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Microsoft chief says not all big tech is the same

As US presidential candidates debate the possibility of breaking up big tech giants, Microsoft's Satya Nadella has explained why Microsoft should not be considered the same as some of its peers.

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Microsoft chief executive Satya Nadella has warned against judging all technology companies together, calling for more nuance in the debate about the negative influences of big tech and saying considered regulation was required across the sector.

The tech sector has spent the last year in damage control mode, as a result of scandals affecting other companies such as Facebook. But Microsoft has remained in the frame, amid calls by US presidential candidate Elizabeth Warren to forcibly break up global tech giants.

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Asked about the possibility of greater regulation and political intervention, Mr Nadella said he believed consideration should be given to the different natures of companies being slapped with the  "big tech" label and particularly whether their business models created flow-on benefits for the broader economy.

"Somebody asked me how do you sleep well at night? Well I sleep well at night knowing that if we are doing well then others around us in every country we operate in are doing well," Mr Nadella told The Australian Financial Review Chanticleer lunch in Sydney on Wednesday.

"It's not about any particular political ideology, [but] I think most people conflate 'big tech' as one thing, when there are actually two very different business models at play and I think it's very important for people to recognise."

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A cavalcade of big names including BHP chief executive Andrew Mackenzie, Wesfarmers chief executive Rob Scott, billionaire investors Hamish Douglass and NAB chairman-elect Phil Chronican attended the event.

In what could be seen as a thinly veiled swipe at tech rival Amazon, he described the difference between a platform business model, like Microsoft's Azure cloud and an aggregator business, like the Amazon marketplace.

He said a platform model was only viable in the long term if the value created on top of it was more than the platform itself. On the other hand, under an aggregator model participants in the marketplace can be damaged if the aggregator uses the data it gets from market participants against them.

"I'm not saying either one of those is good or bad ... If there is a lot of value being created on top of the platform the platform will do well and that's what we're trying to build.

"Value aggregators are different. They're classic in the middle, they're sort of going to be taxing one side or the other side or subsidising one side or the other side ... we need our customers to succeed and so that to me is a better governor than any other regulatory framework."

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Microsoft boss Satya Nadella

Microsoft boss Satya Nadella says not all big tech companies are the same. Louie Douvis

Microsoft has shown its preference for getting ahead of regulatory discussions by publishing its own paper on how artificial intelligence should be ethically used by companies.

Mr Nadella said facial recognition was another good example of a technology where there were positive uses as well as potentially harmful ones, and it was important there was regulation in that area.

"I think that is what we elect our governments for and our regulators for, so therefore I think that we should use those mechanisms as appropriate."

Asked about long-term growth for Microsoft and the broader economy, Mr Nadella said that, as all companies effectively become software companies, Microsoft would succeed by building the platform to make that happen.

This means he is not concerned about other tech companies rising to knock Microsoft off its perch, he has a view that it will be better for all if there are more successful firms.

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"If in 20 years from now all there is is two companies out of the West Coast of the United States or two companies out of the East Coast of China you all will be dead and so will I be," he said.

"I envision a world where there is real broad spread economic growth and digital tech by itself is a commodity ... Our vision is not about being the only player, if anything we want success to be much more broad."

Mr Nadella also sought to give credit for the company's transformation into a cloud computing giant to his predecessor Steve Ballmer, and said future economic growth relied on the development of more successful digital-based companies.

Mr Nadella was overnight named as Fortune's business person of the year, in recognition of the huge turnaround that has occurred under his stewardship.

Since he took over the CEO job from Mr Balmer in February 2014, Microsoft's market value has increased by roughly $US850 billion, but Mr Nadella, who joined Microsoft in 1992, was keen to change the idea that he dramatically changed direction.

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"There's so much written about Microsoft, on our culture and past and present ... I've grown up at Microsoft, so if there's anything good or bad about I represent it all," he said.

Magellan's Hamish Douglass with Microsoft chief executive Satya Nadella at Wednesday's Chanticleer lunch.  Louie Douvis

"Interestingly enough the person I give all the credit to is Steve Balmer because after all he gave me the cloud job, and he took on the risk as CEO of saying 'go all in' ... so in some sense I benefited from Microsoft having that long-term outlook."

Asked about whether Microsoft looked at other successful tech companies like Netflix and Apple and felt pressure to get into content and smartphones, Mr Nadella suggested that its current absence from those markets would continue.

He said it was more important and lucrative to enable others to create tech products on their platform than to focus too much on inventing new devices.

"If I look back at our history we made our biggest mistakes when we did things out of envy," he said.

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"I think that companies are born with a sense of purpose ... I believe we have identities as companies like human beings, and I want us to stay true to that. I want us to be proud of being that company that creates technology so that others can create more technology."

Globalisation

Mr Nadella said his view that Microsoft could only prosper if its customers did also coloured his view of cross-border trade and Microsoft’s place in globalisation.

“I earn the right to operate in Australia only if I can look at people here and say, you know what, because of Microsoft's participation in the Australian economy, small businesses here have become more productive, the public sector has become more efficient, multinationals out of Australia have become globally competitive.”

Mr Nadella said while the first phase of globalisation boosted business growth and expanded the world’s middle class, it has also created what he described as “massive displacement”.

As such, it was not surprising that nations were now looking to understand what gains they had made from globalisation.

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“I think the broader lesson for us as business leaders is that this next phase of globalisation better account for equitable local growth as being a necessary condition for a more globalised world,” Mr Nadella said.

“Because if we ignore that, I just don't see a long-term, stable macro environment for us as business leaders.”

Mr Nadella neatly sidestepped questions about the 2020 US Presidential election campaign, but said political leaders need to understand the broader accountability being demanded by communities.

Mr Nadella said in the corporate sector, last decade’s focus on shareholder primacy had been driven by the fact that “management teams were out of control” but this has now morphed into much broader debate about accountability that was being driven by investors and the community.

“That multi-constituent harmonisation is what I think is important to any political leader anywhere on any side of the ideological debate,” Mr Nadella said.

Paul Smith edits the technology coverage and has been a leading writer on the sector for 20 years. He covers big tech, business use of tech, the fast-growing Australian tech industry and start-ups, telecommunications and national innovation policy. Connect with Paul on Twitter. Email Paul at psmith@afr.com
James Thomson is senior Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine. Connect with James on Twitter. Email James at j.thomson@afr.com

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