Microsoft CEO Satya Nadella
Photo: David Ryder/Bloomberg via Getty Images

Microsoft’s Satya Nadella: Don’t worry about inflation, just buy more of our stuff

Protocol | Enterprise

Welcome to Protocol | Enterprise, your comprehensive roundup of everything you need to know about cloud and enterprise software. This Thursday: Microsoft promises that cloud technology can deflate inflation, why Nvidia's big Arm deal is in trouble, and IBM actually will have fries with that.

The productivity trap

It's not hard to see that the U.S. economy is going through some things. Supply-chain disruptions are leaving home improvement projects stranded off San Pedro Bay, new cars are nearly impossible to get and used cars are more valuable than ever thanks to chip shortages, and disruption in the labor markets is forcing companies to pay employees actual living wages in order to compete.

If you're Microsoft CEO Satya Nadella, you see an opportunity for even more new business. As investors fret about inflation — which, while up, is still well below even recent historical crisis levels — Nadella once again made a case that cloud computing can fix everything.

"Digital technology is a deflationary force in an inflationary economy," Nadella said earlier this week after Microsoft reported yet another incredible quarter of revenue and profit growth. "Businesses small and large can improve productivity and the affordability of their products and services by building tech in density."

  • The personal and business disruption caused by the now 18-month-long pandemic drove enormous purchases of cloud computing technology in 2020 and well into 2021 as businesses realized they needed to revamp sales channels and adopt workplace collaboration tools across a distributed workforce.
  • Nadella thinks that cloud-based productivity tools — like the ones Microsoft happens to sell — can also help companies steer their way through periods of inflation.
  • "In an inflationary environment, the first place any business should go to is how to really ensure that they're able to get productivity gains," he said on Microsoft's earnings call, according to a transcript provided by Seeking Alpha.
  • This is one of the earliest justifications for the cloud: Why pay a person to manage a data center or massive software package for you when you can pay a company to manage it better at scale?

However, we should never describe software as a "solution," as a former editor of mine would insist, because software arguably causes nearly as many problems as it solves, cloud-based or not.

  • Companies are already having trouble finding value in their cloud purchases, according to a survey conducted by PwC earlier this year.
  • Some of the gap can be chalked up to setting the wrong goals, or not understanding that moving applications to the cloud usually involves embracing a different operating model.
  • But either way, it's not the tools alone that could eventually make those companies more productive; it's the people inside the organization who understand how to take advantage of cloud services.
  • You can't simply spend your way to productivity through "digital transformation," as much as Nadella and Microsoft might like.
  • And the relationship between productivity and inflation is also not as clear cut as some might think.

One thing is clear for businesses of a certain age: Smaller, newer competitors are building their own businesses based on the latest-and-greatest cloud technologies because they're starting fresh without having to support legacy applications that run key areas of their businesses.

  • In order to keep up with the upstarts, those older companies need to find a way to match their speed and agility.
  • Cloud computing services can offer immense value to companies, but they won't single-handedly gas productivity without people and processes that understand how to utilize them.
  • That's a very in-demand labor market, and while cloud services might allow companies to operate more efficiently with fewer people, those people will likely be more expensive and harder to find in less-sexy industries.
  • In the long run, most people in this industry believe Nadella is right: Depending on how effectively they're implemented, cloud services will likely reduce business expenses and improve productivity compared to the cost and burden of operating your own data centers.

But as they say, in the long run, we are all dead. Spending your way to productivity through cloud services is a lot harder than it looks.

— Tom Krazit

A MESSAGE FROM DIGITAL REALTY

Designed by practitioners for practitioners, our Digital Workplace Blueprint helps companies accelerate deployment and improve infrastructure precisions to scale a business globally. Download it now, and learn more about the make-up of a Pervasive Datacenter Architecture (PDx™), including software for guiding migration of information technology from centralized datacenters to decentralized centers of data exchange.

Learn more

This week on Protocol

Nvidia's Arms race: Nvidia's $40 billion bid for chip designer Arm appears to be in serious trouble as regulators around the world balk at concentrating so much power underneath one company. More than a year after it was announced, Protocol's Max Cherney broke down where the deal stands, which could have profound implications on the budding Arm server market.

Productivity, part two: Companies are definitely searching for productivity quick-fixes in the wake of the pandemic's disruption, and venture capitalists are racing to fund the winners. Protocol's Lizzy Lawrence took a look at some of the buzziest companies in enterprise software at the moment and how they rank against some of the incumbents.

Around the enterprise

Google Cloud reported a 45% increase in revenue led by its infrastructure services group, and narrowed its operating losses.

AWS inked a deal with the U.K.'s intelligence agencies to build cloud services hosted in the country, which raised eyebrows among Brits wondering about trusting its intelligence crown jewels with the Americans.

Microsoft reversed a decision to withhold a key feature from the open-source version of its popular Visual Studio developer tool after an outcry from its user base.

Twilio reported a 65% increase in revenue during the third quarter but posted wider-than-expected losses, and shares plummeted in after-hours trading after it announced that COO George Hu would be leaving the company.

Informatica raised $841 million in an IPO that valued it at $7.5 billion, but shares fell 5% on its opening trading day.

Microsoft vowed to cut its use of water in its cloud data centers by 95% by 2024, and Protocol | Enterprise just set a calendar reminder.

Software developers are giving GitHub's Copilot coding tool a fair shake: Around 30% of new code written on the code repository used the AI tool.

IBM struck a deal with McDonald's to help Americans order drive-through burgers faster with the power of AI. What a country.

A MESSAGE FROM DIGITAL REALTY

Designed by practitioners for practitioners, our Digital Workplace Blueprint helps companies accelerate deployment and improve infrastructure precisions to scale a business globally. Download it now, and learn more about the make-up of a Pervasive Datacenter Architecture (PDx™), including software for guiding migration of information technology from centralized datacenters to decentralized centers of data exchange.

Learn more

Thanks for reading — see you Monday!

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