning tools in OneNote, to social learning with Flipgrid, to affordable, easy-to-manage, Windows 10 devices.

Cybersecurity is a central challenge and Microsoft is leading the way, helping all organizations operate in what is known in the industry as a "zero trust" environment. It all starts with Azure Active Directory and the deep work we are doing with Microsoft Threat Protection to provide an integrated solution for our customers that extends across identities, device endpoints, email, information, cloud applications and infrastructure. And, this quarter we introduced new advanced capabilities for identity and threat protection, and for information protection and compliance. Our comprehensive approach to security and compliance is another reason why customers are adopting Microsoft 365. 

Customers from Neiman Marcus, to Brooks Running, to global biopharmaceutical leader Sanofi all chose our solutions.

Surface had its biggest quarter ever this holiday – delivering strong double digit growth in both consumer and commercial. We continue to innovate and expand our family of devices, setting the bar for the industry with the newest Surface Pro, Surface Laptop and Surface Go.

More broadly, Windows 10 continues to gain traction in the enterprise as the most secure and productive operating system. And at CES, our OEM partners showcased always-connected Windows 10 PCs that deliver breakthrough levels of performance to enable powerful new scenarios, like immersive gaming.

Moving to business applications and LinkedIn.

Dynamics 365 grew 51% this quarter as we win customers with our differentiated approach to systems of record and systems of engagement by making them more modular, extensible and AI-driven.

Increasingly, business process automation includes digitizing physical spaces, activities and interactions.

Dynamics 365, along with advances in Azure IoT, AI and Mixed Reality, are leading the way for organizations to create these new Systems of Observation & Systems of Intelligence that drive end-toend business processes, and bridge the online and offline worlds. For example, we now have the capability for customers to manage inventory in real time from the shelf, to the warehouse, to the farm.

But we're not stopping there.

Our Power Platform – spanning Power BI, PowerApps and Flow – enables anyone in an organization to start building an intelligent app or workflow where none exists. It is the only solution of its kind in the industry – bringing together no-code/low code app development, robotic process automation, and selfservice analytics into a single, comprehensive platform. And it enables extensibility across Microsoft 365 and Dynamics 365 as well as the leading third-party SaaS business applications.

With Power Platform, Microsoft is fundamentally democratizing business processes – empowering everyone to make smarter, faster decisions. I'm energized about the tremendous opportunity in this space.

Already, Centrica is relying on Power BI, Power Apps, and Flow, along with Dynamics 365, to transform scheduling and dispatch for its firstline workforce in the United Kingdom.

Virgin Group is using Power Apps and Dynamics 365 to generate a single view of its passengers, surfacing insights to improve customer service and increase operational efficiency.

And, in Italy, the postal service is using Dynamics 365 to jump-start the digital transformation of
thousands of post offices across the country.

Moving to LinkedIn.

We continue to generate strong revenue growth across all businesses, with sessions growth of 30% year-over-year, fueled by record levels of engagement in the feed and content shared across the platform. We also saw record job postings again this quarter.

We introduced new brand and community-building tools for Marketers with LinkedIn Pages, making it easier for organizations of all sizes to foster stronger connections with LinkedIn's 610 million members. Finally, Glint broadens our market opportunity with its industry-leading employee engagement platform. At a time when competing for talent and skills development is a priority for every leader, the combination of LinkedIn Talent Solutions, Talent Insights, LinkedIn Learning, and now Glint helps every business attract, retain and develop the best talent in an increasingly competitive jobs marketplace.

Now turning to Azure.

Azure is the only hyperscale cloud with a consistent computing stack that extends from the datacenter to the edge – and customers across every industry recognize this architectural advantage.

In retail, Azure was front and center at NRF.

Kroger is partnering with us to redefine customer experience in stores and provide employees with AIdriven insights, while The Gap chose our cloud to accelerate its digital transformation. And, just last week, Albertsons chose Azure as its preferred cloud.

In financial services, Mastercard is partnering with us on a new, more secure way to verify digital identities.

BlackRock is applying the power of the Microsoft cloud to reimagine retirement planning. And UBS is using Azure to increase agility across the organization while meeting the highest bar of compliance and security.

In healthcare, Walgreens Boots Alliance chose Azure to put people at the center of their health and wellness, with digital solutions to improve healthcare outcomes and lower costs. In addition, they will roll out Microsoft 365 to more than 380,000 employees and stores globally.

We are accelerating our innovation in emerging workloads like IoT and Edge AI. At CES, our partners showcased how Azure IoT and Azure AI are enabling them to build new connected devices and experiences that span the cloud and edge – from connected homes to cars to smart cities. Just this month, Starbucks chose Azure Sphere to secure its business-critical edge devices in stores.

Developers will increasingly drive and influence business processes and functions across every organization – and we are committed to giving developers the tools they need to be productive on any platform.

More than 12 million developers around the world use Visual Studio to build applications, and new features enable them to collaborate in real-time and spend more time driving innovation.

We closed our acquisition of GitHub this quarter, enabling us to bring our tools and services to new audiences while enabling GitHub to grow and retain its developer-first ethos.

GitHub has more than 31 million developer accounts and recently surpassed 100 million code repositories – a major milestone. Development teams at more than half of the Fortune 50 do their work in GitHub Enterprise. This month, we announced significant updates to make GitHub accessible to even more developers, introducing unlimited private repoes, as well as a new, simpler, unified enterprise offering, already available through our Microsoft global salesforce. And we're not stopping there.

Just last week, we announced our acquisition of Citus Data – the leading provider of Postgres SQL – enhancing our overall data platform differentiation and building on our investment on Azure, making it the most comprehensive cloud for open source and proprietary data workloads at any scale.

Now I'll turn to gaming.

We continue to pursue our expansive opportunity to transform how games are distributed, played and viewed. Our investments in content, community and cloud services across every endpoint drove both record user engagement and record average revenue per user, and contributed to our largest gaming revenue quarter ever, driven by software and services.

We acquired two new studios this quarter, bringing the total to 13, and more than doubling our firstparty content capacity in the past six months.

Xbox Live monthly active users reached a record 64 million, with the highest number of mobile and PC users to-date. Xbox Game Pass subscribers and Mixer engagement also hit new all-time highs. And Minecraft, which continues to be one of the most popular and durable gaming franchises in the industry, delivered record revenue as we expanded into new platforms, geographies and segments like Education.

PlayFab surpassed one billion player accounts this quarter, and xCloud will be in public trials later this year as we make progress on our ambition to build a world-class gaming platform spanning mobile, PC and console.

In closing, our accelerating customer momentum is driven by our deep and growing partnerships with
leading companies, and differentiated innovation across our portfolio.

Every company is becoming a digital company and they are looking for a trusted partner to help them
build tech intensity. Microsoft is that partner.

With that, now I'll hand it over to Amy who will cover our financial results in detail and share our
outlook.

I look forward to rejoining you after for questions.

Amy Hood: Thank you, Satya, and good afternoon everyone.

First, as a reminder, my comments across our results and outlook include the impact from GitHub, inclusive of purchase accounting, integration, and transaction related expenses.

This quarter, revenue was $32.5 billion, up 12% and 13% in constant currency. Gross margin dollars increased 12%. Operating income increased 18%. And earnings per share was $1.10, increasing 15% and 14% in constant currency, when adjusting for the net charges related to TCJA.

Strong execution and continued customer demand for our hybrid cloud offerings drove another quarter of double-digit top and bottom line growth. We continued to benefit from favorable secular trends and  IT spending conditions. From a geographic perspective, our performance was in line with macroeconomic trends, with strength across the US, Western Europe and the UK, partially offset by weaker performance in Central and Eastern Europe and the Middle East and Africa.

In our commercial business, annuity mix grew 3 points year over year to 89%. Commercial unearned revenue was $25.3 billion, growing 20%, slightly above expectations. And commercial bookings were strong, growing 18% and 22% in constant currency, driven by solid renewal execution and an increase in the number of larger, longer-term Azure contracts. As a reminder, strong performance in larger, longterm Azure contracts, Azure consumption overages, and pay as you go contracts will drive bookings growth and in-period revenue but will have a limited impact on unearned revenue.

Commercial cloud revenue was $9.0 billion, growing 48% and 47% in constant currency. Commercial cloud gross margin percentage increased 5 points year over year to 62%, driven by significant improvement in Azure gross margin.

Our company gross margin percentage was 62%, flat year over year, as improving cloud margins were offset by sales mix shift to Commercial Cloud and Surface hardware.

The US dollar was a bit stronger than anticipated, which resulted in a slightly greater impact to our results. FX reduced revenue, COGS, and operating expense growth by less than a point.

Operating expenses grew 7%, slightly lower than expectations as some marketing spend shifted to Q3.

We again expanded operating margins as a result of focused investments, solid execution, and improving gross margins in key product areas.

Now to segment results.

Revenue from Productivity and Business Processes was $10.1 billion, increasing 13%, driven by Office 365 commercial, LinkedIn, and Dynamics 365.

Office commercial revenue grew 11%. Office 365 commercial revenue increased 34% and 33% in constant currency, driven by seat growth of 27% and ARPU expansion from continued customer migration to higher value E3 and E5 offerings. We saw installed base growth across all workloads and customer segments.

Office consumer revenue grew 1% and 2% in constant currency, below our expectation. As discussed on our last earnings call, Q2 revenue growth was impacted by channel inventories normalizing after the pre-launch builds in Q1, but was further negatively impacted by a smaller than expected consumer PC market and execution challenges during the quarter. Office 365 consumer subscribers grew to 33.3 million, a sequential slowdown primarily due to changes made in how Office 365 is sold in Japan.

Our Dynamics business grew 17%, driven by Dynamics 365 revenue growth of 51% and 50% in constant currency.

This quarter, more than 9 out of every 10 new Dynamics CRM customers chose our cloud offering.

LinkedIn revenue increased 29% and 30% in constant currency, with continued strong execution across all businesses. LinkedIn sessions grew 30% as engagement once again reached record levels.

Segment gross margin dollars increased 11% and gross margin percentage declined slightly year over year as increased cloud mix offset the benefit from improvements in LinkedIn and Office 365 margins.

Operating expenses increased 3% and 4% in constant currency as we continued to invest in LinkedIn and cloud engineering. Operating income increased 20% and 19% in constant currency.

Next, the Intelligent Cloud segment, which now includes GitHub. Revenue was $9.4 billion, increasing 20% and 21% in constant currency, ahead of expectations, driven by continued strength in our hybrid solutions. Server products and cloud services revenue increased 24%. Azure revenue increased 76%, with strong growth from both the consumption and per-user based businesses. In our on-premises server business, continued customer demand for flexible hybrid solutions and our premium offerings drove growth of 3% and 4% in constant currency.

Enterprise Services revenue increased 6% and 7% in constant currency, driven by growth in Premier Support Services and Microsoft Consulting Services.

Segment gross margin dollars increased 20%. Gross margin percentage was relatively unchanged as revenue mix to Azure IaaS and PaaS was offset by material improvement in the Azure gross margin percentage.

Operating expenses increased 26% with continued investment in cloud and AI engineering and as well as commercial sales capacity, and the addition of GitHub. Operating income grew 16% and 15% in constant currency.

Now to the results from the More Personal Computing segment. Revenue was $13.0 billion, increasing 7%. Results in our Windows OEM business were lower than expected, partially offset by strong Surface results.

In Windows, the overall PC market was smaller than we expected primarily due to the timing of chip supply to our OEM partners which constrained an otherwise healthy PC ecosystem and negatively impacted both OEM Pro and Non-Pro revenue growth. Windows OEM Pro revenue declined 2%, roughly in-line with the commercial PC market. OEM non-Pro revenue declined 11%, below the market with continued pressure in the entry level category.

Inventory levels ended the quarter below the normal range.

Windows commercial products and cloud services grew 13% and 14% in constant currency, with continued customer adoption of our premium offerings. Windows 10 deployments across new and existing devices remained strong.

Gaming revenue grew 8% and 9% in constant currency. Xbox software and services revenue increased 31% and 32% in constant currency, primarily driven by continued strength from a third-party title.

Additionally, strong subscriber growth across Xbox Live and Game Pass helped to offset lower than expected performance from other third-party titles on the platform. Xbox hardware performed better than expected, but declined year over year given the holiday launch of the Xbox One X a year ago.

In Surface, revenue increased 39% and 41% in constant currency, to nearly $1.9 billion, ahead of our expectations, driven by strong growth across both our consumer and commercial segments.

Search revenue ex-TAC increased 14% driven by Bing rate growth and increased volume in US and international markets.

Segment gross margin dollars increased 6% and 7% in constant currency and gross margin percentage decreased due to sales mix to our lower margin Surface and Gaming businesses.

Operating expenses declined 4%. As a result, operating income increased 18% and 19% in constant
currency.

Now back to total company results.

Capital expenditures including finance leases were down sequentially to $3.9 billion, lower than originally planned, mainly due to quarter to quarter variability in the timing of cloud infrastructure buildout. Cash paid for property, plant, and equipment was $3.7 billion.

Cash flow from operations increased 13% year over year driven by strong cloud billings and collections.

Free cash flow was $5.2 billion and decreased 2% year over year, reflecting the timing of higher cash payments for property, plant, and equipment.

Other income was $127 million, higher than anticipated, driven by interest income and investment gains, partially offset by interest expense and net losses on foreign currency remeasurement.

Our non-GAAP effective tax rate was slightly above 17%, in line with expectations.

And finally, we returned $9.6 billion to shareholders through share repurchases and dividends, an increase of 91%. Our Q2 share repurchase was $6.1 billion, higher than our normal quarterly pace, and aligned to our commitment of incremental buyback to fully offset stock consideration issued in the GitHub transaction by the end of the fiscal year.
Now let's move to our outlook.

For Q3, first FX. With the stronger US dollar, and assuming the current rates remain stable, we now expect FX to decrease revenue and operating expenses growth by approximately 2 points and decrease COGS growth by approximately 1 point. With the segments, we anticipate about 2 points of negative FX impact on revenue growth in Productivity and Business Processes and Intelligent Cloud, and 1 point in More Personal Computing.

Second, continued strong customer demand, healthy bookings growth, and increasing revenue annuity mix should drive another solid quarter in our commercial business. Commercial unearned revenue is expected to decline approximately 2% to 3%, in line sequentially with historic trends.

We expect commercial cloud gross margin percentage to continue to improve year over year as material improvement in Azure gross margin will again be partially offset by the mix of revenue towards Azure consumption-based services.

Third, capex. We expect a sequential dollar increase in capital expenditures as we continue to invest to support increasing demand.

Now to segment guidance.

In Productivity and Business Processes, we expect revenue between $9.9 and $10.1 billion driven by double digit growth in Office commercial and Dynamics as well as healthy LinkedIn growth on a strong prior year comparable. We expect Office consumer revenue growth to continue to be in the low single digits as growth in Office 365 will be partially offset by the continuation of the consumer PC market headwinds.

For Intelligent Cloud, we expect revenue between $9.15 and $9.35 billion, with our hybrid demand continuing to drive strong growth in server products and cloud services. Azure growth will continue to reflect the balance between strong growth in our consumption-based business and moderating growth in our per-user business.

In More Personal Computing, we expect revenue between $10.35 and $10.65 billion with a shift in revenue mix to our Surface and Gaming businesses.

In Windows, overall OEM revenue growth should be in the low single digits as we anticipate continued market impact from constrained chip supply in Q3.

In Surface, continued momentum from Surface Pro 6, Surface Laptop 2, and Surface Go will drive another strong quarter of over 20% growth for Surface.

In Search ex-TAC, we expect revenue growth similar to Q2.

In Gaming, we expect revenue growth to be slightly higher than last quarter. Sales mix will shift to software and services, where we expect healthy growth.

Now, back to overall company guidance.

We expect COGS of $10.35 to $10.55 billion and operating expenses of $10.1 to $10.2 billion, inclusive of marketing spend that moved from Q2 to Q3.

Other income and expense should be approximately $50 million as interest income is partially offset by
interest expense.

And finally, we expect our Q3 effective tax rate to be in line with the full year rate of 17%.

Now a few comments on our outlook for Q4 and the full fiscal year, which are unchanged from October.

First on FX. In Q4, assuming rates remain stable, we expect FX to decrease revenue growth by approximately 2 points and COGS and operating expenses growth by approximately 1 point.

Second, in Q4, we expect continued strong performance in our commercial cloud business, but as a reminder, we also have several challenging comparisons from the prior year, specifically in on-premises server, LinkedIn, Windows OEM, and the strength of a third-party title in Gaming.

In terms of operating expenses, we continue to expect full year growth of roughly 8%. We will continue to invest in strategic growth areas like Azure, AI, GitHub, Dynamics, Power Platform, LinkedIn, Teams, and gaming content given our significant growth opportunities, competitive advantage, and growing momentum.

We still expect full year operating margin to be up slightly year over year, inclusive of the full GAAP impact of GitHub.

For capex, we continue to expect the growth rate for the year to moderate even as we meet the high demand for our cloud services.

We remain committed to an incremental share buyback, beyond the normal quarterly pace, that will fully offset stock consideration issued in the GitHub transaction by the end of this fiscal year.

And finally, we still expect the full year effective tax rate to be roughly 17% with quarterly variability.

With that, Mike, let's go to Q&A.

Michael Spencer: Thanks, Amy.

We'll now move over to Q&A. Operator, can you please repeat your instructions.
(Operator Direction.)

Keith Weiss, Morgan Stanley: I just wanted to thank you guys for taking the question, and nice quarter. A question on Azure, and it's a two-parter, one part for Satya and one for Amy.

Satya, there's been a lot of press releases of you up on stage with CEOs from guys like Albertsons, Walgreens, talking about these large strategic deals that you're doing with these companies. Can you help us understand sort of how do these large strategic deals translate into sort of the services being used on Azure changing? Is there a mix shift in the types of services that are supporting these large digital transformations that we should be sort of aware of on a going forward basis?

And to Amy, one of the sort of big investor debates is a lot of suppliers into the big cloud vendors like yourself are talking about weaker shipments into this large. But you guys have seen very stable growth. I mean Azure growth was dead solid from Q1 to Q2. Can you help us understand how the sort of capital intensity of some of these cloud businesses has been changing over time?

Satya Nadella: Sure. First of all, thank you, Keith, for the question.

It is very true that at this point we are seeing these very large digital transformational efforts and projects that we are partnered with, and they span, quite frankly, all the industries. I think in the last quarter you saw in healthcare and retail with financial services. In fact, I sort of internally think of them as what our relationships with our traditional OEM partners in the PC ecosystem were.

At this point, some of the partnerships we have with customers are of the same magnitude. And that just speaks to, I think, what's happening in the economy, which is every company is becoming a digital company and essentially what used to be COGS and operating expense is all going digital.

From a mix of services, it starts always with I would say infrastructure. So this is the edge and the cloud infrastructure being used as compute. In fact, you could say the measure of a company going digital is the amount of compute they use. So that's the base.

Then on top of that, of course, all this compute means it's being used with data. So the data estate, one of the largest things that happens is people consolidate the data that they have and so that they can reason over it and that's where things like AI Services all get used.

So we definitely see that path where they're adopting the layers of Azure, but it doesn't stop in Azure.

In fact, if you take Walgreens Boots Alliance with Microsoft 365 as well as Azure. In many cases, it's  Dynamics 365, any IoT project on Azure leads to a Dynamics field service project in most instances. So we're seeing the breadth and depth of our cloud offering, which is what we have really architected, to have real synergies in the context of what our customers want to achieve. And that's what we're seeing.

And one comment before I throw it over to Amy, even on our own demand for it we don't see any change. In fact, it's very healthy and we think that it will continue to be healthy. And if anything, at our scale, as you can imagine, we are becoming much more efficient in how we use software to utilize the capacity we have. So we have significant gains in utilization across our estate.

So with that I'll leave it to Amy.

Amy Hood: And, Keith, the thing I would add in addition to Satya's comment about investing and investing materially to make these improvements in performance and utilization, we have always had and seen, as you all have gotten a bit used to, it can be a bit lumpy quarter to quarter. And so we expect a sequential growth into Q3, which is really just some movement that happens from time to time. Our guidance really in terms of overall capital spend is unchanged from 90 days ago even if the timing of that can move month to month.

Keith Weiss: Excellent. That's very helpful. Thank you, guys.

Michael Spencer: Thanks, Keith.

Operator, we'll take next question, please.

(Operator Direction.)

Karl Keirstead, Deutsche Bank: Thanks.

Amy, I just wanted to ask you a question about your March quarter guidance. The total looks terrific.

The only area that might decelerate a little bit appears to be the Intelligent Cloud segment where 17 percent I think at the midpoint it implies still amazing but down from 20-plus percent in the last three quarters. So I'm wondering if you could just focus on that for a second and help us understand what some of the variables inside that Intelligent Cloud business are that might be impacting next quarter growth?

Thank you.

Amy Hood: Thanks, Karl.

The first place to start is obviously FX. We've got a 2-point headwind on that range of 16 to 18. So if you think about that and move your midpoint up to 19, and then I think within that guidance there's a reasonable amount of confidence that the server products and services KPI will remain quite healthy.

Karl Keirstead: Okay. Thank you, Amy.

Michael Spencer: Thanks, Karl.

We'll take the next question, please.

(Operator Direction.)

Mark Moerdler, Bernstein Research: Thank you. I have a question for Satya and then for Amy, if you don't mind. Satya, in the different documents related to the earnings this quarter you have on product launches, et cetera, there's a discussion in there on the Microsoft launch of the Quantum Development Kit. Can you give us a bit of color on how you're thinking about quantum computing today, how soon the opportunity, where it is in the maturation?

And then I have a follow-up for Amy.

Satya Nadella: Sure. Thanks, Mark.

The way we think about our overall investment, I think of it as a systems investment, because at the scale at which we operate the intelligent cloud and the intelligent edge infrastructure, which you all track as Azure, you've got to remember is the core platform that's powering everything from our gaming ambitions to what we're doing with Microsoft 365 to what we're doing with Dynamics 365 and, of course, our third-party business in Azure.

So that's the core platform. And now when you think about the scale at which we operate, it is very important for us to make sure that every new breakthrough that happens in the system architecture that can improve efficiencies in what is distributed computing is something that we stay on the forefront of it.

So that's why we have a very long-term view on quantum and the things that we did even in this last quarter is take things like the quantum simulator stuff and bring it to Azure. In fact, we're seeing very good adoption in scientific labs in universities and some pharma companies and others who are looking at really building their quantum algorithmic prowess long before the quantum computer is real so that they're ready to be able to take advantage of that computing resource.

So that's how we look at it, but you've got to remember that before quantum there are many byproducts of a quantum effort that have significant implications on how we get more competitive, efficient in terms of providing computing to the world. So that's one of the reasons why you hear us talk about quantum as a long-term goal, but you can full expect us to take a lot of learnings, advances in that roadmap and bring them to market earlier.

Mark Moerdler: Thank you, I really appreciate that.

Amy, you gave a lot of color this quarter, but in the quarter, there was overall transactional weakness.

Can you give us a little more a color, is there something structural driving it, U.S. Government, China weakness, was there just simply less contracts up for renewal or is it the cloud? Any additional data would be helpful.

Thank you.

Amy Hood: Thanks, Mark, for the question.

The only transactional weakness I felt in the quarter at all was what we covered, which was the OEM impact from the chip supply, which was about a point and a half of growth on MPC. And the Office Consumer impact, which was secondary impact of the PC environment plus some execution challenges we had that I feel really good that we've gotten to the root of and will get handled in H2.

Outside of that, our transactional execution was really precisely as we expected. Office Commercial actually had a pretty reasonable quarter given some of the impact we had in Q1, a couple of points of impact of extra growth that we talked about. And the product and services KPI on-prem in server was also quite good when we think about the balance and what that represents for hybrid demand. We continue to see good demand on data center modernization as well as some of the premium SKUs.

Mark Moerdler: Perfect. Thank you. I much appreciate it and congrats.

Michael Spencer: Thanks, Mark.

Operator, we'll take next question, please.

(Operator Direction.)

Phillip Winslow, Wells Fargo: Hi, guys. Thanks for taking my question and grats on a great quarter.

I just wanted to focus in on Windows. Amy, I think you got into low single-digit growth in Windows OEM revenue for Q3, and just wondering if you could sort of help us bridge that, because you also talk about inventory levels of Windows being low in the OEMs as well as a mix. So maybe kind of help us bridge a gap between your comments about maybe continued storage is a component of the revenue growth.

And then the other side of Windows, the commercial, obviously has been super strong, but we're starting to lapse. There's some pretty big growth numbers in Q3 and Q4 last year. I know obviously there's some account change with 606. Maybe you could give us some color there.

So I guess one on the OEM side, and then two on the commercial side.

Thanks.

Amy Hood: Great. Thank you.

On the OEM side, the way to think about those comments is we do expect inventory levels to likely remain low as we exit the next quarter as well. So think about their having, and we do expect, chip supply to remain constrained. I don't expect to see any impact from change in inventory levels through the next quarter. So I would sort of remove that as one of the mechanisms you're thinking about on overall OEM demand. I do think what we'll see in Q3 is, we're expecting a little better performance in the Pro side of the market in terms of seeing growth there and that's probably helping a little bit.

To your second question on Windows Commercial overall, our real investment, and you're right we are starting to reach some tougher comparables, but a lot of that comparability which you referenced is due a little of how it's licensed, which is a lot of this is new and gets recognized more up-front in quarter.

That's going to continue to have some lumpiness still as we go over the years. As that business continues to grow it will get less of that impact.

The primary driver in terms of billings is how I tend to think about that has been pretty consistent. It's been double-digit consistent growth. It tends to look a lot like our Office 365 motion. It's sold with Microsoft 365. It's about the selling motion of E3 and E5 that we talk about. If you can almost take out that 606 impact, the billings seem to almost mirror the Microsoft 365 SKUs we sell.

Phillip Winslow: Awesome. Thanks a lot, appreciate it.

Michael Spencer: Thanks, Phil.

We'll take the next question, please.

(Operator Direction.)

Jennifer Lowe, UBS: Great. Thank you.

I appreciate getting the sort of visibility you have into the, as someone earlier alluded to, transactional businesses. It sounds like you feel pretty good or at least stable about the PC outlook for the remainder of this year. But given that Windows is a pretty material driver of profitability at Microsoft, if we do start to see a more protracted decline in PC unit sales, how do you think about your investments going out through the remainder of this calendar year? Are there opportunities to sort of flex down the cost structure at this point to preserve profitability and margins or should we assume that much of the investments happening right now are really tied to the Commercial Cloud and some of the lower margin but higher opportunity businesses and maybe there isn't so much of an offset. How should we think about contingency planning if we do see a weak or an extended weakening in the global economic climate?

Satya Nadella: Let me start, and Amy you can add to it.

First of all, I would say the opportunity for our shareholders when they think about Microsoft has never been better. When I look at every business becoming a digital business and then take that opportunity and map that to our capability, we have the broadest platform of anyone in the tech sector to really help every customer in every country become that digital business. And we have the business model that aligns with them and their interest and the trust.
And so, therefore, from a secular perspective, we're all in on making sure that we invest in our Commercial Cloud as well as our investments in things like gaming and going after the opportunity that is there in front of us. And you even think about Microsoft 365, the value proposition of Microsoft 365 transcends Windows and Office on Windows. We think about the relevance of our applications across all device sockets. We think about the security, identity management, information protection, and all that value across all device sockets.

So, therefore, I feel very, very good about the product investments and the go to market investments we are making to really help our shareholders realize the growth potential that's available in what is going to be an increasingly digital world.

And I'll let Amy answer.

Amy Hood: Let me just add a little bit, Jennifer, when it comes to really your question about OEM. You know, we know that the signals we get from especially our commercial customers is that there is a healthy demand for the value that exists in Windows 10. We're seeing it in terms of deployments on new and existing devices. And the security and manageability value prop that comes with a modern device, and the experiences that employers want their employees to have and be able to take advantage of along with some of the end of support deadlines that we have talked about, there is still an opportunity for us to remain focused on and execute on through this calendar year. And I still feel quite good about that, including the signals we're getting in the market.

Jennifer Lowe: Great. Thank you.

Michael Spencer: Thanks, Jen.

Operator, we'll take the next question, please.

(Operator Direction.)

Raimo Lenschow, Barclays: Thanks for taking my question.

I wanted to focus on the data and database side of your business. We saw the acquisition this quarter of a Postgres company. If you think about the ecosystem around the world, a lot of the cloud guys are talking a lot about database. Can you kind of maybe talk a little bit of what you see around Cosmos, the whole database offering that you have from what you see in terms of client adoption there?

Thank you.

Satya Nadella: Yeah. We feel very, very good about the data platform and the portfolio we have, whether it's on the relational side with obviously SQL and now Postgres support. And then our Cosmos DB has become the leading multi-model, multi-region database. And so therefore I feel very, very good.

As I said even earlier, whenever these customer digital transformation projects start, they start by really getting their data into shape. And what that means is you bring all the data in its native format. You need the full comprehensive platform, and then the ability to be able to do things like AI and analytics on top of all of this data. So our data platform growth as well as competitiveness is very good and increasing. And we're the only provider still who can do this in a hybrid way. That is, the consistency between what happens at the edge to the cloud when it comes to data tier becomes even more important as edge scenarios become very, very real. So therefore I feel very good about our data story.

Citus, which is the company we just bought for the Postgres capability is something that we're very excited about.

Raimo Lenschow: Thank you.

Michael Spencer: Thanks, Raimo.

We'll take the next question, please, Operator.

(Operator Direction.)

Walter Pritchard, Citi: Hi, thanks.

A question on Azure and growth numbers this quarter were very strong. I'm wondering if you could talk about, what's your visibility into the growth in that business? You know, a lot of that comes from enterprise agreements and commitments customers are making, some of that's on sort of credits that they have to consume. I'm not sure if you're willing to give us sort of a gross kind of trajectory as you look out forward, but I think there's a lot of investor interest in terms of how much visibility on your perspective.

Amy Hood: Maybe I'll start, Satya.

In terms of the Azure growth, most of the Azure growth is really driven by consumption. So this is about getting projects started, making those projects successful, making sure customers feel the value and get the value of their investment. And increasingly that's why we've been talking a bit about the form of these contracts changing. Larger commitments being made that land in bookings but not in unearned.

So it's a bit different mechanism that you'd think about having in our standard EA where it goes to the balance sheet and gets earned off. These are contracts that unless it is used and deployed and a customer gets value from it does not land into the P&L. And so the part that looks a little bit more EA like is the part we've talked about on a per user basis, that's the things they're going to deploy, whether that's EMS is the best example.

And so those have the characteristic you talk about, which is that it really comes from the EA and the recognition of more predictable. But on the IaaS and PaaS layer, that's about our execution each quarter and especially making an impact.

The only other way that Azure number is to think about it is, when we've talked about the Azure hybrid benefits that exist, those show up actually in the on-prem number, right, even if they ultimately get used on the Azure side. So there actually is some Azure benefit in revenue ultimately that shows "as onprem".

Michael Spencer: Great, thanks, Walter.

We'll go to the next question, please.

(Operator Direction.)

Mark Murphy, JPMorgan: Yes. Thank you very much.

Satya, in the last couple of quarters you have announced a number of these large multi-year Azure wins with companies including Walmart and Albertsons and Walgreens, as Keith mentioned earlier. I'm just curious whether you're sensing an amplified tailwind there due to Amazon's ambitions to actually compete with grocers and retailers and healthcare providers and other industries?

And then, Amy, I am assuming that those wins are captured by this robustness that we're seeing in the Commercial bookings growth which was up 22 percent. But I guess I don't understand if they're fully captured, if this is a consumption-based structure, or are we only seeing a portion of those bookings if we look in the unearned revenue and in the KPI?

Satya Nadella: Okay, I'll start.

The first thing is to -- we need to have product truth and product competitiveness and capability to, first of all, play, and that's where I'll start. We have a very, very good compelling platform across our Commercial Cloud. That's what's really leading us to be able to do these types of partnerships that you referenced.

It's clear that we also have a fantastic alignment of our business model with the interests of our customers. In other words, we want to make sure that we are, in fact, making our customers fully capability digital companies in their own right, whether they're in retail, whether they're in oil and gas, whether they're in healthcare, because that's really what's in our long-term interest, which is to ensure that they have full digital capability, and then they use the subscriptions and the consumption capabilities of our cloud.

And, of course, that means that we have a trusted relationship, which is a competitive advantage in a world where some of our competitors have more complex business models, where in some cases they give them platforms, in other cases where they compete with them or tax them, that's definitely  something that I'm sure our customers pay attention to. But we are very focused on making sure that we have the right product that's competitive in the marketplace, and then our business model that's long-term aligned with the interests of our customers, and we'll stay focused on it.

Amy Hood: And to your second question, most of these larger contracts are showing up in that Commercial bookings number, and we reference that. And we say the larger, longer-term contracts that is where they show up. Very little shows up in unearned. And that's a distinction that we're starting to see in many of these Azure contracts. It will as it gets used go straight to that Azure revenue growth number on the P&L.

Mark Murphy: Thank you.

Michael Spencer: Thanks, Mark.

Operator, we'll take the next question, please.

(Operator Direction.)

Brad Reback, Stifel: Great. Thanks very much.

Satya, you talked about Microsoft 365 being the new operating system, and I know you talked a bunch about that today. But as you think about going after the front-line worker, the people you could not get to previously, how should we think about the TAM expansion from that from a seat standpoint?

Thanks.

Satya Nadella: A good example of the first-line opportunity was something that you could have seen at NRF this January. We launched, for example, Teams for First-Line Workers, which had things like shift worker capabilities, the secure messaging. One of the challenges in retail and in many other industries is what's that messaging tool that has actually got the security framework that they expect of any other enterprise tool as opposed to using one of these consumer messaging tools which then all the liability is with the enterprise. So that's the opportunity we see, for all fronts, whether it's in manufacturing, whether it's in retail, whether it's in healthcare. So that's the TAM expansion. So in other words, it can be start with Teams. It can start with some of our devices in the first-line worker.

For example, one of the things that we see the most traction for HoloLens is with first-line workers, people in manufacturing, in field services, where they were never issued a standard laptop, or even a phone, are being issued a HoloLens as their first computing device and that's just because of the productivity it drives. So those are the kinds of TAM expansion we see across Microsoft 365.

Brad Reback: Great, thanks very much.

MICHAEL SPENCER: Thanks, Brad.

Operator, we'll take our last question now please.

(Operator direction.)

Alex Zukin, Piper Jaffray: Hey, guys, thanks for taking my question and congrats on the quarter. Satya, you guys reorganized the sales and customer service organization about 18 months ago quite substantially and you're now seeing the benefits, both around much larger deals and broader deals that we discussed on this call for your products across the portfolio.

I wanted to ask as the deal complexity increases, are you seeing any impact to your sales cycles as a result and is there any impact to your sales cycle, maybe not from that, but from kind of the macro volatility that we've seen in the headlines.

Satya Nadella: I mean overall a lot of our transformation, whether it's on the engineering side or on the marketing side or on the sales side have all been driven by the opportunity we see with the broad platform capabilities we have, across all of our commercial cloud, whether it's Azure or Dynamics 365, or Microsoft 365. So it is true that the deals are much broader, deeper, the relationships with the customers that we are now signed up with span a lot more of our capability and also drives a lot more of their own ambition.

So for sure the sales cycles are different, but at the same time you've got to remember, at Microsoft we do have a lot of different business that we do with the customers, which may include some things like refreshes of their on-premise infrastructure, all the way to some very high ambition digital transformation projects.

So I would say we are well equipped to deal with that complexity and the variability of what our customers want us to be helping them with and that's where a lot of the transformation we have done internally is helping us accelerate our cloud business.

Amy Hood: And I think the way we've seen this in the field is, and our sales organization, has been not unlike some of these Dynamics transactions, or the Power Platform transactions that require a fundamental understanding of business process and the changes you're trying to implement. Those do naturally have longer sales cycles. Azure has many of those same attributes at the higher end of the complexity and digital transformation Satya was talking about. And in these very large transactions, many of which we've been signing recently, where you'll see some of that volatility would be in bookings. But I think in general the goal is to have and continue to build on that business, but certainly that would be where the quote/unquote volatility would show up.

Michael Spencer: Great, well, thanks, Alex.

That wraps up the Q&A portion of today's earnings call. Thank you for joining us. And we look forward
to speaking with all of you soon.

Satya Nadella: Thank you all.

Amy Hood: Thank you.

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