Nadella asks Microsoft leaders to rethink business for AI era
What's the story
Microsoft CEO Satya Nadella has sent an internal memo urging senior leaders to rethink the company's business model for the artificial intelligence (AI) age. The memo, sent earlier this month, stresses the need to rethink how Microsoft builds, prices, and distributes AI products. This comes as the company prepares for a period of heavy investment and rapid platform changes.
Strategic comparison
Nadella draws parallels with Microsoft's cloud strategy shift
In the memo, Nadella compares the current situation to a similar inflection point over a decade ago when Microsoft had to pivot its strategy for the cloud. At that time, a white paper titled 'Economics of the Cloud,' co-authored by Rolf Harms, then director of corporate strategy, helped shape Microsoft's transition. Now, Harms has been given an expanded advisory role focused on AI economics.
Advisory position
Harms's role in Microsoft's AI transition
Harms's previous work was instrumental in a major cultural and operational overhaul at Microsoft during the cloud boom. Now, Nadella thinks a similar internal re-evaluation is necessary as AI infrastructure, platforms and applications redefine revenue models and long-term spending plans. In his new role, Harms will work closely with Nadella and top executives to assess how existing product categories will evolve and what new ones might emerge.
Sustainability issues
AI industry's sustainability concerns and Microsoft's response
The memo also acknowledges the AI industry is grappling with questions over the sustainability of massive infrastructure investment. While Microsoft had briefly cut back on its AI-related capital spending earlier this year, it has since doubled down through major partnerships with OpenAI and Anthropic. Nadella said these cycles are reminiscent of the early days of cloud computing when companies aggressively built data centers despite uncertainty about adoption.
Guidance role
Harms to guide Microsoft's AI investment strategies
Nadella said Harms will help the leadership team understand how Microsoft should structure its AI investments, pricing strategies and platform development to align with long-term industry economics. He added that Harms's work would not be limited to infrastructure but would cover the entire stack of AI technologies including Copilots, agents and core platform services. The memo highlights Microsoft's belief that the shift toward AI requires fundamental changes rather than incremental adjustments.