I'm a little hoarse today, so hopefully we don't have to do a lot of talking.

Good luck with that.

All right, let's do this. Who got the truth?

Is it you? Is it you? Is it you? Who got the truth now? Is it you?

Is it you? Is it you?

Sit me down, say it straight. Another story on the way.

Who's got the truth? Welcome to season 14, episode six, the season finale of acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal, and we are your hosts. Well, listeners, here we are, Microsoft, volume two. At long last, after the ancient history of volume one, we now get to the stuff that you grew up with, the Internet, Windows XP, Xbox, the browser, search and mobile. And in this era, Microsoft had a lot of the in basically priority order number one, hold the company together emotionally. I love this company. That was job number one, to keep everybody coming to work. Job it looks pretty, but it's not powerful. I can't actually do anything. It was like a friendly interface, but not a powerful set of functionality that came with the operating system. Xp did the impossible where they figured out how to take the ease of use of the nine X interface and make it run on top of NT. The whole thing is built on the NT kernel and it has the friendly, approachable ease of use that you are used to in Windows 95 and 98.Amazing, amazing. So the lineage of that nine x code base that came all the way from Windows 3.0 or maybe even one or two, I don't know how long.Code lived, but interface manager.Right, exactly. Is now dead. And so you had the NT lineage of. I guess maybe even you could say it started with OS two, but Windows NT, Windows 2000 and then Windows XP. So everybody's running Xp now. There's two editions, there's home and there's professional.Oh, gotta get the professional. I always got the professional.Did you?Every time I built a new PC, I gotta go pro. I don't even know what pro meant. I definitely didn't need pro because I was not a corporate office worker, but got to go pro.It came with all kinds of great stuff. They've got this great slide. It's a fun announcement to watch. The emphasis on digital photography, digital music, digital video, home networking. It ushered us into this age of you probably have media that you're using on your computer. Apple famously owned this as a corporate identity with their digital hub strategy. But Windows XP, plenty of people were importing digital photos off their camera to Windows XP. That was a big exciting use case for it.Lot of Napster clients running on Windows XP machines.Lot of Napster clients, yes. So like I did for every Microsoft Windows release, I went and watched the keynote. The keynote is extremely strange. Think about what a Steve Jobs keynote was back in the day or what a WWDC keynote is like today or a Google I O. This keynote opens with a gospel choir singing America the Beautiful and is followed by Bill Gates and Rudy Giuliani walking out on stage together and talking about how bad terrorism is.And of course, the thing you need to know about this keynote is the date.Yes. So this happens one month after 911 in New York City. And it really underscores what a strange time it was in the US. If you had this once in three years product release and it was going to be in New York October of 2001, you probably have this question, should we even do it? Should we make it all about the first responders? It grounds the whole thing in a very specific moment in history when you're watching it in a way that no other tech event really ever has been grounded in history before. So a few other things that jump out during the keynote, Bill Gates is not the CEO, Steve Ballmer is. And yet Bill Gates is the one walking out with Rudy Giuliani to kick things off. And that's a strange and somewhat telling element of what Bill's role at the company was. Now you could argue he was the public facing figure. He was the founder of the company. It seems very natural. But also at some point, why isn't the CEO the one doing the keynote? Another thing about Windows XP, there was a new release of Office right at the same time as XP.This is a classic Microsoft move. They are able to create great applications available on day one, which makes the OS more valuable. And so from the applications perspective, they're able to ensure that they get great market share, since they're always adopting the latest and greatest Windows platform right away. So Windows success begets Office success. And it's important to remember that that worked for many, many years. And if you remember back to the last episode, Lotus one, two three and Wordperfect smoked Microsoft in Microsoft's own backyard. During the DoS era, Microsoft's productivity apps did not get real adoption in DOS, which is crazy. When they were making Windows, they basically swore never again. They ensured that they were going to be very early with applications on those platforms. As Windows took off, Office also got huge market share. It's smart to remember this lesson and carry it forward for years, maybe a decade. But again, they may have bet on this strategy a few years too long, forever. It became gospel at Microsoft. So with Windows goes the company. And so you need to do things to make sure that Windows is going to continue to succeed, because that is our company's platform and livelihood.It's almost like the old Disney adage. So with animation goes the company. And until 2014 Microsoft felt the same way.Yup. And yes, that is true for all the traditional reasons in the XP timeframe. The reason it was also true in part one of our Microsoft series. It's even more true as Microsoft becomes an enterprise company because Windows is at the heart of the enterprise agreement. The whole value prop of all of our server technologies is they work great with your Windows devices on your network.Right? There's strong incentives everywhere for Microsoft to ensure that Windows is the standardized platform that everyone wants to have on their PCs because it makes everything else work. Of course they're going to release a new version of Office that shows off the latest and greatest of Windows. I think this XP timeframe is the showcase moment of when that was a great strategy and we'll contrast that later.Yep.The other thing to know about this XP timeframe is last episode we talked about the incredible secular growth trend of the PC that was this crazy tailwind for Microsoft. One of the greatest tailwinds you could ride in business history. PC shipments. I believe the stat David, was that they grew 98% per year over the eleven years between the founding in 1975 and the ipo in 1986. The crazier thing is, even as late as 2001 with Windows XPath, they were still riding this tailwind. The us household penetration of personal computers, again flashing back, pre ipo was only 8%. So that whole doubling year over year over year by Microsoft's ipo, they still only got to around 10% of penetrating the US. By 1990, 713 years later it grew to 37%. And after a couple of years of XP being in market 2003 it had grown to 62%. So I think the craziest stat is actually that last one. 2003 feels like a modern moment in history, but PCs were still only in 62% of us homes.Wow, that's crazy.The PC wave is just one of the greatest secular trends in history, particularly if you have a monopoly share of that market.Yeah.And they, as defined by the us government did been defined.Define for me.There's just no question of as this market grows, are you going to be able to continue to participate in it? It's like, yeah, we basically are a tracker for that market. It grows, we grow with it.Yeah, now might be a good time. Certain Microsoft fans have probably been listening to this episode and gripping their phones with all their strength. Like when are you going to talk about Xbox? We're going to talk about Xbox briefly right now. We will do a whole nother episode.On Xbox someday maybe David make your case and then let's talk about it.My case is I love my Xbox.Well, it's important to know Microsoft didn't start in gaming with the Xbox. Windows 95. They shipped DirectX. That changed the world. They became a real gaming platform because of that. Is this unbelievably clever set of APIs that went entirely around Windows. Amazing piece of technology. You put Microsoft on the map and you have the whole rise in PC gaming for the next six years, even before the Xbox.Yes, totally. That's funny. Microsoft is so huge. This is one of the things that gets lost to history. But you are absolutely right. DirectX was so important in that late nineties era for PC gaming. Quake, counter strike. Everything that happened half life later that was enabled. Doom came before and was really just the genius of Carmack as a programmer to enable a first person shooter to happen on a PC. Hardware without something like DirectX and hardware acceleration. But yes, everything that came after that, the birth of the first person shooter genre, huge story to tell another day. You're right. That leads into Xbox and Microsoft's entry into the home console. Crazy. That happened in November 2001. So just like a couple of weeks after the XP launch, it was a big time for Microsoft.And how crazy is this? They thought they were getting broken up.Right as they're launching a video game.Console and this operating system that they've been working toward for like eight years.Yeah, this is also part of my argument of Microsoft was such a dominant consumer technology company before DOJ, because even though all this stuff comes out right after, it's the momentum still from before that's carrying Microsoft through to it.Yeah. Okay, while we're in Xbox land, should we finish our Xbox enos right now for this episode?Sir?Xbox has become an important part of our world, but not an important part of Microsoft's business.Agree.David and I sort of heard people utter things in our research like Xbox has kind of been a lifetime break. Even business or it's never meaningfully contributed to Microsoft. So I tried to figure out as much as I could from financial statements, and I got to thank Alex at the science of hitting. It's a great substack for helping me with this. If you look, there was a division called Entertainment and devices that was part of their old reporting structure. And if you look at the e and D reporting over time. Let's start back in 2006. They generated $4 billion in revenue, lost $1.4 billion operating loss. So this is five years after the Xbox has come out loss, making 2008 they do $8 billion in revenue, $400 million in profit. So like even as it's becoming a real business at steady state.Yeah. As 360 is. Yep. Coming into teeny margins. Yeah, totally.2009, $8 billion in revenue, 100 million in operating income. 2010, another 8 billion in revenue. 700 million. This is $700 million to Microsoft in this timeframe. They do call it $20 billion of profit.Yeah.Whats 700 million?Theres a great quote. Ill bring it up again later. But we got to talk to Steve again, to bomber as we were preparing for this episode and he had this amazing quote to us about some of his acquisitions that didnt momentum and political capital and betting your career has gone into this HTML five developer community, the Metro UI. And so that is the desktop version that ships.I see. Yeah, there can only be one Windows. And so we gotta put both of these babies in here.Yup. And what you have is not as bad as Vista. But man, the rollout was pretty bungled.It's confusing.The reception was poor, interestingly not by the tech pundits. Like the tech pundits who actually spent some time and figured it out were trained up pretty quickly. But the cat was out of the bag even before they got to review it on people who were angry. What are the Microsoft people refer to him as?People that, oh, the basement.The basement, yes. The 0.01% power users who are the loudest, of course, on the Internet. And so that kind of taints the product. Oems hate it because frankly, oems weren't signed up to make these touch devices. But now Microsoft's putting all this energy behind touch optimized operating system. So there's this mixed message to consumers. It's like, are there even good laptops available? Am I supposed to use touch on my desktop?They have to run ARm. They can't run X 86. They got to run ARM processors. They got to run mobile processors. But you're asking these devices in 2012 to also be able to function as laptops, and the technology of the board. So it is a wholesale changing of the guard within Microsoft. Bill, Steve, the original folks were retiring. We're done. It is a new day, and that needed to happen. The office for iPad discussion we had a minute ago I think was emblematic. There is truth to what Satya wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. It's like a bigger version of Brad Smith's presentation to the board of it's time to make peace. It's time to make peace internally. And there just needed to be a reset.Yeah, there was a lot of baggage. I mean, it's just, what, 40 years of baggage. Bill, Steve, old wars, antitrust, bad releases of windows. Like, you just gotta get it out to move on. And it was Bill and Steve leaving in one fell swoop to clear the path.And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here. Like a huge, huge, huge win in Azure and it is going to be really good for everybody's personal net worth, if nothing else. If we can just let that be appreciated and let a new day dawn here. So on February 4, 2014, on that day, Microsoft stock price was $30.50. And as we said a minute ago, the market cap was, I don't know, call it $300 billion. Slightly below today. Ten years later.Whoa, whoa, whoa. This is volume three. David, don't.Yeah, yeah, yeah. Well, you know, just to foreshadow show that this was the right decision. Ten years later, stock is at $465. Market cap is three and a half trillion dollars. Probably like, I don't know, I haven't done a sum of the parts analysis, but I think you can say probably at least half is Azure propping up that market cap.They are currently the most valuable company.In the world, the once and future king, Microsoft. That's our story for part two. We still have a lot to talk about in analysis.I'm sure someone's looking down at their podcast player right now, like, why are they acting like they're done? There's so much time after this. Are they just gonna like, play some.Music or lots to talk about?Okay, I have got some start and finish stats on Steve's tenure as CEO.Ooh, great.This episode, we started a little bit before Steve took over because we wanted to put the Internet chapter in and the antitrust chapter in. But I think everyone kind of feels it by this point. The question really is like, what happened when Steve was running the company? And so here are the numbers, and this is the timeframe from 2000, when he was announced as CEO, until 2014 was Satya was announced. So a 14 year period, revenue went from 23 billion to 84 billion. That's a three and a half x. Over 14 years, operating income went from 12 billion to 30 billion. So almost a three x. Important to pay attention to is the price to earnings ratio. When Steve was announced as CEO was a 75 x.That's high.It was real close to an all time high, which was in the month prior at an ADX. So it is worth pointing out it still has not been that high to this day. Even today, with all the excitement around Microsoft AI, everything going on 40 x.Right? So Steve comes in at an all time high multiple. And right before the DOJ verdict and.The breakup of the company and the.com bubble is exploding.Yes.And you're taking over from Bill Gates all the things. Essentially, if you're doing an analysis of what happened in Steve's tenure and you're trying to grade that. You are implicitly saying, did Steve make a good investment? To be honest, I think Steve took one for the team in taking over as CEO. In that moment he was handed a bit of a impossible situation, garbage sandwich, inheriting something when it is valued that highly.Not to mention as we talked about during that period, all the frankly shit going on at the company completely.So I worked at Microsoft during this period. I was a big open source guy, I was a big Apple guy, I was all these things. And I hated Steve's Windows strategy. And frankly I didn't like using any Windows products. I felt like they were all crap. And it is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced into buying at 75 x earnings?Yep.So at the end of his term it was 14 x. The PE multiple went from 75 x to 14 x. The market cap when he was announced went from 600 billion to when he left at 330 billion. A lot of that is basically the price to earnings multiple rationalizing in that first year. And then after it did that the stock price was basically flat for his entire tenure, no matter how much the revenue or the profits grew. And so one crazy stat on this is you could have bought Microsoft in 2009 for 2.1 x annual revenue.Oh my God. I mean everything was on sale back then. But like wow.Listeners is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.Yup. CiO's probably did sort of, but they.Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.They got the story right, the messaging reset.This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.Yeah, I would throw Oracle in there too, but.Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.Yup, totally.So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.An employee of the company.Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.They totally used to.They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?Well, they were their good products, just the enterprise products. They weren't the good consumer products.Right. They weren't good for me, as a user, they met the needs of customers.Yes.All right, moving to analysis.Great. Let's do it.Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.And I think on part one we said Microsoft in that era had all of these. Right.I feel like there are one or two that I was shaky on, but.Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.Yeah, yeah.But broadly as a company, like, no way.Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.Yeah. Less than free. Yep.Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.Right. And that translates directly into the cloud era too.Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.Yeah. I think they also definitely lost branding power in the consumer world.Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?Definitely. So yes, they gained it in the enterprise world.Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

in basically priority order number one, hold the company together emotionally. I love this company. That was job number one, to keep everybody coming to work. Job it looks pretty, but it's not powerful. I can't actually do anything. It was like a friendly interface, but not a powerful set of functionality that came with the operating system. Xp did the impossible where they figured out how to take the ease of use of the nine X interface and make it run on top of NT. The whole thing is built on the NT kernel and it has the friendly, approachable ease of use that you are used to in Windows 95 and 98.Amazing, amazing. So the lineage of that nine x code base that came all the way from Windows 3.0 or maybe even one or two, I don't know how long.Code lived, but interface manager.Right, exactly. Is now dead. And so you had the NT lineage of. I guess maybe even you could say it started with OS two, but Windows NT, Windows 2000 and then Windows XP. So everybody's running Xp now. There's two editions, there's home and there's professional.Oh, gotta get the professional. I always got the professional.Did you?Every time I built a new PC, I gotta go pro. I don't even know what pro meant. I definitely didn't need pro because I was not a corporate office worker, but got to go pro.It came with all kinds of great stuff. They've got this great slide. It's a fun announcement to watch. The emphasis on digital photography, digital music, digital video, home networking. It ushered us into this age of you probably have media that you're using on your computer. Apple famously owned this as a corporate identity with their digital hub strategy. But Windows XP, plenty of people were importing digital photos off their camera to Windows XP. That was a big exciting use case for it.Lot of Napster clients running on Windows XP machines.Lot of Napster clients, yes. So like I did for every Microsoft Windows release, I went and watched the keynote. The keynote is extremely strange. Think about what a Steve Jobs keynote was back in the day or what a WWDC keynote is like today or a Google I O. This keynote opens with a gospel choir singing America the Beautiful and is followed by Bill Gates and Rudy Giuliani walking out on stage together and talking about how bad terrorism is.And of course, the thing you need to know about this keynote is the date.Yes. So this happens one month after 911 in New York City. And it really underscores what a strange time it was in the US. If you had this once in three years product release and it was going to be in New York October of 2001, you probably have this question, should we even do it? Should we make it all about the first responders? It grounds the whole thing in a very specific moment in history when you're watching it in a way that no other tech event really ever has been grounded in history before. So a few other things that jump out during the keynote, Bill Gates is not the CEO, Steve Ballmer is. And yet Bill Gates is the one walking out with Rudy Giuliani to kick things off. And that's a strange and somewhat telling element of what Bill's role at the company was. Now you could argue he was the public facing figure. He was the founder of the company. It seems very natural. But also at some point, why isn't the CEO the one doing the keynote? Another thing about Windows XP, there was a new release of Office right at the same time as XP.This is a classic Microsoft move. They are able to create great applications available on day one, which makes the OS more valuable. And so from the applications perspective, they're able to ensure that they get great market share, since they're always adopting the latest and greatest Windows platform right away. So Windows success begets Office success. And it's important to remember that that worked for many, many years. And if you remember back to the last episode, Lotus one, two three and Wordperfect smoked Microsoft in Microsoft's own backyard. During the DoS era, Microsoft's productivity apps did not get real adoption in DOS, which is crazy. When they were making Windows, they basically swore never again. They ensured that they were going to be very early with applications on those platforms. As Windows took off, Office also got huge market share. It's smart to remember this lesson and carry it forward for years, maybe a decade. But again, they may have bet on this strategy a few years too long, forever. It became gospel at Microsoft. So with Windows goes the company. And so you need to do things to make sure that Windows is going to continue to succeed, because that is our company's platform and livelihood.It's almost like the old Disney adage. So with animation goes the company. And until 2014 Microsoft felt the same way.Yup. And yes, that is true for all the traditional reasons in the XP timeframe. The reason it was also true in part one of our Microsoft series. It's even more true as Microsoft becomes an enterprise company because Windows is at the heart of the enterprise agreement. The whole value prop of all of our server technologies is they work great with your Windows devices on your network.Right? There's strong incentives everywhere for Microsoft to ensure that Windows is the standardized platform that everyone wants to have on their PCs because it makes everything else work. Of course they're going to release a new version of Office that shows off the latest and greatest of Windows. I think this XP timeframe is the showcase moment of when that was a great strategy and we'll contrast that later.Yep.The other thing to know about this XP timeframe is last episode we talked about the incredible secular growth trend of the PC that was this crazy tailwind for Microsoft. One of the greatest tailwinds you could ride in business history. PC shipments. I believe the stat David, was that they grew 98% per year over the eleven years between the founding in 1975 and the ipo in 1986. The crazier thing is, even as late as 2001 with Windows XPath, they were still riding this tailwind. The us household penetration of personal computers, again flashing back, pre ipo was only 8%. So that whole doubling year over year over year by Microsoft's ipo, they still only got to around 10% of penetrating the US. By 1990, 713 years later it grew to 37%. And after a couple of years of XP being in market 2003 it had grown to 62%. So I think the craziest stat is actually that last one. 2003 feels like a modern moment in history, but PCs were still only in 62% of us homes.Wow, that's crazy.The PC wave is just one of the greatest secular trends in history, particularly if you have a monopoly share of that market.Yeah.And they, as defined by the us government did been defined.Define for me.There's just no question of as this market grows, are you going to be able to continue to participate in it? It's like, yeah, we basically are a tracker for that market. It grows, we grow with it.Yeah, now might be a good time. Certain Microsoft fans have probably been listening to this episode and gripping their phones with all their strength. Like when are you going to talk about Xbox? We're going to talk about Xbox briefly right now. We will do a whole nother episode.On Xbox someday maybe David make your case and then let's talk about it.My case is I love my Xbox.Well, it's important to know Microsoft didn't start in gaming with the Xbox. Windows 95. They shipped DirectX. That changed the world. They became a real gaming platform because of that. Is this unbelievably clever set of APIs that went entirely around Windows. Amazing piece of technology. You put Microsoft on the map and you have the whole rise in PC gaming for the next six years, even before the Xbox.Yes, totally. That's funny. Microsoft is so huge. This is one of the things that gets lost to history. But you are absolutely right. DirectX was so important in that late nineties era for PC gaming. Quake, counter strike. Everything that happened half life later that was enabled. Doom came before and was really just the genius of Carmack as a programmer to enable a first person shooter to happen on a PC. Hardware without something like DirectX and hardware acceleration. But yes, everything that came after that, the birth of the first person shooter genre, huge story to tell another day. You're right. That leads into Xbox and Microsoft's entry into the home console. Crazy. That happened in November 2001. So just like a couple of weeks after the XP launch, it was a big time for Microsoft.And how crazy is this? They thought they were getting broken up.Right as they're launching a video game.Console and this operating system that they've been working toward for like eight years.Yeah, this is also part of my argument of Microsoft was such a dominant consumer technology company before DOJ, because even though all this stuff comes out right after, it's the momentum still from before that's carrying Microsoft through to it.Yeah. Okay, while we're in Xbox land, should we finish our Xbox enos right now for this episode?Sir?Xbox has become an important part of our world, but not an important part of Microsoft's business.Agree.David and I sort of heard people utter things in our research like Xbox has kind of been a lifetime break. Even business or it's never meaningfully contributed to Microsoft. So I tried to figure out as much as I could from financial statements, and I got to thank Alex at the science of hitting. It's a great substack for helping me with this. If you look, there was a division called Entertainment and devices that was part of their old reporting structure. And if you look at the e and D reporting over time. Let's start back in 2006. They generated $4 billion in revenue, lost $1.4 billion operating loss. So this is five years after the Xbox has come out loss, making 2008 they do $8 billion in revenue, $400 million in profit. So like even as it's becoming a real business at steady state.Yeah. As 360 is. Yep. Coming into teeny margins. Yeah, totally.2009, $8 billion in revenue, 100 million in operating income. 2010, another 8 billion in revenue. 700 million. This is $700 million to Microsoft in this timeframe. They do call it $20 billion of profit.Yeah.Whats 700 million?Theres a great quote. Ill bring it up again later. But we got to talk to Steve again, to bomber as we were preparing for this episode and he had this amazing quote to us about some of his acquisitions that didnt momentum and political capital and betting your career has gone into this HTML five developer community, the Metro UI. And so that is the desktop version that ships.I see. Yeah, there can only be one Windows. And so we gotta put both of these babies in here.Yup. And what you have is not as bad as Vista. But man, the rollout was pretty bungled.It's confusing.The reception was poor, interestingly not by the tech pundits. Like the tech pundits who actually spent some time and figured it out were trained up pretty quickly. But the cat was out of the bag even before they got to review it on people who were angry. What are the Microsoft people refer to him as?People that, oh, the basement.The basement, yes. The 0.01% power users who are the loudest, of course, on the Internet. And so that kind of taints the product. Oems hate it because frankly, oems weren't signed up to make these touch devices. But now Microsoft's putting all this energy behind touch optimized operating system. So there's this mixed message to consumers. It's like, are there even good laptops available? Am I supposed to use touch on my desktop?They have to run ARm. They can't run X 86. They got to run ARM processors. They got to run mobile processors. But you're asking these devices in 2012 to also be able to function as laptops, and the technology of the board. So it is a wholesale changing of the guard within Microsoft. Bill, Steve, the original folks were retiring. We're done. It is a new day, and that needed to happen. The office for iPad discussion we had a minute ago I think was emblematic. There is truth to what Satya wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. It's like a bigger version of Brad Smith's presentation to the board of it's time to make peace. It's time to make peace internally. And there just needed to be a reset.Yeah, there was a lot of baggage. I mean, it's just, what, 40 years of baggage. Bill, Steve, old wars, antitrust, bad releases of windows. Like, you just gotta get it out to move on. And it was Bill and Steve leaving in one fell swoop to clear the path.And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here. Like a huge, huge, huge win in Azure and it is going to be really good for everybody's personal net worth, if nothing else. If we can just let that be appreciated and let a new day dawn here. So on February 4, 2014, on that day, Microsoft stock price was $30.50. And as we said a minute ago, the market cap was, I don't know, call it $300 billion. Slightly below today. Ten years later.Whoa, whoa, whoa. This is volume three. David, don't.Yeah, yeah, yeah. Well, you know, just to foreshadow show that this was the right decision. Ten years later, stock is at $465. Market cap is three and a half trillion dollars. Probably like, I don't know, I haven't done a sum of the parts analysis, but I think you can say probably at least half is Azure propping up that market cap.They are currently the most valuable company.In the world, the once and future king, Microsoft. That's our story for part two. We still have a lot to talk about in analysis.I'm sure someone's looking down at their podcast player right now, like, why are they acting like they're done? There's so much time after this. Are they just gonna like, play some.Music or lots to talk about?Okay, I have got some start and finish stats on Steve's tenure as CEO.Ooh, great.This episode, we started a little bit before Steve took over because we wanted to put the Internet chapter in and the antitrust chapter in. But I think everyone kind of feels it by this point. The question really is like, what happened when Steve was running the company? And so here are the numbers, and this is the timeframe from 2000, when he was announced as CEO, until 2014 was Satya was announced. So a 14 year period, revenue went from 23 billion to 84 billion. That's a three and a half x. Over 14 years, operating income went from 12 billion to 30 billion. So almost a three x. Important to pay attention to is the price to earnings ratio. When Steve was announced as CEO was a 75 x.That's high.It was real close to an all time high, which was in the month prior at an ADX. So it is worth pointing out it still has not been that high to this day. Even today, with all the excitement around Microsoft AI, everything going on 40 x.Right? So Steve comes in at an all time high multiple. And right before the DOJ verdict and.The breakup of the company and the.com bubble is exploding.Yes.And you're taking over from Bill Gates all the things. Essentially, if you're doing an analysis of what happened in Steve's tenure and you're trying to grade that. You are implicitly saying, did Steve make a good investment? To be honest, I think Steve took one for the team in taking over as CEO. In that moment he was handed a bit of a impossible situation, garbage sandwich, inheriting something when it is valued that highly.Not to mention as we talked about during that period, all the frankly shit going on at the company completely.So I worked at Microsoft during this period. I was a big open source guy, I was a big Apple guy, I was all these things. And I hated Steve's Windows strategy. And frankly I didn't like using any Windows products. I felt like they were all crap. And it is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced into buying at 75 x earnings?Yep.So at the end of his term it was 14 x. The PE multiple went from 75 x to 14 x. The market cap when he was announced went from 600 billion to when he left at 330 billion. A lot of that is basically the price to earnings multiple rationalizing in that first year. And then after it did that the stock price was basically flat for his entire tenure, no matter how much the revenue or the profits grew. And so one crazy stat on this is you could have bought Microsoft in 2009 for 2.1 x annual revenue.Oh my God. I mean everything was on sale back then. But like wow.Listeners is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.Yup. CiO's probably did sort of, but they.Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.They got the story right, the messaging reset.This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.Yeah, I would throw Oracle in there too, but.Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.Yup, totally.So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.An employee of the company.Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.They totally used to.They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?Well, they were their good products, just the enterprise products. They weren't the good consumer products.Right. They weren't good for me, as a user, they met the needs of customers.Yes.All right, moving to analysis.Great. Let's do it.Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.And I think on part one we said Microsoft in that era had all of these. Right.I feel like there are one or two that I was shaky on, but.Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.Yeah, yeah.But broadly as a company, like, no way.Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.Yeah. Less than free. Yep.Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.Right. And that translates directly into the cloud era too.Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.Yeah. I think they also definitely lost branding power in the consumer world.Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?Definitely. So yes, they gained it in the enterprise world.Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

it looks pretty, but it's not powerful. I can't actually do anything. It was like a friendly interface, but not a powerful set of functionality that came with the operating system. Xp did the impossible where they figured out how to take the ease of use of the nine X interface and make it run on top of NT. The whole thing is built on the NT kernel and it has the friendly, approachable ease of use that you are used to in Windows 95 and 98.

Amazing, amazing. So the lineage of that nine x code base that came all the way from Windows 3.0 or maybe even one or two, I don't know how long.

Code lived, but interface manager.

Right, exactly. Is now dead. And so you had the NT lineage of. I guess maybe even you could say it started with OS two, but Windows NT, Windows 2000 and then Windows XP. So everybody's running Xp now. There's two editions, there's home and there's professional.

Oh, gotta get the professional. I always got the professional.

Did you?

Every time I built a new PC, I gotta go pro. I don't even know what pro meant. I definitely didn't need pro because I was not a corporate office worker, but got to go pro.

It came with all kinds of great stuff. They've got this great slide. It's a fun announcement to watch. The emphasis on digital photography, digital music, digital video, home networking. It ushered us into this age of you probably have media that you're using on your computer. Apple famously owned this as a corporate identity with their digital hub strategy. But Windows XP, plenty of people were importing digital photos off their camera to Windows XP. That was a big exciting use case for it.

Lot of Napster clients running on Windows XP machines.

Lot of Napster clients, yes. So like I did for every Microsoft Windows release, I went and watched the keynote. The keynote is extremely strange. Think about what a Steve Jobs keynote was back in the day or what a WWDC keynote is like today or a Google I O. This keynote opens with a gospel choir singing America the Beautiful and is followed by Bill Gates and Rudy Giuliani walking out on stage together and talking about how bad terrorism is.

And of course, the thing you need to know about this keynote is the date.

Yes. So this happens one month after 911 in New York City. And it really underscores what a strange time it was in the US. If you had this once in three years product release and it was going to be in New York October of 2001, you probably have this question, should we even do it? Should we make it all about the first responders? It grounds the whole thing in a very specific moment in history when you're watching it in a way that no other tech event really ever has been grounded in history before. So a few other things that jump out during the keynote, Bill Gates is not the CEO, Steve Ballmer is. And yet Bill Gates is the one walking out with Rudy Giuliani to kick things off. And that's a strange and somewhat telling element of what Bill's role at the company was. Now you could argue he was the public facing figure. He was the founder of the company. It seems very natural. But also at some point, why isn't the CEO the one doing the keynote? Another thing about Windows XP, there was a new release of Office right at the same time as XP.

This is a classic Microsoft move. They are able to create great applications available on day one, which makes the OS more valuable. And so from the applications perspective, they're able to ensure that they get great market share, since they're always adopting the latest and greatest Windows platform right away. So Windows success begets Office success. And it's important to remember that that worked for many, many years. And if you remember back to the last episode, Lotus one, two three and Wordperfect smoked Microsoft in Microsoft's own backyard. During the DoS era, Microsoft's productivity apps did not get real adoption in DOS, which is crazy. When they were making Windows, they basically swore never again. They ensured that they were going to be very early with applications on those platforms. As Windows took off, Office also got huge market share. It's smart to remember this lesson and carry it forward for years, maybe a decade. But again, they may have bet on this strategy a few years too long, forever. It became gospel at Microsoft. So with Windows goes the company. And so you need to do things to make sure that Windows is going to continue to succeed, because that is our company's platform and livelihood.

It's almost like the old Disney adage. So with animation goes the company. And until 2014 Microsoft felt the same way.

Yup. And yes, that is true for all the traditional reasons in the XP timeframe. The reason it was also true in part one of our Microsoft series. It's even more true as Microsoft becomes an enterprise company because Windows is at the heart of the enterprise agreement. The whole value prop of all of our server technologies is they work great with your Windows devices on your network.

Right? There's strong incentives everywhere for Microsoft to ensure that Windows is the standardized platform that everyone wants to have on their PCs because it makes everything else work. Of course they're going to release a new version of Office that shows off the latest and greatest of Windows. I think this XP timeframe is the showcase moment of when that was a great strategy and we'll contrast that later.

Yep.

The other thing to know about this XP timeframe is last episode we talked about the incredible secular growth trend of the PC that was this crazy tailwind for Microsoft. One of the greatest tailwinds you could ride in business history. PC shipments. I believe the stat David, was that they grew 98% per year over the eleven years between the founding in 1975 and the ipo in 1986. The crazier thing is, even as late as 2001 with Windows XPath, they were still riding this tailwind. The us household penetration of personal computers, again flashing back, pre ipo was only 8%. So that whole doubling year over year over year by Microsoft's ipo, they still only got to around 10% of penetrating the US. By 1990, 713 years later it grew to 37%. And after a couple of years of XP being in market 2003 it had grown to 62%. So I think the craziest stat is actually that last one. 2003 feels like a modern moment in history, but PCs were still only in 62% of us homes.

Wow, that's crazy.

The PC wave is just one of the greatest secular trends in history, particularly if you have a monopoly share of that market.

Yeah.

And they, as defined by the us government did been defined.

Define for me.

There's just no question of as this market grows, are you going to be able to continue to participate in it? It's like, yeah, we basically are a tracker for that market. It grows, we grow with it.

Yeah, now might be a good time. Certain Microsoft fans have probably been listening to this episode and gripping their phones with all their strength. Like when are you going to talk about Xbox? We're going to talk about Xbox briefly right now. We will do a whole nother episode.

On Xbox someday maybe David make your case and then let's talk about it.

My case is I love my Xbox.

Well, it's important to know Microsoft didn't start in gaming with the Xbox. Windows 95. They shipped DirectX. That changed the world. They became a real gaming platform because of that. Is this unbelievably clever set of APIs that went entirely around Windows. Amazing piece of technology. You put Microsoft on the map and you have the whole rise in PC gaming for the next six years, even before the Xbox.

Yes, totally. That's funny. Microsoft is so huge. This is one of the things that gets lost to history. But you are absolutely right. DirectX was so important in that late nineties era for PC gaming. Quake, counter strike. Everything that happened half life later that was enabled. Doom came before and was really just the genius of Carmack as a programmer to enable a first person shooter to happen on a PC. Hardware without something like DirectX and hardware acceleration. But yes, everything that came after that, the birth of the first person shooter genre, huge story to tell another day. You're right. That leads into Xbox and Microsoft's entry into the home console. Crazy. That happened in November 2001. So just like a couple of weeks after the XP launch, it was a big time for Microsoft.

And how crazy is this? They thought they were getting broken up.

Right as they're launching a video game.

Console and this operating system that they've been working toward for like eight years.

Yeah, this is also part of my argument of Microsoft was such a dominant consumer technology company before DOJ, because even though all this stuff comes out right after, it's the momentum still from before that's carrying Microsoft through to it.

Yeah. Okay, while we're in Xbox land, should we finish our Xbox enos right now for this episode?

Sir?

Xbox has become an important part of our world, but not an important part of Microsoft's business.

Agree.

David and I sort of heard people utter things in our research like Xbox has kind of been a lifetime break. Even business or it's never meaningfully contributed to Microsoft. So I tried to figure out as much as I could from financial statements, and I got to thank Alex at the science of hitting. It's a great substack for helping me with this. If you look, there was a division called Entertainment and devices that was part of their old reporting structure. And if you look at the e and D reporting over time. Let's start back in 2006. They generated $4 billion in revenue, lost $1.4 billion operating loss. So this is five years after the Xbox has come out loss, making 2008 they do $8 billion in revenue, $400 million in profit. So like even as it's becoming a real business at steady state.

Yeah. As 360 is. Yep. Coming into teeny margins. Yeah, totally.

2009, $8 billion in revenue, 100 million in operating income. 2010, another 8 billion in revenue. 700 million. This is $700 million to Microsoft in this timeframe. They do call it $20 billion of profit.

Yeah.

Whats 700 million?

Theres a great quote. Ill bring it up again later. But we got to talk to Steve again, to bomber as we were preparing for this episode and he had this amazing quote to us about some of his acquisitions that didnt momentum and political capital and betting your career has gone into this HTML five developer community, the Metro UI. And so that is the desktop version that ships.I see. Yeah, there can only be one Windows. And so we gotta put both of these babies in here.Yup. And what you have is not as bad as Vista. But man, the rollout was pretty bungled.It's confusing.The reception was poor, interestingly not by the tech pundits. Like the tech pundits who actually spent some time and figured it out were trained up pretty quickly. But the cat was out of the bag even before they got to review it on people who were angry. What are the Microsoft people refer to him as?People that, oh, the basement.The basement, yes. The 0.01% power users who are the loudest, of course, on the Internet. And so that kind of taints the product. Oems hate it because frankly, oems weren't signed up to make these touch devices. But now Microsoft's putting all this energy behind touch optimized operating system. So there's this mixed message to consumers. It's like, are there even good laptops available? Am I supposed to use touch on my desktop?They have to run ARm. They can't run X 86. They got to run ARM processors. They got to run mobile processors. But you're asking these devices in 2012 to also be able to function as laptops, and the technology of the board. So it is a wholesale changing of the guard within Microsoft. Bill, Steve, the original folks were retiring. We're done. It is a new day, and that needed to happen. The office for iPad discussion we had a minute ago I think was emblematic. There is truth to what Satya wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. It's like a bigger version of Brad Smith's presentation to the board of it's time to make peace. It's time to make peace internally. And there just needed to be a reset.Yeah, there was a lot of baggage. I mean, it's just, what, 40 years of baggage. Bill, Steve, old wars, antitrust, bad releases of windows. Like, you just gotta get it out to move on. And it was Bill and Steve leaving in one fell swoop to clear the path.And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here. Like a huge, huge, huge win in Azure and it is going to be really good for everybody's personal net worth, if nothing else. If we can just let that be appreciated and let a new day dawn here. So on February 4, 2014, on that day, Microsoft stock price was $30.50. And as we said a minute ago, the market cap was, I don't know, call it $300 billion. Slightly below today. Ten years later.Whoa, whoa, whoa. This is volume three. David, don't.Yeah, yeah, yeah. Well, you know, just to foreshadow show that this was the right decision. Ten years later, stock is at $465. Market cap is three and a half trillion dollars. Probably like, I don't know, I haven't done a sum of the parts analysis, but I think you can say probably at least half is Azure propping up that market cap.They are currently the most valuable company.In the world, the once and future king, Microsoft. That's our story for part two. We still have a lot to talk about in analysis.I'm sure someone's looking down at their podcast player right now, like, why are they acting like they're done? There's so much time after this. Are they just gonna like, play some.Music or lots to talk about?Okay, I have got some start and finish stats on Steve's tenure as CEO.Ooh, great.This episode, we started a little bit before Steve took over because we wanted to put the Internet chapter in and the antitrust chapter in. But I think everyone kind of feels it by this point. The question really is like, what happened when Steve was running the company? And so here are the numbers, and this is the timeframe from 2000, when he was announced as CEO, until 2014 was Satya was announced. So a 14 year period, revenue went from 23 billion to 84 billion. That's a three and a half x. Over 14 years, operating income went from 12 billion to 30 billion. So almost a three x. Important to pay attention to is the price to earnings ratio. When Steve was announced as CEO was a 75 x.That's high.It was real close to an all time high, which was in the month prior at an ADX. So it is worth pointing out it still has not been that high to this day. Even today, with all the excitement around Microsoft AI, everything going on 40 x.Right? So Steve comes in at an all time high multiple. And right before the DOJ verdict and.The breakup of the company and the.com bubble is exploding.Yes.And you're taking over from Bill Gates all the things. Essentially, if you're doing an analysis of what happened in Steve's tenure and you're trying to grade that. You are implicitly saying, did Steve make a good investment? To be honest, I think Steve took one for the team in taking over as CEO. In that moment he was handed a bit of a impossible situation, garbage sandwich, inheriting something when it is valued that highly.Not to mention as we talked about during that period, all the frankly shit going on at the company completely.So I worked at Microsoft during this period. I was a big open source guy, I was a big Apple guy, I was all these things. And I hated Steve's Windows strategy. And frankly I didn't like using any Windows products. I felt like they were all crap. And it is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced into buying at 75 x earnings?Yep.So at the end of his term it was 14 x. The PE multiple went from 75 x to 14 x. The market cap when he was announced went from 600 billion to when he left at 330 billion. A lot of that is basically the price to earnings multiple rationalizing in that first year. And then after it did that the stock price was basically flat for his entire tenure, no matter how much the revenue or the profits grew. And so one crazy stat on this is you could have bought Microsoft in 2009 for 2.1 x annual revenue.Oh my God. I mean everything was on sale back then. But like wow.Listeners is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.Yup. CiO's probably did sort of, but they.Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.They got the story right, the messaging reset.This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.Yeah, I would throw Oracle in there too, but.Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.Yup, totally.So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.An employee of the company.Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.They totally used to.They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?Well, they were their good products, just the enterprise products. They weren't the good consumer products.Right. They weren't good for me, as a user, they met the needs of customers.Yes.All right, moving to analysis.Great. Let's do it.Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.And I think on part one we said Microsoft in that era had all of these. Right.I feel like there are one or two that I was shaky on, but.Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.Yeah, yeah.But broadly as a company, like, no way.Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.Yeah. Less than free. Yep.Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.Right. And that translates directly into the cloud era too.Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.Yeah. I think they also definitely lost branding power in the consumer world.Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?Definitely. So yes, they gained it in the enterprise world.Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

momentum and political capital and betting your career has gone into this HTML five developer community, the Metro UI. And so that is the desktop version that ships.

I see. Yeah, there can only be one Windows. And so we gotta put both of these babies in here.

Yup. And what you have is not as bad as Vista. But man, the rollout was pretty bungled.

It's confusing.

The reception was poor, interestingly not by the tech pundits. Like the tech pundits who actually spent some time and figured it out were trained up pretty quickly. But the cat was out of the bag even before they got to review it on people who were angry. What are the Microsoft people refer to him as?

People that, oh, the basement.

The basement, yes. The 0.01% power users who are the loudest, of course, on the Internet. And so that kind of taints the product. Oems hate it because frankly, oems weren't signed up to make these touch devices. But now Microsoft's putting all this energy behind touch optimized operating system. So there's this mixed message to consumers. It's like, are there even good laptops available? Am I supposed to use touch on my desktop?

They have to run ARm. They can't run X 86. They got to run ARM processors. They got to run mobile processors. But you're asking these devices in 2012 to also be able to function as laptops, and the technology of the board. So it is a wholesale changing of the guard within Microsoft. Bill, Steve, the original folks were retiring. We're done. It is a new day, and that needed to happen. The office for iPad discussion we had a minute ago I think was emblematic. There is truth to what Satya wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. It's like a bigger version of Brad Smith's presentation to the board of it's time to make peace. It's time to make peace internally. And there just needed to be a reset.Yeah, there was a lot of baggage. I mean, it's just, what, 40 years of baggage. Bill, Steve, old wars, antitrust, bad releases of windows. Like, you just gotta get it out to move on. And it was Bill and Steve leaving in one fell swoop to clear the path.And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here. Like a huge, huge, huge win in Azure and it is going to be really good for everybody's personal net worth, if nothing else. If we can just let that be appreciated and let a new day dawn here. So on February 4, 2014, on that day, Microsoft stock price was $30.50. And as we said a minute ago, the market cap was, I don't know, call it $300 billion. Slightly below today. Ten years later.Whoa, whoa, whoa. This is volume three. David, don't.Yeah, yeah, yeah. Well, you know, just to foreshadow show that this was the right decision. Ten years later, stock is at $465. Market cap is three and a half trillion dollars. Probably like, I don't know, I haven't done a sum of the parts analysis, but I think you can say probably at least half is Azure propping up that market cap.They are currently the most valuable company.In the world, the once and future king, Microsoft. That's our story for part two. We still have a lot to talk about in analysis.I'm sure someone's looking down at their podcast player right now, like, why are they acting like they're done? There's so much time after this. Are they just gonna like, play some.Music or lots to talk about?Okay, I have got some start and finish stats on Steve's tenure as CEO.Ooh, great.This episode, we started a little bit before Steve took over because we wanted to put the Internet chapter in and the antitrust chapter in. But I think everyone kind of feels it by this point. The question really is like, what happened when Steve was running the company? And so here are the numbers, and this is the timeframe from 2000, when he was announced as CEO, until 2014 was Satya was announced. So a 14 year period, revenue went from 23 billion to 84 billion. That's a three and a half x. Over 14 years, operating income went from 12 billion to 30 billion. So almost a three x. Important to pay attention to is the price to earnings ratio. When Steve was announced as CEO was a 75 x.That's high.It was real close to an all time high, which was in the month prior at an ADX. So it is worth pointing out it still has not been that high to this day. Even today, with all the excitement around Microsoft AI, everything going on 40 x.Right? So Steve comes in at an all time high multiple. And right before the DOJ verdict and.The breakup of the company and the.com bubble is exploding.Yes.And you're taking over from Bill Gates all the things. Essentially, if you're doing an analysis of what happened in Steve's tenure and you're trying to grade that. You are implicitly saying, did Steve make a good investment? To be honest, I think Steve took one for the team in taking over as CEO. In that moment he was handed a bit of a impossible situation, garbage sandwich, inheriting something when it is valued that highly.Not to mention as we talked about during that period, all the frankly shit going on at the company completely.So I worked at Microsoft during this period. I was a big open source guy, I was a big Apple guy, I was all these things. And I hated Steve's Windows strategy. And frankly I didn't like using any Windows products. I felt like they were all crap. And it is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced into buying at 75 x earnings?Yep.So at the end of his term it was 14 x. The PE multiple went from 75 x to 14 x. The market cap when he was announced went from 600 billion to when he left at 330 billion. A lot of that is basically the price to earnings multiple rationalizing in that first year. And then after it did that the stock price was basically flat for his entire tenure, no matter how much the revenue or the profits grew. And so one crazy stat on this is you could have bought Microsoft in 2009 for 2.1 x annual revenue.Oh my God. I mean everything was on sale back then. But like wow.Listeners is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.Yup. CiO's probably did sort of, but they.Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.They got the story right, the messaging reset.This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.Yeah, I would throw Oracle in there too, but.Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.Yup, totally.So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.An employee of the company.Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.They totally used to.They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?Well, they were their good products, just the enterprise products. They weren't the good consumer products.Right. They weren't good for me, as a user, they met the needs of customers.Yes.All right, moving to analysis.Great. Let's do it.Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.And I think on part one we said Microsoft in that era had all of these. Right.I feel like there are one or two that I was shaky on, but.Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.Yeah, yeah.But broadly as a company, like, no way.Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.Yeah. Less than free. Yep.Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.Right. And that translates directly into the cloud era too.Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.Yeah. I think they also definitely lost branding power in the consumer world.Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?Definitely. So yes, they gained it in the enterprise world.Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

of the board. So it is a wholesale changing of the guard within Microsoft. Bill, Steve, the original folks were retiring. We're done. It is a new day, and that needed to happen. The office for iPad discussion we had a minute ago I think was emblematic. There is truth to what Satya wrote in his book that we said at the very beginning of the episode of, hey, this company culture needed a reset. It's like a bigger version of Brad Smith's presentation to the board of it's time to make peace. It's time to make peace internally. And there just needed to be a reset.

Yeah, there was a lot of baggage. I mean, it's just, what, 40 years of baggage. Bill, Steve, old wars, antitrust, bad releases of windows. Like, you just gotta get it out to move on. And it was Bill and Steve leaving in one fell swoop to clear the path.

And at the same time, everybody knew, hey, there is a huge win that we are sitting on right here. Like a huge, huge, huge win in Azure and it is going to be really good for everybody's personal net worth, if nothing else. If we can just let that be appreciated and let a new day dawn here. So on February 4, 2014, on that day, Microsoft stock price was $30.50. And as we said a minute ago, the market cap was, I don't know, call it $300 billion. Slightly below today. Ten years later.

Whoa, whoa, whoa. This is volume three. David, don't.

Yeah, yeah, yeah. Well, you know, just to foreshadow show that this was the right decision. Ten years later, stock is at $465. Market cap is three and a half trillion dollars. Probably like, I don't know, I haven't done a sum of the parts analysis, but I think you can say probably at least half is Azure propping up that market cap.

They are currently the most valuable company.

In the world, the once and future king, Microsoft. That's our story for part two. We still have a lot to talk about in analysis.

I'm sure someone's looking down at their podcast player right now, like, why are they acting like they're done? There's so much time after this. Are they just gonna like, play some.

Music or lots to talk about?

Okay, I have got some start and finish stats on Steve's tenure as CEO.

Ooh, great.

This episode, we started a little bit before Steve took over because we wanted to put the Internet chapter in and the antitrust chapter in. But I think everyone kind of feels it by this point. The question really is like, what happened when Steve was running the company? And so here are the numbers, and this is the timeframe from 2000, when he was announced as CEO, until 2014 was Satya was announced. So a 14 year period, revenue went from 23 billion to 84 billion. That's a three and a half x. Over 14 years, operating income went from 12 billion to 30 billion. So almost a three x. Important to pay attention to is the price to earnings ratio. When Steve was announced as CEO was a 75 x.

That's high.

It was real close to an all time high, which was in the month prior at an ADX. So it is worth pointing out it still has not been that high to this day. Even today, with all the excitement around Microsoft AI, everything going on 40 x.

Right? So Steve comes in at an all time high multiple. And right before the DOJ verdict and.

The breakup of the company and the.com bubble is exploding.

Yes.

And you're taking over from Bill Gates all the things. Essentially, if you're doing an analysis of what happened in Steve's tenure and you're trying to grade that. You are implicitly saying, did Steve make a good investment? To be honest, I think Steve took one for the team in taking over as CEO. In that moment he was handed a bit of a impossible situation, garbage sandwich, inheriting something when it is valued that highly.

Not to mention as we talked about during that period, all the frankly shit going on at the company completely.

So I worked at Microsoft during this period. I was a big open source guy, I was a big Apple guy, I was all these things. And I hated Steve's Windows strategy. And frankly I didn't like using any Windows products. I felt like they were all crap. And it is still true that it's totally insane to evaluate how did someone do with an asset that they were sort of forced into buying at 75 x earnings?

Yep.

So at the end of his term it was 14 x. The PE multiple went from 75 x to 14 x. The market cap when he was announced went from 600 billion to when he left at 330 billion. A lot of that is basically the price to earnings multiple rationalizing in that first year. And then after it did that the stock price was basically flat for his entire tenure, no matter how much the revenue or the profits grew. And so one crazy stat on this is you could have bought Microsoft in 2009 for 2.1 x annual revenue.

Oh my God. I mean everything was on sale back then. But like wow.

Listeners is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.Yup. CiO's probably did sort of, but they.Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.They got the story right, the messaging reset.This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.Yeah, I would throw Oracle in there too, but.Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.Yup, totally.So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.An employee of the company.Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.They totally used to.They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?Well, they were their good products, just the enterprise products. They weren't the good consumer products.Right. They weren't good for me, as a user, they met the needs of customers.Yes.All right, moving to analysis.Great. Let's do it.Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.And I think on part one we said Microsoft in that era had all of these. Right.I feel like there are one or two that I was shaky on, but.Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.Yeah, yeah.But broadly as a company, like, no way.Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.Yeah. Less than free. Yep.Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.Right. And that translates directly into the cloud era too.Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.Yeah. I think they also definitely lost branding power in the consumer world.Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?Definitely. So yes, they gained it in the enterprise world.Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

is very legitimately the investors had little belief in Microsoft's long term relevance. Not the place for user excitement, not the place for developers. They doubted that there was real vision from leadership. I mean you went from Gates, this guy who created it all, to someone that everyone was chalking up to be the sales and marketing guy and theres the product strategies all over the place. And Windows isnt getting any more relevant. Were trying all these new things that are failing. Search passes you buy, social passes you buy, blah blah blah. But the interesting thing is investors basically didnt think Windows and Office businesses were sticky and they were only valuing the newer bets, which was super wrong. Windows and Office have proven to be these ridiculously durable franchises generating more revenue today than ever.

So I mean it is ultimately on the CEO to help shareholders understand where the value is. But shareholders obviously did not price in the retention and growth within the existing Windows and office customers through a new era of technology. I think people were just betting that Microsoft would lose it and they didn't. They held on to these durable franchises.

You know it's funny, when you asked this question a minute ago, I hadn't prepared for it ahead of time because as listeners know, we don't share notes. The first thing that popped into my mind about why Wall street did not appreciate the revenue and profit growth during this time was just simply like Microsoft did not do a good job telling its story. Horrible. And I think you're saying the same version here. Like it's so funny. I mean, it's part of why I love doing acquired, part of why I think the show resonates with people. Telling stories is the most important thing. If you cannot tell your story right and in a compelling fashion, this is what's going to happen to your stock price. Even if you triple revenues and profits and build Azure and all these things.

Yeah, I mean consumers had no idea what Microsoft's strategy was and neither did developers, so neither did investors.

Yup. CiO's probably did sort of, but they.

Were probably like, what's going on in search and what's going on? Yeah, sorry, what's Zoom? Is it winning against iPod? Oh, it's losing. Oh, mobile, it's losing too. Huh.

And it's for another episode. But it really was brilliant what Satya did and the company did when he came in.

They got the story right, the messaging reset.

This is a mobile first cloud first company. Yep, that was it. That was the key. Just saying those words over and over and over again.

Yeah. Anyone who's listening, who's a leader at a company right now knows that the right amount of repeating yourself to do is about ten times more than you think it is. You need to just keep delivering the same message over and over and over again and that wins. The other way to sort of look at Steve Ballmer's tenure is comparing against what else was going on in technology from 2000 to 2014. So on the one hand, like we've been talking about, you have the rise of Google in search and you have social networking with Facebook. And yes, you absolutely can compare a CEO to these category defining startups that are in adjacent fields. But that's a little bit of an odd way to evaluate a CEO. How did you do against, they aren't even really competitors of yours in your exact market. And by the way, they created the best businesses in history that were also the fastest growing and capital efficient. How did you do versus those two particular sort of related outliers? I think this is sort of a funny measure, even though this is the measure we kind of all use. But if you actually just look at the peer set, what other big companies were there in 2000?

In tech, you had Yahoo, AOL, the whole cable and media sector, you had HP, Nortel. I mean, so many of the great companies of the previous era completely fell apart. The three who actually survived and potentially thrived were Microsoft, Dell and only Apple after Microsoft bailed them out and Steve Jobs came back personally.

Yeah, I would throw Oracle in there too, but.

Yeah, yeah, Oracle. But I mean, surviving puts you in the top 5% against the peer set of that era. So even if you overlook all the revenue and profit growth and you just look at pure enterprise value and relevance, there is actually a success in that the core asset was preserved. This whole notion you have, David, that Satya came in and we were great and then we sucked for a while and then we were great again. Even just setting up, we preserved the talent asset and that we had continuity in our businesses for another 15 years on what is already a 30 year old business. I don't know. That's way better than anybody else does.

Yup, totally.

So anyway, this is all kind of analyzing the tenure from a business perspective. I am very amenable to the idea that products completely languished. I had no interest in using any Microsoft products during this period, despite being.

An employee of the company.

Yeah, I'm very amenable to arguments of like, yeah, but they didn't make anything good.

Yup. And that is, I think, particularly resonant to me, at least in my history, because they used to.

They totally used to.

They used to be the consumer technology leader. Windows 95, Windows XP, everything we talked about at the beginning of the episode, Internet Explorer, the browser wars, they were the leaders.

And they did make some good. You know, Xbox is good. I actually thought Windows Phone, particularly Windows Phone eight, was a beautiful new crack at what does a phone look like? I thought it worked well. But I guess what I'm saying is the products that ended up being their big profit drivers were never their good products, right?

Well, they were their good products, just the enterprise products. They weren't the good consumer products.

Right. They weren't good for me, as a user, they met the needs of customers.

Yes.

All right, moving to analysis.

Great. Let's do it.

Seven powers. So listeners, this is the part of the show analysis broadly where we analyze the business sort of after we've completed the story. And the first one is a section called Seven Powers, which is named after Hamilton Helmer's book. And the question that he sort of poses is what is it that enables the business to achieve persistent differential returns? Or put it another way, to be more profitable than their closest competitor and do so sustainably? And there are seven different powers sort of categories that it can fall into. There's counter positioning, scale economies, switching costs, network economies, process power branding and cornered resource.

And I think on part one we said Microsoft in that era had all of these. Right.

I feel like there are one or two that I was shaky on, but.

Most, yeah, well in this era they definitely dont have counter positioning, thats for sure.

Right. Thats the interesting thing. Once youre an incumbent, you can almost never have counter positioning.

Yep. Actually I would say they had some of it in the development of Azure because they could say to Fortune 500, we will do hybrid cloud with you and we can be your trusted partner in a way that AWS couldn't counter position against AWS.

Yeah, yeah.

But broadly as a company, like, no way.

Yeah. They were getting counter positioned in mobile. I mean Google was saying, we'll give it to you free.

Yeah. Less than free. Yep.

Yeah. All right. Perhaps the single greatest asset they have is scale economies. With the number of users and customers they have, any investment that they make gets amortized over such a massive user base that it's worth it. If they can charge a dollar more on eas, they should do almost any amount of incremental R and D or acquisitions.

Right. And that translates directly into the cloud era too.

Yeah, the cloud era even more. I think there's crazy returns to scale on cloud economics.

Yep. I think process power. I would argue they actually lost during this era. I mean, the Blackcomb Longhorn Vista thing illustrates that.

Yeah. They went from knowing how to ship the most beloved operating system of all time with Windows 95, managing to pretty much do it again, even during the antitrust thing with Windows XP with I think zero blunders in between. I mean they had me, but that wasn't a blunder as much as like a, I don't know, fresh coat of paint that wasn't really real. And then, yeah, with Longhorn and Windows, eight separate problems, but completely forgot why those franchises have economic value.

Yeah. I think they also definitely lost branding power in the consumer world.

Yeah. The question is did they become more trusted by the enterprise where if you're offered the exact same service from Microsoft and AWS are you more willing to pay Microsoft for it?

Definitely. So yes, they gained it in the enterprise world.

Yeah. Microsoft of the broadcast is over anyway.Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

of the broadcast is over anyway.

Not to mention, interactive tv looked like YouTube and Netflix and not like a layer on top of comcast.

Totally mobile was five years early, and it was more akin to embedded devices than it was to scale down pcos. So something was off in Microsoft's ability to leverage are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.Text me a link, I'm buying this immediately.Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.I'm buying this as soon as we get off.Yeah, they're fantastic.Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.If only you could turn it around and touch the screen.I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.Nice.So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.Oh yes, that's right. You are finally joining the club.Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.Battery and had you needed to charge it. Thered be a supercharger network.Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.It's perfect.Yeah, it's amazing. I get it, I get it. Tesla people.All right, we got a lot of thank yous here.Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?Did he? I got to go.Listen, I think he did. Yeah.Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.It was Jay Leno for Windows 95 and Regus for Windows XP.Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

are made for sleeping. And if you lie on your side on your ear, they don't stick out. And so you can lie.

Text me a link, I'm buying this immediately.

Yeah, they're great. So this is the team that was at Bose that made the Bose, I don't even know what the product was called, but Bose had this product, they killed it. The team left, started a startup and so it's all like Bose engineering. Anyway, it's great. I love them.

I'm buying this as soon as we get off.

Yeah, they're fantastic.

Awesome. I have two and they're like the most absolutely basic products of all time. And I'm okay with that. The first I mentioned earlier, m three MacBook Air. It's the finest computer I've ever owned, which I say every time I get a new Mac.

If only you could turn it around and touch the screen.

I know I'm rocking the M one MacBook Pro at home and it's a 16 inch and gosh, that thing is just a beast to fly with. And so for all the travel we've been doing recently, David, it has been awesome to have this incredibly lightweight, incredibly fast, just beautiful machine for flights and all sorts of travel stuff.

Nice.

So it's my on the go. And then sticking with this theme of staying incredibly basic and predictable, the Tesla Model Y is an awesome car.

Oh yes, that's right. You are finally joining the club.

Yeah, we just took a weekend and drove up to Orcas island and it was so sweet. I never once charged it, you know, drove multiple hours, took a ferry, were on an island thats sparsely populated, hung out for the weekend. Drove all over the island, did the whole thing back, got back with 18%.

Battery and had you needed to charge it. Thered be a supercharger network.

Yeah. And its unbelievably fast and fun to drive. And I finally get the, it's an iPhone with wheels. Like it just feels whenever I drive my other car it feels kind of icky and this one feels clean.

It's perfect.

Yeah, it's amazing. I get it, I get it. Tesla people.

All right, we got a lot of thank yous here.

Yeah, we have a huge set of thank yous. First of course is our sponsors JPMorgan payments servicenow and pilot. You can click the link in the show notes to learn more and tell them that Ben and David sent you when you get in touch. I was trying to count David. It's definitely over 20 people that, that we talked with this time. So on my end, thanks so much to Brad Silverberg. Brad led windows for a while, notably the development of the Windows 95 product and that team, Thomas Reardon who was one of the original team members on Internet Explorer and actually went on years later to start control Labs which sold to Meta and is a part of Meta's effort now to do the neural interface. You can sort of twitch your hands and I don't know, we haven't actually seen a product yet so we'll have to see what that looks like. But that was Thomas Reardon in his next act, Stephen Sienofsky, who led Windows in Windows seven and eight and led office before that. And David, you read quite a bit of Steven's words to prepare for this.

Yeah. His blog, hardcore software, he published in book form. It's a thousand page book. It's like a textbook sitting on my desk. It's awesome. We talked to Steven for a few hours. He's great. He's a board partner. Andreessen Horowitz. Now that was super fun.

Yeah. Julia Larson Green was also great. She worked closely with Steven in office and also on Windows. My old coworker Anand Rajaswaran who worked with me on office for iPad helped refresh my memory on what the blow by blow was like in those days where we almost shipped the product, then didn't, then got a new CEO, then did. Huge thank you to Fritz Landman who worked in some strategy and Corp dev roles at Microsoft. Just an awesome guy actually. Now he is the CEO of the combined company classpass and mind body and talk about a person with multiple lives and careers. He was great. Someone that he worked closely with at Microsoft. Charlie Songhurst. Charlie's one of the smartest people I've ever met. I mean that could go for a lot of people on this list.

Didn't Charlie do a great invest like the best interview with Patrick a couple of years ago?

Did he? I got to go.

Listen, I think he did. Yeah.

Absolutely brilliant mind expanding person John Rubenstein, who led engineering at Apple and actually went on to lead palm. It was fun talking with him about what was it like from the Apple side, from the competitive perspective, competing against Microsoft all these years. Huge thank you to Ray Ozzy, who David and I both spoke with. Yeah, Ray is so damn delightful.

He's such a legend of and delightful the right way to put it. Ray is now running another startup, a new one called Blues wireless and was just so generous to give us a couple hours. He had some amazing things that belong in a museum in his office that he showed us over Zoom like old computers and hardware from the seventies, the eighties, the nineties. It was super cool.

Yeah. More on my side to Rob Glaser who worked at Microsoft in the nineties and founded and ran real networks to Joe Belfiore who played a large role in Windows and Windows Phone. And actually he demoed Windows XP way back when, 2001 in the launch announcement to Regis Phildman. That's like how the second half of the keynote works is Joe is demoing features to Regis.

It was Jay Leno for Windows 95 and Regus for Windows XP.

Yes. So Joe's got this beautiful long history at Microsoft and was just really great to Vivek Varma who was at Microsoft deeply involved in sort of the comms and legal stuff during the antitrust era. Of course to Steve Ballmer being very generous with his time and helpful in helping us sharpen some of our thinking.

And especially being generous with his time as we were entering free agency here. He's got a busy day job these days at the clip.

Thats right. Our good friend who runs the science of hitting. Its a great substack that does investment analysis and just was very generous sharing a large spreadsheet of historical data from Microsoft. Its very easy to parse and look things up live while were doing the episode. And finally last one from me to Todd Bishop at Geekwire. Todd has these unreleased recordings from when he was covering Microsoft at the Seattle PI way back in the early two thousands. And he sent me the raw recordings when he was standing there with Bill and Steve just being a reporter and it's very fun to hear their voices in ways that I don't think were ever released or publicly heard.

Yeah, super cool. Yeah. A few more on my end. Terry Myerson, the CEO of True Vetta in Seattle. Terry ran Windows and Windows Phone at Microsoft for a long time to Soma. Soma Sagar, who is a managing director at Madrona, but is a legend in the server and tools business at Microsoft. So we talked about him on part one, but he's wonderful. To Mary Jo Foley. It was so fun to talk to Mary Jo. Mary Jo dedicated her career, probably the last 20 plus years, to solely covering Microsoft and she is the best in the business today. She's the editor in chief at directions on Microsoft. It's a research firm like Gartner, except it only covers Microsoft. Two recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.Yep. And with that, listeners, we'll see you next time.We'll see you next time.Who got the truth?Is it you? Is it you? Is it you who's got the truth now, huh?

recommend our Nvidia series. Part one intersects nicely with this era of Microsoft, and we tell some of the PC gaming story from the Nvidia angle. Lastly, of course, if you are sitting around right now and you're thinking, oh no, what should I do next? The answer is acquired FM SF. We cannot wait to see you at the chase center. Mark Frickin Zuckerberg is going to be there. It's going to be the event of the century in the acquired world. So if you've always thought like, oh, I've always wanted to go to something like Omaha for the Berkshire Hathaway annual meeting, where I've just wanted to celebrate with other business and technology nerds who also like acquired, this is going to be the greatest way you could ever imagine to do that.

Yes. If you are wondering what you should be doing on September 10, 2024, there is only one acceptable answer, and that is to be in San Francisco at the Chase center celebrating with us. It's gonna be awesome.

Yep. And with that, listeners, we'll see you next time.

We'll see you next time.

Who got the truth?

Is it you? Is it you? Is it you who's got the truth now, huh?