If Microsoft were a city, it would contain more residents than Berkeley—at last count, some hundred and twenty-seven thousand. On Thursday morning, Microsoft’s C.E.O., Satya Nadella, sent a letter informing employees that up to eighteen thousand of them would be told to leave within the next year. This is, by far, the biggest round of layoffs in the company’s thirty-nine-year history. The announcement came three months after Microsoft acquired Nokia’s mobile-phone business, and most of the layoffs—twelve and a half thousand—will come from eliminating the overlap from that deal. Middle managers, too, will be cut, to improve the company’s byzantine structure.
In many industries—retail, fast food—a corporation’s head count is seen as a measure of its impressiveness. In the technology world, it signifies bloat. Even Facebook’s six-thousand-member staff makes people nervous. WhatsApp, the messaging service that Facebook bought earlier this year, had fifty-five employees when it was acquired; Instagram, an earlier Facebook purchase, had thirteen. The tinier a company is, the reasoning goes, the faster it can move. Still, even those who anticipated some layoffs at Microsoft following the Nokia deal didn’t expect so many. Rick Sherlund, a veteran Microsoft analyst, had predicted that five to ten per cent of the workforce would be laid off. When he learned of the actual reductions—a cut of fourteen per cent—he wrote, in a note to clients, that they were “bolder” than expected.
Nadella surely wouldn’t mind this characterization. He has been promising startup-style boldness ever since taking over the C.E.O. post from Steve Ballmer, in February. If Microsoft’s first chief executive, Bill Gates, represented the prototypical nerd-founder of the eighties and nineties, and Ballmer, his successor, signified blue-chip soberness, Nadella—or his well-crafted public image, in any case—is meant to overturn the perception of Microsoft as the aging sad sack like the PC played by John Hodgman in the “Get a Mac” ads. In February, the company introduced Nadella on a colorful Web page, featuring photos of him slouching in hipster glasses and the sort of hoodie that Mark Zuckerberg might wear. He is in his forties and bald, but his guileless smile and round face make him seem less a Ballmerian patriarch than a precocious child.
Thursday’s letter from Nadella had a sober, guarded tone. A more candid expression of what’s behind the layoffs can be found in a livelier memo, sent a week earlier, in which Nadella described his vision for a better Microsoft. The words “change” and “changes” appear a total of fourteen times. Such words tend to serve the same purpose for new C.E.O.s as they do for newly elected politicians: signalling a break from the ousted incumbent and an attitude of youthful vigor. Last year, when Ballmer was championing the Nokia acquisition, he described Microsoft as a devices-and-services company. Ballmer’s goal was to make Microsoft less reliant on getting its software onto devices made by others. But he is gone from Microsoft for a reason: the plan hasn’t worked. Apple and Samsung continue to dominate the high-end-cellphone market, while competitors in countries with cheaper labor have been able to produce lower-end phones at lower cost. Perhaps more important, Ballmer’s approach didn’t do much to address Microsoft’s broader image problem, which is that people find it unexciting. This, the thinking goes, keeps customers from buying Microsoft’s products, investors from acquiring its stock, and workers from accepting its job offers.
In last week’s memo, Nadella wrote (without naming names) that the devices-and-services characterization was no longer quite right. Instead, he says that he is reinventing Microsoft as a firm that facilitates “experiences” on mobile devices and on the Internet. In other words, he is shifting the company’s focus from the devices themselves to the things people use them for—composing a Word document, planning a vacation. Incidentally, “experiences” also sounds more fun than “devices and services.”
Thursday’s layoffs serve Nadella’s goals in a couple of ways. First, they should allow Microsoft to shed thousands of old-school, device-focussed Nokia people. (Stephen Elop, who runs the devices-and-services business unit of Microsoft, wrote in a separate letter to employees, delivered on Thursday, that, “whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences.”) Second, by tightening Microsoft’s management structure, Nadella stands a chance of making the company faster and more able to adapt to technological change.
Microsoft isn’t the only long-established tech company that is making cuts. Last year, I.B.M. reduced its head count for the first time in more than a decade, and analysts expect more cuts this year. HP said, in May, that it would cut up to sixteen thousand jobs on top of the thirty-four thousand cuts it had planned as of December. The promise of all these cuts has buoyed investors. It has also rankled those who don’t consider smaller workforces to be an obvious virtue—namely, people in the U.S. who are looking for jobs. Silicon Valley startups create a lot of wealth, but they don’t spread their riches widely. As Nathan Heller wrote earlier this month in the magazine, “tech has brought good jobs to San Francisco, but almost any other industry, charged with similar growth, would have brought many more.”
Above: Satya Nadella in San Francisco on April 2nd. Photograph by Daniel Schnettler/dpa/Corbis.
