Microsoft Research Album (Chapter 1)

My current first position is allocated to $Microsoft(MSFT.US). Let's analyze Microsoft.

Part One: Getting to Know Microsoft — A Software Company That Changed the World

In a nutshell:

Microsoft is not just a company that sells Windows; it is a platform company providing digital infrastructure for enterprises worldwide.

Many investors first got to know Microsoft because of Windows.

In reality, today's Microsoft no longer considers Windows its most important business.

What truly drives Microsoft's growth are:

• Azure (Cloud Computing)
• Microsoft 365 (Enterprise Productivity)
• GitHub (Developer Ecosystem)
• Dynamics (Enterprise Management Software)
• Security (Cybersecurity)
• AI (Copilot and Azure AI)

Windows serves more as an entry point to the entire ecosystem rather than the core of profitability.

I. The Birth of Microsoft (1975)

Bill Gates and Paul Allen founded Microsoft in 1975.

At that time, they did not intend to build the world's largest technology company.

They had only one goal:

To put a computer on every desk and in every home.

Back then, most computers only had hardware without a mature software ecosystem.

Microsoft initially sold the BASIC programming language.

From day one, this company was about selling software, not computers.

This laid the foundation for Microsoft's most critical business logic over decades:

Software can be infinitely replicated with near-zero marginal costs.

This means that once R&D is complete, the cost of adding each new customer is extremely low, while revenue can continue to grow. This is also a key reason why the software industry achieves high profit margins.

II. The First Leap — The Windows Era (1985–2000)

In 1985, Microsoft released Windows.

What truly made Microsoft a global tech giant was not Windows itself, but the positive cycle it created:

Windows → Developers → Software Ecosystem → More Users → More PC Manufacturers Pre-installing Windows.

This network effect was very strong:

• Users chose Windows because of the rich software availability;
• Developers prioritized creating Windows software because of the large user base;
• Manufacturers continued pre-installing Windows due to user demand.

This cycle allowed Windows to maintain a dominant position in the personal computer operating system market for a long time.

Meanwhile, Microsoft launched Office (Word, Excel, PowerPoint), further strengthening its ecosystem advantage.

Windows + Office became Microsoft's most important source of profit for over two decades.

III. Microsoft Almost Missed the Internet

Entering the internet age, Microsoft experienced a period of significant strategic missteps.

It was surpassed by Google in search.

Its mobile operating systems were dominated by iPhone and Android.

Social networks were captured by Facebook.

In cloud computing, AWS established a leading advantage first.

Many people at the time believed:

Microsoft would become like IBM—a mature but slowly growing software company.

This was one of the most difficult periods in Microsoft's history.

IV. The Nadella Era — Microsoft's Second Rebirth (2014–Present)

In 2014, Satya Nadella became CEO.

Many investors believe this was the most important management transition in Microsoft's history.

Several key decisions made by Nadella almost completely reshaped Microsoft:

1. Full Commitment to Azure

Microsoft no longer treated Windows as its sole core, elevating cloud computing to the center of corporate strategy.

Today, Azure has become one of Microsoft's fastest-growing and most important businesses.

2. Shifting from "Selling Software" to "Selling Subscriptions"

Past:

Users purchased Office in a one-time transaction.

Present:

Users subscribe to Microsoft 365 monthly or annually.

This model makes revenue more stable and predictable, while also improving customer retention rates.

3. Embracing Open Source

Previously, Microsoft viewed Linux as a competitor.

After Nadella took office, Microsoft began actively supporting open-source projects and acquired GitHub.

This shift improved Microsoft's relationship with the developer community and enhanced its influence in the development tools sector.

4. Early Positioning in AI

Microsoft invested early in generative AI and established a deep partnership with OpenAI, integrating AI capabilities into products such as Azure, Microsoft 365, and GitHub.

This positioning made Microsoft one of the key players in global enterprise-level AI applications.

V. What Kind of Company Is Microsoft Today?

Many investors still ask:

Is Microsoft a software company? A cloud computing company? Or an AI company?

My understanding is:

Microsoft is an enterprise digital infrastructure platform company.

It covers multiple key links for an enterprise, from employee office work, identity authentication, collaborative communication, and development tools, to cloud computing, security, and AI.

For many large enterprises, what Microsoft provides is not a single product, but a complete set of collaborative digital platforms.

VI. Why Is Microsoft Worth Long-Term Research?

In our investment framework, whether a company is suitable for long-term holding depends not on short-term stock prices, but on its ability to continuously create value.

Microsoft possesses several long-term advantages:

1. Diversified revenue sources, avoiding reliance on a single product.
2. High enterprise customer stickiness, as switching entire systems is costly.
3. Strong cash flow, enabling continuous investment in R&D, share buybacks, and dividends.
4. Long-term growth potential in AI and cloud computing, providing new engines for future growth.

Of course, this does not mean Microsoft is without risks. In future chapters, we will specifically discuss capital expenditures, cloud computing competition, the pace of AI commercialization, and regulatory factors.

Chapter One Conclusion

If I could summarize Microsoft in one sentence, I would write:

Microsoft is great not because of Windows, but because it has successfully reinvented itself time and again.

From PC software to enterprise software, and then to cloud computing and AI, Microsoft has continuously adjusted its strategic direction while maintaining strong profitability and cash flow. This ability to continuously adapt to technological change is a key reason it has become a long-term core asset.