“Some of the biggest businesses we’ve built might not be as relevant going forward,” admitted Microsoft CEO Satya Nadella during an employee-only town hall last week. Nadella was responding to a question about the perceived change in culture inside Microsoft, but his answer revealed a lot more about his own fears over Microsoft’s future in this AI era.
“Our industry is full of case studies of companies that were great once, that just disappeared. I’m haunted by one particular one called DEC,” said Nadella. Digital Equipment Corporation once ruled the world of minicomputers with its PDP series in the early 1970s, but it quickly faced competition from IBM and others that made it irrelevant. It also made some strategic errors by betting on its own Virtual Address eXtension (VAX) architecture instead of the emerging Reduced Instruction Set Computing (RISC) architecture.
Nadella’s first computer was a VAX, and all he wanted to do when he was growing up was work at DEC. “Some of the people who contributed to Windows NT came from a DEC lab that was laid off,” said Nadella. “I think about that, and I think about what it takes for a company not to just thrive at one time, but to continue to actually have the smartest, best people who are going to only work if they’re going to have the opportunity to get both great economic rewards and great job opportunities.”
Nadella’s cautionary tale came in response to a UK employee who said the company had recently “felt markedly different, colder, more rigid, and lacking in the empathy we have come to value.”
I’ve spoken to dozens of employees over the past few months, and they all told me that morale inside Microsoft is at an all-time low. If there’s fear at the top of Microsoft, then employees will undoubtedly feel that through the constant rounds of layoffs and change. It’s why I said in July that Microsoft risks creating a culture of fear.
While Nadella didn’t fully address the perceived cultural shift inside Microsoft, he did say the company’s leadership team “can do better and we will do better.” He didn’t explain how Microsoft would actually do better, though.
“Here we are in our 51st year as a company, and if you look at a set of metrics we are thriving. But at the same time, when I think about the degree of difficulty that is ahead, for us to navigate what is a changing industry, a changing tech sector, and changing economics, we have some very hard work ahead of us,” Nadella said.
That hard work has a lot to do with “renewal” and change, according to Nadella. And renewal seems to mean stark changes and layoffs. It took Nadella a few weeks to address the 9,000 layoffs in July, with a similar missive that discussed the “difficult process of ‘unlearning’ and ‘learning’” in this AI era.
“We can keep the values we have and make sure we live up to that, while at the same time recognizing that capital markets have one simple truth: there is no permission for any company to exist forever,” Nadella said during his town hall appearance last week. “You earn the permission every day by doing socially useful things in the marketplace that is valued. That’s the hard part.”
That is definitely the hard part, as Microsoft’s 50-year history has proven. Microsoft missed the mobile shift in what cofounder Bill Gates once described as his “greatest mistake ever.” The software giant is still thriving despite getting left out, but Nadella is clearly determined not to miss the next big thing.
Microsoft thinks that’s AI right now, whereas less than a decade ago it was chasing augmented reality computing and holographic communication. Now, there’s a real fear from the top that Microsoft has to lead in this AI era or risk becoming irrelevant. Elon Musk has already joked about simulating Microsoft with AI, and it’s not inconceivable that some of Microsoft’s biggest products like Office, that keep businesses hooked to its software and services, could eventually go away. AI models are already capable of generating spreadsheets, slide decks, and documents without the need of Excel, PowerPoint, or Word.
“All the categories that we may have even loved for 40 years may not matter,” Nadella said last week. “Us as a company, us as leaders, knowing that we are really only going to be valuable going forward if we build what’s secular in terms of the expectation, instead of being in love with whatever we’ve built in the past.”
Microsoft still generates around one-fifth of its annual revenue from productivity software, but Nadella said that “some of the margin that we love today might not be there tomorrow.” It’s a stark warning to Microsoft employees that a platform shift is underway, and one that is already causing big changes inside Microsoft.
“At a time of platform shifts, you want to make sure you lean into even the new design wins, and you just don’t keep doing the stuff that you did in the previous generation,” Nadella said during an earnings call earlier this year. “You would rather win the new than just protect the past.”
Microsoft promotes Windows and business Copilot chiefs
Shortly after Microsoft’s town hall last week, Rajesh Jha, Microsoft’s head of experiences and devices, announced some interesting promotions. “I’m thrilled to share that Charles Lamanna and Pavan Davuluri have been promoted to President,” said Jha, in a memo to Microsoft’s experiences and devices team, seen by Notepad. Lamanna and his Business and Industry Copilot (BIC) teams moved closer to the Microsoft 365 Copilot side of the company in June, and he has quickly been consolidating Microsoft’s various business Copilot offerings. This promotion puts him closer to Microsoft’s senior leadership team, and I honestly wouldn’t be surprised if that’s the next step for Lamanna at Microsoft.
“His vision has grown market share and set new standards for AI-native business models,” said Jha. “This well-deserved recognition reflects his leadership, his sustained record of innovation, and the impact in shaping Microsoft’s enterprise AI strategy and future of work.”
Davuluri’s promotion to president comes just over a year after he became Microsoft’s Windows and Surface chief. “This well-earned recognition for Pavan, reflects the breadth of his leadership, his track record of innovation, and his impact in shaping the future of Windows, Surface, and Microsoft’s client experiences and computing stack,” said Jha.
- Microsoft’s new Xbox mode on Windows has leaked for any handheld. I didn’t think this would happen until the Xbox Ally devices debuted next month, but Windows enthusiasts have already managed to get the new Xbox full-screen experience running on any handheld gaming PC. The method, which involves installing a Release Preview version of Windows 11 and lots of tweaks, works on a variety of handheld gaming PCs — including MSI’s Claw devices and Asus’ ROG Ally range. I’ve tried it out on an original ROG Ally, and it’s nice to boot straight into the Xbox PC app instead of Asus’ own software or the Windows desktop. Microsoft has already committed to bringing this officially to existing handhelds in spring 2026, so it’s not long to wait on the official release.
- Microsoft Paint is getting its own Photoshop-like project files. After years of improvements to Microsoft Paint, including a dark mode and layers, Microsoft is now adding two new Photoshop-like features to the app. You’ll soon be able to save your Paint creations as a project file, much like a Photoshop Document (.PSD). The .paint files will store layers and let you pick up right where you left off. Microsoft is also adding opacity sliders to adjust the transparency of the pencil and brush tools in Paint. I’m impressed that Microsoft continues to invest in Paint, after once considering replacing it with its retired Paint 3D application.
- Microsoft is making ‘significant investments’ in training its own AI models. At the same employee-only town hall that Nadella was talking at last week, Microsoft AI chief Mustafa Suleyman also revealed the company is making “significant investments” in the compute capacity required to train Microsoft’s own future frontier models. Suleyman hinted that Microsoft has ambitions to train models that are comparable to Meta, Google, and xAI’s efforts on clusters that are “six to ten times larger in size” than what Microsoft used for its in-house MAI-1-preview model.
- Microsoft and OpenAI have a new deal that could clear the way for an IPO. OpenAI and Microsoft announced a new deal last week that could clear the way for the AI startup’s initial public offering. Microsoft has invested more than $13 billion in OpenAI since 2019, and has a complex revenue sharing agreement in place. Microsoft now allows OpenAI to lean on rival cloud providers, and is expected to reveal further details about the “next phase” of its OpenAI relationship soon.
- Microsoft favors Anthropic over OpenAI for Visual Studio Code. Microsoft is adding automatic AI model selection to its Visual Studio Code editor that will automatically pick the best model for “optimal performance.” This new auto model feature will also favor Claude Sonnet 4 for paid GitHub Copilot users. I’m not surprised to see this move, as sources at Microsoft revealed to me that the company has been instructing its own developers to use Claude Sonnet 4 in recent months. It’s a tacit admission from Microsoft that the software maker is favoring Anthropic’s AI models over OpenAI’s latest GPT-5 models for coding and development.
- Microsoft avoids EU fine after Slack complained about Teams bundling. Microsoft has narrowly avoided a fine from the European Commission after it was charged with EU antitrust violations for bundling its Teams app with Office 365 and Microsoft 365 subscriptions. The European Commission says it has accepted commitments from Microsoft to address competition concerns related to Microsoft Teams, following an anti-competitive complaint filed by Slack in July 2020. Slack’s original complaint alleged that Microsoft had “illegally tied” its Microsoft Teams product to Office and is “force installing it for millions, blocking its removal, and hiding the true cost to enterprise customers.”
- Elon Musk is trying to silence Microsoft employees who criticize Charlie Kirk. Musk has had plenty to say about Microsoft in recent months, just as the company has been cautiously onboarding xAI’s latest Grok 4 model following Hitler concerns. Musk posted a message on X this week, asking Nadella to look into Blizzard employees who were criticizing Kirk. Just hours later, Microsoft’s main X account posted that it was “aware of the views expressed by a small subset of our employees regarding recent events.” Microsoft says it’s taking “matters like this very seriously and we are currently reviewing each individual situation.”
- Microsoft is changing how Xbox controllers work on Windows 11. Microsoft has started testing a change to how Xbox controllers operate on Windows 11. The change will allow Xbox controllers to easily access the Task View on Windows 11 to tab between apps and games, using the Xbox button. The change will align Xbox controllers with the work Microsoft is doing for handheld gaming PCs with Windows 11. The upcoming Xbox Ally devices will have an Xbox button, which opens a handheld-friendly task switcher with a long press.
- Windows 11’s taskbar is getting quick access to speed tests. If you’ve ever wanted to check a Wi-Fi network speed, Microsoft is making it easier to do it straight from the Windows 11 taskbar. Windows enthusiasts spotted the change in recent builds of Windows 11, which adds a speed test option to the system tray. The bad news is that it takes you to Bing to do the speed test, instead of performing it right there on the taskbar.
- Microsoft’s Office apps now have free Copilot Chat features. Microsoft is adding the free Microsoft 365 Copilot Chat and agents to Office apps for all Microsoft 365 business users this week. Word, Excel, PowerPoint, Outlook, and OneNote are all being updated with a Copilot Chat sidebar that will help draft documents, analyze spreadsheets, and more without needing an additional Microsoft 365 Copilot license. While this free version of Copilot will rewrite documents, provide summaries, and help create slides in PowerPoint, the $30 per month, per user Microsoft 365 Copilot license will still have the best integration in Office apps. The Microsoft 365 Copilot license is also not limited to a single document, and can reason over entire work data. This is a curious change, just days after Microsoft announced it will bundle its sales, service, and finance Copilots into the Microsoft 365 Copilot subscription next month.
- Microsoft’s Xbox PC app adds Steam games and access to other stores. Microsoft is rolling out a new aggregated gaming library inside its Xbox PC app this week. The updated app will now list games from Steam, Battle.net, and other PC storefronts — making it a launcher for games you have installed on your PC. It’s designed primarily for the new fullscreen Xbox experience that will ship on the Xbox Ally devices, but it’s also part of Microsoft’s efforts to make the Xbox app on Windows the home of PC gaming.
- Google’s new Windows desktop app brings a Spotlight-like search bar to PC. I’m genuinely surprised to see a new Windows desktop app from Google of all places. The new search app puts a Spotlight-like search bar on your desktop that can search local files, documents in Google Drive, and the web. This reminds me a lot of the Internet Explorer 5 days when the Google Toolbar acted as a Trojan horse to get people to use Google’s search engine. This is clearly Google’s attempt to convince Windows users to use Google’s search and AI services instead of Microsoft’s own Copilot app. It’s probably about time Microsoft launched its own overhauled version of Windows search with a dedicated launcher like this, instead of hiding it away as a PowerToy.
- Microsoft trumps Google with $30 billion investment in the UK. Microsoft has announced that it’s investing £22 billion (around $30 billion) in the UK to help support AI infrastructure and ongoing operations from 2025 through 2028. The investment includes $15 billion in capital expenditures to build a supercomputer to support AI demand and adoption. Microsoft’s well-timed announcement came on the same day President Donald Trump arrived in Britain for a second state visit earlier this week. It’s also larger than Google’s own investment in the UK of £5 billion (around $6.8 billion) to help power the UK’s AI efforts.
- Consumer Reports asks Microsoft to keep supporting Windows 10. Microsoft is getting ready to end support of Windows 10 on October 14th, a deadline that means consumers will have to sign-up for free extended security updates or move to Windows 11. Consumer Reports has written a letter to Nadella, noting that Microsoft’s end of support will “strand millions of consumers” who don’t have machines that are compatible with Windows 11. There are still millions of Windows 10 machines in use after 10 years, and Microsoft’s strict hardware requirements have left many stuck on its aging OS. I can’t see Microsoft changing its mind this late in the day, but the company could always increase its extended security updates to beyond just a year for consumers. Businesses can get them for up to three years if they’re willing to pay.
- Microsoft is giving Notepad free AI features. The one Windows app that I really don’t need AI features in is Notepad, but Microsoft continues to add Copilot into what was once a basic app. If you have a Copilot Plus PC, Microsoft is adding summarize, write, and rewrite AI-powered features to Notepad soon. Windows Insiders are testing the changes, which don’t require a Microsoft 365 subscription. Microsoft is using the local models on Copilot Plus PCs to power this Notepad feature.
- Microsoft’s Xbox Copilot arrives on Windows 11 PCs worldwide. Microsoft only started testing its new Gaming Copilot in the Windows Game Bar last month, and it’s now starting to roll out to all Windows 11 users today. While the initial preview was limited to certain markets, Microsoft says today’s release has “regional support everywhere except mainland China.” The Gaming Copilot will be available as a widget inside the Game Bar on Windows 11, and it includes a voice mode so you can talk to the AI assistant without having to alt + tab out of a game. It will even use screenshots of a game to help answer questions, so you could ask Copilot about a boss in a game without having to describe it. This is the first of many places where Microsoft plans to add AI features to Xbox, and this Gaming Copilot is also arriving on the mobile Xbox app next month and Xbox consoles soon.
I’m always keen to hear from readers, so please drop a comment here, or you can reach me at [email protected] if you want to discuss anything else. If you’ve heard about any of Microsoft’s secret projects, you can reach me via email at [email protected] or speak to me confidentially on the Signal messaging app, where I’m tomwarren.01. I’m also tomwarren on Telegram, if you’d prefer to chat there.
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