A top investor nails why Microsoft is getting more respect in Silicon Valley these days

A few years ago, Silicon Valley thought Microsoft was toast. Comments like this one from entrepreneur and professor Steve Blank were typical: “Microsoft is the living dead. Microsoft is a standing joke now in the technology business.”

There were many more conversations like that in private.

How times have changed.

These days, people often mention how impressed they are with new technologies like HoloLens, give grudging respect to Azure (Microsoft’s cloud competitor to Amazon Web Services), and joke about how “Microsoft” and “innovation” would never have been heard in the same sentence a few years ago.

John Lilly, a venture capitalist at Greylock, crystallised the reason for this change in an interview with Vanity Fair:

But Microsoft, especially under Satya Nadella, has been an interesting company to watch. For 20 or 25 years they had a massive distribution advantage, but now they don’t….And under the old regime they would have said, “Well, we’re going to pretend like we still have a distribution advantage, and we’re not going to release Office on iPad or Office on iPhone.” But one of the first things that Satya did when he got there was he released Office on iPhones and iPad. That’s the first step toward them trying to act like a company that doesn’t have privileged distribution.

The old Microsoft could afford to be arrogant. When you own the only end-user computing platform that matters, you don’t have to cooperate with anybody you don’t want to cooperate with. You call the shots, and everybody has to work with you.

But now that smartphones have broken that monopoly, you see Microsoft playing nice with all its former rivals — Linux, Salesforce, Apple. Today Microsoft even made a tentative peace with Google, which has been one of its fiercest rivals for more than a decade, as the two companies agreed not to complain to the government about each other but compete only in the marketplace.

That kind of power can also make you a little bit lazy. Lilly worked at Mozilla, makers of the Firefox browser, back in the early 2000s, and as he points out later in the interview, the only reason Firefox was able to crack the Microsoft monopoly on browsers was because Microsoft didn’t really pay attention:

Microsoft didn’t understand what we were up to at Mozilla until Firefox had 8 or 10 per cent of the browser market, and by the time they recognised we were doing something that mattered, we were off to the races.

Make no mistake: Microsoft didn’t change because Satya Nadella is some kind of gentle genius compared with his predecessor. Microsoft changed because it realised it had to.

As Lilly concludes, “I find the whole thing fascinating, and I don’t know how it’s going to turn out. Twenty-five years of privileged distribution is a lot to unlearn.”

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