Microsoft released their latest quarterly results two weeks ago, and the news was good for them. They beat analyst expectations for the third consecutive quarter, but perhaps the more important part was the cloud revenues. Up nearly 100%, Microsoft’s cloud business continues to get stronger. That’s very important for their future growth.

You could say things are going pretty well in the three years since Satya Nadella took the corner office. The market certainly seems to think so. Microsoft stock is up 68% since Nadella took the helm. This is compared to the 38% increase for the Nasdaq composite index. His predecessor Steve Ballmer had a less stellar record. In 14 years under Ballmer, Microsoft’s stock price fell 37%. He did have to deal with both the dot-com bubble burst and the Great Recession, but the Nasdaq managed to recover, up about a percent and a half over the same period.

Microsoft stock price (blue) and Nasdaq composite (red) from January 2000 to February 2014.

Microsoft stock price (blue) and Nasdaq composite (red) from February 2014 to February 2017.

There’s more to a company than its stock price, of course. Ballmer oversaw a 215% increase in net income. During Ballmer’s tenure, Microsoft launched XBox and the enterprise business (e.g. Exchange and SQL Server). The Azure offering that is driving much of the Nadella-era growth started during Ballmer’s reign as well. Of course, the Ballmer era also saw failed attempts to enter markets: the Zune music player, Windows Phone — as an OS as well as the Nokia acquisition.

An alternate history

As an open source software enthusiast, the “new” Microsoft’s good-faith entry into the open source world is the most interesting change. Whereas Ballmer called the GPL a “cancer”, today’s Microsoft is embracing open source (albeit under permissive licenses). Microsoft has opened .NET, ported SQL Server and Powershell to Linux, and has partnered with Red Hat and Canonical on various efforts. So what if Ballmer never happened?

…After moving many of their products to an open core model, Microsoft saw its dominance continue. Apple gained a toehold in the desktop market with OS X, but was never able to make serious inroads. When the iPod became a runaway success, they got out of the computer business altogether. Meanwhile in the server market, Unix was giving way to Linux. Microsoft saw this trend and developed a new server operating system based on the Linux kernel. Some of the UI improvments made it back to the Linux ecosystem and 2005 was officially declared the Year of Linux on the Desktop. Seeing the success of the Microsoft-backed Linux, Mark Shuttleworth disbands his young company and focuses on returning to space. He eventually partners with Elon Musk to help fund early SpaceX efforts. By 2017, industry analysts begin seeing Amazon’s cloud offering as a serious competitor to Microsoft Azure…

Back to reality

Okay, so maybe that’s not how it would have played out. Maybe Microsoft would have come to dominate the smartphone and tablet instead of Apple. Maybe they’d have a terrible CEO who would drive the company off a cliff. Cynics would say that Microsoft is only embracing (without extending and extinguishing this time!) open source because they’re struggling to remain relevant as technology paradigms shift out from underneath them. Maybe the cynics are right. As with all counterfactuals, we’ll never know, but Microsoft’s investors have to wonder “what if?”