Windows and the AI Platform Shift

Microsoft’s Build developer conference has a bit of an odd history, which I recounted in a 2016 Update: the conference was born in 2011 as a showcase for a completely new approach to Windows, but by its second iteration it had already become a symbol of corporate infighting and dysfunction. The next three iterations were mostly forgettable in their focus on Windows and Windows Phone. The turning point came in 2017; I wrote in another Update:

Last week was Microsoft’s annual Build developer conference, and as usual, there were two keynotes over two days. What was interesting, and, I think, telling, was the order: for the first six years of the conference the first day’s keynote was dedicated to Windows and other consumer-facing products; day two was for Azure and Office 365. This year, though, the order was the opposite: Wednesday’s keynote was not only about Azure and Office 365, the first 30 minutes in particular were a genuinely compelling statement of vision by CEO Satya Nadella that, much like the schedule, put Windows firmly in the backseat.

This was a step in The End of Windows, which I wrote about a year later: CEO Satya Nadella’s greatest achievement as CEO was transforming Microsoft’s culture away from its Windows-centricity, which, it should be noted, existed for a very good reason. From the conclusion:

It’s important to note that Windows persisted as the linchpin of Microsoft’s strategy for over three decades for a very good reason: it made everything the company did possible. Windows had the ecosystem and the lock-in, and provided the foundation for Office and Windows Server, both of which were built with the assumption of Windows at the center.

Office 365 and Azure are comparatively weaker strategically: Office 365 has document lock-in, but the exact same forces that weakened Windows in the first place weaken the idea of documents as well. It’s not clear why new companies in particular would even care. Azure, meanwhile, is chasing AWS, with a huge amount of business coming from Linux VMs that could run anywhere.

Unsurprisingly, both are still benefiting from Windows: Office 365 really does, as Nadella noted in his retreat, work better on Windows, and vice versa; it is seamless for organizations that have been using Office for years to move to Office 365. Azure’s biggest advantage, meanwhile, is that it allows for hybrid deployments, where workloads are split between legacy on-premise Windows servers and Azure’s public cloud; that legacy was built on Windows.

This, then, is Nadella’s next challenge: to understand that Windows is not and will not drive future growth is one thing; identifying future drivers of said growth is another. Even in its division Windows remains the best thing Microsoft has going — it had such a powerful hold on Microsoft’s culture precisely because it was so successful.

That 2017 Build talked a lot about the “Intelligent Edge”; it was in 2018 that the vision of Microsoft Teams as Microsoft’s cloud OS started to appear. In 2019 Nadella’s keynote (and Stratechery Interview) were about being a platform company, with manifestations through the Power Platform, Microsoft 365, and Gaming (i.e. not Windows), a theme that continued over the last few years. The keynotes were all pretty good — Nadella has always been very effective at laying down an overarching vision that ties all of the announcement together — but there was always that missing piece: why would new customers or new companies ever get started with Microsoft in the first place?

Build 2023

Nadella had a different spring in his step at yesterday’s Build keynote; after greeting developers (yay for in-person keynotes!), this was his opening line:

You know these developer conferences are special times, special places to be, especially when platform shifts are in the air.

That was followed by a brief overview of the history of computing that placed AI as the continuation of a singular trend, and yet a step-change:

Just to put this in perspective, last summer I was reading Mitchell Waldrop’s Dream Machine while I was playing with DV3, as GPT-4 was called then, and it just brought in perspective what this is all about. I think that concept of “Dream Machine” perhaps best communicates what we have really been doing over the last 70 years. All the way starting with what Vannevar Bush wrote in his most seminal paper, “As We May Think”, where he had all of these concepts like associated memory, or Licklider, who was the first one to conceptualize the human-computer symbiosis. The Mother of All Demos that came in 68, to the Xerox Alto, and then, of course, the PDC that I attended which was the PC Server one in 91. 93 is when we had the Mosaic moment and then there was iPhone and the Cloud, and all of these would be one continuous journey.

The other thing I’ve always loved is Jobs’ description of computers as “bicycles for the mind”; it’s sort of a beautiful metaphor that I think captures the essence of what computing is. But then last November we got an upgrade: we went from the bicycle to the steam engine with the launch of ChatGPT. It was like the Mosaic moment for this generation of the AI platform. Now we look forward as developers to what we can do going forward. So it’s an exciting time.

It’s obvious why Microsoft would want this to be a moment. AI, specifically Microsoft’s partnership with OpenAI (which now extends to plug-in compatibility between Bing and ChatGPT, and Bing results incorporated into ChatGPT), is exactly what Microsoft has been searching for since The End of Windows: a reason to move to the Microsoft ecosystem.

AI and Microsoft Customer Acquisition

I’ve already discussed why AI is so compelling for Microsoft in terms of their productivity apps, and why startups should feel threatened:

Silicon Valley needs to rediscover its Microsoft fear, and Business Chat gets at why. Make no mistake, the Copilots are impressive, although it is reasonable to expect that Google Workspace’s implementation will be at least comparable. The problem with the Workspace + vertical SaaS app stack, though, is that none of it is designed to work together. I’ve been arguing for years this is an underrated reasons why Teams beat Slack; from 2020:

This is where Teams thrives: if you fully commit to the Microsoft ecosystem, one app combines your contacts, conversations, phone calls, access to files, 3rd-party applications, in a way that “just works”…This is what Slack — and Silicon Valley, generally — failed to understand about Microsoft’s competitive advantage: the company doesn’t win just because it bundles, or because it has a superior ground game. By virtue of doing everything, even if mediocrely, the company is providing a whole that is greater than the sum of its parts, particularly for the non-tech workers that are in fact most of the market. Slack may have infused its chat client with love, but chatting is a means to an end, and Microsoft often seems like the only enterprise company that understands that.

Business Chat takes this integration advantage and combines it with a far more compelling UI: you can simply ask for information about any project or customer or whatever else you can think of, and Business Chat can find whatever is relevant and give you an answer (with citations) — as long as the content in question is in the so-called “Microsoft Graph”. That right there is the threat: it’s easy to see how this demo will impress CIO’s eager to save money both in terms of productivity and also software; now Microsoft can emphasize that the results will be that much better the more Microsoft tools you use, from CRM to note-taking to communications (and to the extent that they open up Business Chat, it will be the responsibility of any vertical SaaS company to fit into the box Microsoft provides them).

In short, Microsoft has always had the vision for integration of business software; only over the last few years has it actually had an implementation that made sense in the cloud. Now, though, Microsoft has an actual reason-to-switch that is very tangible and that no one, other than Google, can potentially compete with — and even if Google actually ships something, the last decade of neglect in terms of building an alternative to the Microsoft Graph concept means that any competitor to Business Chat will be significantly behind.

All of this was on display during Nadella’s keynote, including a new data lake offering in Microsoft Fabric, with a CoPilot of course, and an entire CoPilot stack for developers to build on.

What was more surprising — not so much in its existence, but rather my reaction to it — was the previously exiled Windows; here was the demo video Nadella played for Windows Copilot:

Now this is obviously a demo video, so Copilot is almost certainly being shown in its best light (and it was odd that the live demo a few minutes later basically recreated the video with the exact same examples). The part I was surprised about, though, was actually Nadella’s introduction to the video:

Next, we’re bringing the Copilot to the biggest canvas of all: Windows. You are going to hear a lot from Panos tomorrow about it, but I think that this is going to make every user a power user of Windows.

This was a big disappointment! I didn’t want to wait until tomorrow (later today as you read this), I wanted the Windows talk right now.

This may seem like a small thing, but remember, it was only six years ago that I applauded Nadella for successfully demoting Windows to the Day 2 keynote; now I want the Windows talk front-and-center. The difference, though, is that this excitement is not based on preserving Windows centrality, but rather the possibilities in terms of manifesting this new paradigm in as many places as possible. To use Nadella’s terms, Windows is now a canvas for AI, not the director of the show.

Apple and the AI Shift

Go back to the “Pursuit of the Dream Machine” slide in the video above, particularly the bottom row:

Satya Nadella's slide about the evolution of the "Dream Machine"

The PC and Server era was the Windows era, when Microsoft was at its peak; the World Wide Web era started the long decline of Windows API lock-in; that dissolution of lock-in reached its nadir with the iPhone and Cloud era, when Microsoft had to go out of its way to fit in with someone else’s platform, and end Windows’ centrality to the company.

You can tell this same story in reverse, from Apple’s perspective: the PC and Server era was the Mac-in-the-corner era; yes, it was nice to use, particularly for design, but there were fewer programs and challenging compatibility issues. The Internet made it easier to own a Mac, particularly with the rise of web apps; the iPhone, meanwhile, was a completely new paradigm that, crucially, was driven by consumers, not enterprises. That was when Apple truly became dominant, and exerted total control over the associated ecosystem — including over Microsoft.

What, though, if AI is the platform shift Nadella thinks it is? It’s already compelling enough that I can’t wait for a keynote about Windows, for the first time in over a decade. At the same time, I have much lower expectations for Apple’s developer conference next month, at least as far as AI is concerned.1 Of course, given Apple’s secrecy, it’s possible a “Copilot”-type product is in the works, but that seems unlikely given that most of the smoke is centered around the company’s long-rumored headset announcement.

I am, to be clear, quite excited about Apple’s headset; yes, the rumor is that it will cost $3,000, with a bill of materials that runs to around $1,500, but I think that is a smart move: costs always come down over time, while delivering a compelling experience for a brand new product category should take priority. Still, even $1,500 in hardware could very well be let down by software, particularly Siri. The Information reported last month:

Inside Apple, Siri remains widely derided for its lack of functionality and improvements since Giannandrea took over, say multiple former Siri employees. For example, the team building Apple’s mixed-reality headset, including its leader Mike Rockwell, has expressed disappointment in the demonstrations the Siri team created to showcase how the voice assistant could control the headset, according to two people familiar with the matter. At one point, Rockwell’s team considered building alternative methods for controlling the device using voice commands, the people said (the headset team ultimately ditched that idea).

Apple’s dominance of the smartphone era, the overall experience of which is delineated by software quality, hardware excellence, and a superior ecosystem, hasn’t been bothered by Siri’s disappointing performance. And, to the extent a headset era is beginning, it’s reasonable to expect that Apple’s usual advantages, particularly in terms of performance and industrial design, will be major factors. Moreover, even if Apple doesn’t announce major LLM-based features at this year’s developer conference, the smartphone — and by extension, the iPhone — isn’t going anywhere anytime soon.

Still, the very fact that Windows is suddenly interesting again, while a new Apple product faces a major software question, is evidence for Nadella’s argument that AI is a platform shift, and for the first time in a long time it is Microsoft that actually has a clear path to not just leveraging its base but actually expanding it.

Apple, meanwhile, still dominates the platforms where AI will be used for the foreseeable future — ChatGPT released their app on iPhone first, after all — but then again, Windows was still the dominant platform for the first decade-and-a-half of the Internet. Ultimately, though, the Internet eroded Windows’ dominance and set the stage for the smartphone; surely Apple knows it ought not risk a similar erosion of differentiation at the hand of AI, particularly as they courageously build products beyond the iPhones.

  1. I am optimistic that there will be an announcement about embracing open source models