As Microsoft CEO Satya Nadella's pay hits an astronomical new milestone, here's everything he said to shareholders today on AI, Xbox gaming, and Microsoft's future — complete with a near-total snub of Windows and Surface

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It's a sign of the times for Surface and Windows, as AI hype drives the conversation.

Satya Nadella on stage at an event in London talking about Copilot
(Image credit: Windows Central)

What you need to know

  • Every year, Microsoft CEO Satya Nadella pens a letter to shareholders, giving an overview of the company's future-facing opportunities as they enter a new fiscal year.
  • This year, AI dominated Nadella's discussions heavily, with some footnotes for Xbox gaming, LinkedIn, and other growth areas.
  • Notably, Satya Nadella only mentioned Windows once in the piece (in the context of its struggling Copilot+ PCs), and mentioned Surface not once — a sign of the times.
  • Additionally, Nadella's compensation package hit an astronomical $79.1 million dollars, with the vast majority being delivered in Microsoft stock.

It's 2024, so we're talking about AI. You're talking about AI, you're reading about AI, and every tech CEO in the world is yelling about AI. That includes Microsoft CEO Satya Nadella.

In Nadella's annual address to shareholders (via LinkedIn and Tom Warren), the leader of one of the world's most valuable trillion-dollar companies had a ton to say about AI, mentioning the phrase 152 times in his yearly letter. Microsoft's Copilot platform recently had a bit of a relaunch, although it remains far less popular than OpenAI's ChatGPT with consumers, and will arguably continue to lag behind the competition as Microsoft's relationship with OpenAI (which provides the models that powers Copilot) continues to fray. One area where Microsoft has been performing far better is business-grade AI, with Azure, Github, Visual Studio, Microsoft 365, and other tools gaining ever-increasingly deep integrations there.

"Microsoft has built three leading platforms to help our customers maximize their opportunity in this emerging agentic era," Nadella said. "Copilot, which you can think of as the new UI for AI—the human interface for this agentic world; the Copilot stack, which brings together infrastructure, data, and app services to help customers build their own copilots and agents for their own business processes; and a new category of Copilot devices that are purpose-built for this new era, including the Copilot+ PCs we introduced this year."

Notably, "Copilot+ PC" is only mentioned twice throughout the piece, which roughly reflects roughly how much consumers actually seem to care about them. Microsoft's massive Windows Recall snafu over the summer has driven consumer skepticism over AI privacy, leading Microsoft to take Copilot+ PC's headline feature back to the drawing board.

RELATED: Why Microsoft won't be the company to mainstream consumer AI

While most might not actually know what a Copilot+ PC is, Microsoft already had a simple brand people were familiar with, in Surface, although it was sadly mentioned zero times throughout the piece. Windows itself was only mentioned twice, and only in the context of Copilot+ PCs, which could be seen as evidence of how little of Microsoft's focus falls on its legacy products these days. I mean, it could be seen as evidence if you were cynical, that is. (I'm cynical.)

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At the very least, Microsoft sees some opportunity with gaming, right? Thankfully, Xbox did get some notes, with Nadella spotlighting the fact that the company now has over 20 franchises that have hit over $1 billion in lifetime revenues. The only time Satya Nadella actually mentioned Xbox was in the context of Xbox Cloud Gaming, however, which the firm hopes to open up to buy-to-own games beyond its Xbox Game Pass subscription on Android as soon as next month. How it hopes to circumvent Google's rules remains to be seen, but at the very least it should also be available on the web.

Much to the chagrin of current Xbox customers, Satya Nadella spotlighted the fact that it has started bringing Xbox titles over to Nintendo Switch and PlayStation, "as we continue to extend our content to new platforms," he says. Satya Nadella has made no secret of the fact he dislikes Xbox having exclusive games, so it seems that the multi-platform strategy "Project Latitude" will continue — even if it kills Xbox's hardware ecosystem in the process.

Satya Nadella also spotlighted various other areas of growth, including Bing search and Microsoft Edge, both of which he claims saw increased share this year. He also hailed LinkedIn, Microsoft 365, and Microsoft Teams, and the growing Azure data center footprint.

Nadella also discussed building "trust" in the company, which is an interesting note. This year, Microsoft had one of its worst security breaches in history. Hostile state actors in Putin's Russia accessed confidential emails of United States officials via Microsoft's network. The whole event was hugely embarassing for the firm, and Microsoft has ramped up security measures massively since then in a bid to reassure customers. Nadella also claims Microsoft is deploying "responsible AI practices" following its Windows Recall privacy scandal. That is, of course, as it "responsibly" scrapes websites like ours and steals content en masse to sell and power its services, without sending a scrap of compensation to the creators it steals from. Ahem. (There's that cynicism again.)

Satya Nadella also shared some footnotes about its climatological sustainability "efforts," admitting that it is missing some of the targets it set for itself to hit. Those targets are quite conveniently, in 2030 — luckily for shareholders, far after they might actually be needed to make some kind of impact. Indeed, its AI push gobbles up astronomical amounts of energy and water to the point Microsoft is considering going nuclear (literally) to keep up with demand.

Oh, and speaking of astronomical ...

Post by @stephentotilo
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Last year, we wrote about how Satya Nadella's compensation packet actually took a hit down to "only" $48.5 million, but it turns out that driving Microsoft's stock price to new highs comes with awards attached. This year, Satya Nadella's compensation package (largely in stock) will clock in at an eyewatering $78.1 million (via Stephen Totilo).

Given the demand for AI globally, it's hardly unsurprising to see Satya Nadella's compensation grow in line with how the hype has driven Microsoft's share price. For a few weeks, Microsoft became the world's most valuable company off the back of the AI hype train, until investors realized that the investments would be perhaps better placed with NVIDIA, given that their silicon is what is going to power the whole thing.

Be prepared for a whole load more "AI" going forward. "Metaverse" was mentioned zero times in Satya Nadella's letter, by the way.

AI, AI, and more AI

The Microsoft Copilot app is being displayed on a smartphone, with the Microsoft logo visible in the background, in this photo illustration taken in Brussels, Belgium, on December 30, 2023.

Copilot may be a bit basic in its infancy, but if Microsoft can get it right, it could be truly transformative. (Image credit: Getty Images | NurPhoto)

Despite Nadella's penchant for taking an axe to basically every consumer product Microsoft has developed over the years, you can't deny the success he has driven for Microsoft shareholders, and that is ultimately (and sadly) the name of the job.

Microsoft's Xbox strategy might be a path to killing off Xbox hardware much like Nadella killed off Windows Phone (and will likely kill off Surface in a couple of years), but the early partnership with OpenAI has kept it at pace with competitors that are increasingly exploring how to commercialize large language models at scale. As of today, these services lose absurd amounts of money owing to the vast data center processing power required to run them — but it's all about an investment for the future.

Having the right pieces in play when these services become compelling enough to commercialize at scale will be crucial, and Microsoft's very tight, legally-binding "partnership" with OpenAI will likely be remembered as one of Satya Nadella's most savvy business moves. Azure remains arguably the best global cloud solution this side of Amazon Web Services, although Microsoft is encroaching on Amazon's dominance in the space every single quarter according to most analyses. And you can't really run AI without a cloud to power it, at least not today. I'm sure we'll all become Matrix-styled human batteries soon enough, though.

Where that leaves Xbox, Surface, and maybe even Windows itself remains to be seen. Perhaps AI will render everything pointless as we approach the singularity, with brain implants feeding us Xbox Cloud Games directly into our frontal cortex, complete with Bing ads read in Cortana's voice on the side. Or, well, maybe not.

CATEGORIES
Jez Corden
Jez Corden
Executive Editor

Jez Corden is the Executive Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by tea. Follow on Twitter (X) and Threads, and listen to his XB2 Podcast, all about, you guessed it, Xbox!

16 Comments Comment from the forums
  • fatpunkslim
    Windows Central said:
    In a sign of the times, Microsoft CEO Satya Nadella snubbed Windows and Surface in his annual address to shareholders, dominated by commentary on AI and the security issues that plagued Microsoft at the start of 2024.

    As Microsoft CEO Satya Nadella's pay hits an astronomical new milestone, here's everything he said to shareholders today on AI, Xbox gaming, and Mi... : Read more
    I see that you don't really like this Nadella, me either because he lacks style in his communication
    . But it is mainly aimed at partners. And inevitably he tends to oversimplify the strategy, without going into detail. At the same time, when we see the small size of the paragraph concerning gaming, it is difficult to develop.

    That's basically the strategy in broad terms, you shouldn't extrapolate everything he says either!

    When he says:
    "Finally, we brought four of our fan-favorite titles to Nintendo Switch and Sony PlayStation for the first time, as we continue to extend our content to new platforms." he repeats almost word for word what he said at the time of the release almost a year ago of the 4 first party games on other platforms.

    But when it comes to going into detail it's not so simple, Phil Spencer and Sarah Bond made it clear that this was not a sign that everything was going to be released on other platforms. Besides, there are 4 old service games, for 5 and 8 years old, and 2 small games (pentiment and hifi rush), not enough to make a fuss about.

    And as proof, all the games that were released subsequently were either exclusive or were already historically multiplatform. Indy is a special case because it is a Disney license.

    What's funny is that we've never had so many exclusive games on Xbox. Even recently during the Xbox partner preview: 4 Xbox exclusives (xbox console and PC): Blindfire, Subnautica 2, Mistfall Hunter, The Legend of Baboo. And 5 games day one on gamepass: Wuchang, Subnautica 2, Eternal Strands, Wheel World, FBC: Firebreak. And I'm not talking about stalker 2 or ark 2, dungeons of hinterberg, and others. In fact if you count correctly, some games are less well known but there are more exclusive games on Xbox than on PS5, it's a fact!

    Why continue to sign exclusive game contracts with third-party publishers if exclusives are not important to the Xbox ecosystem ?

    That's what I'm saying, Nadella draws the broad outlines, but the devil is in the details, Xbox strategy is much more subtle than that and not as crude. Phil Spencer and Sarah Bond are responsible for the subtleties.

    The Xbox strategy has always been based on the long term, this was repeated by Phil Spencer many times, and they know very well that it is important to keep large exclusive licenses on Xbox to keep the ecosystem attractive. .

    We should not have the presumption to believe that we know better than a company valued at several billions.

    Those who say that Xbox's strategy is to send all their games to other platforms have understood nothing. It's a short-termist logic to think that, what would be good in the short term, will not be good in the long term, but I'm knocking open doors by saying that.

    Xbox will never go in this direction, not for fear of disappointing fans, but simply because it's not good for business in the long run. I've been noticing this for a year, and it's been verified, the number of exclusive games on Xbox has only increased, it's easily verifiable. And I'm willing to bet that this will continue to be the case because I'm not basing this on rumors or beliefs, but simply on the facts. That doesn't mean that we won't see some games on other platforms from time to time, but nothing major. Just with the historically multiplatform games, there is plenty to do.

    In fact, there has been more fake news than reality since then. Fake news about halo, gears, starfield, forza, etc. on other platforms never happened.

    And there, you can be sure that we will be treated to even more false rumors. The media system is like this!
    And you will notice that this is often when there are big announcements on the Xbox side. I don't want to be a conspiracy theorist, but these coincidences are quite astonishing, from saying that certain influencers or launchers of fake news are paid by the competition, there is only one step! But no need to go that far!

    This is the big gap between the treatment of certain clickbait media (which want to please the trolls) and the reality of the facts.

    This media deviance is used by the launchers of fake news. They enjoy it when they see that their inventions are making the rounds on the web. And many media are too naive or also take advantage of the system, to relay information that they know is false. But as long as it clicks, we don't care about the facts! A good false rumor is worth more than the facts.

    I think you're lacking a bit of perspective @Jez Corden regarding all of this.
    Reply
  • fjtorres5591
    fatpunkslim said:
    Xbox strategy has always been based on the long term...

    It has to be.

    The entire game Industry comes with a large built-in lag. It is capital hungry: you pump in money for years with no guarantee of any return. Particularly in the high risk, high reward top of the market. Look at CONCORD, a short term kneejerk reaction to the success of OVERWATCH that by the time it was close to production-ready (it wasn't there at launch) it was dated and launching into a flooded market.

    It is unforgiving: one misread can set you back a decade or, worse, kill you. XBOX360 owed a lot of its success to its media features (renting movies, streaming Netflix and Hulu, external content via USB) and it got a lot of gaming media attention for Kinect. Short term thinking was to do more of the same. Lost in the analysis was that the 360 success, especially early, was for being significantly cheaper than the gold-plated launch PS3. Sony remembered that and undercut the XBOX price. They're still trying to recover.

    It takes three years to design a console and get it production ready and another year to ramp up production for even a limited launch. Even now, the basics of SWITCH2 hardware (CPU/GPU/AI) have been quietly known for years. Before PS5 was even announced it was already a given its GPU would be underpowered and the only tweak Sony could do was to add a software-based boost mode to minimize the disparity on paper and rely on third party developers targeting PS5 as the lead platform and ignoring the more sophisticated features of the XBOX.

    There is simply too much inertia in the business to be bold. Those extra features XBOX has? Not even its own developers do much with them because they also target PCs and most of that installed base also lacks those features.

    Worse of all, gaming is a "disposable income" business and it relies on a healthy economy to find a big enough audience for its products. A recession here, a pandemic there, a global war or energy shock and the market for your new generation shrinks, forcing you to rely on cross-gen product and again neutering the best new features of your shiny toy.

    Which is where Nadella and Spencer's bets come in: subscriptions are steady, predictable income. The per unit game income is lower on GAMEPASS but even a sunk cost dud like REDFALL has value on GAMEPASS, enough to belatedly fix its biggest flaws and let its long tail return some value. Old games from as far back as 2000 (and earlier, on PC) are new to those that never played them. In the old launch sales driven model the game isn't "shelved" even at online retailers and brings in zero revenues but on GAMEPASS it still lives and brings incremental revenues. And then, you add in cloud gaming and make the gaming hardware itself an optional, premium product.

    But launching a new business model takes time. And for content subscriptions, it takes a steady stream of new content atop a large predictable back catalog. For video subscriptions, it means AMAZON buying MGM and Disney buying FOX, Netflix putting up multiple new movies and entire *series* weekly. APPLE didn't and despite high profile releases, its video service gets few long term subscriptions on its own. For GAMEPASS, that means MS buying Obsidian, InXile, BETHESDA, and yes, ABK. it means platform exclusives, both first and third party. But above all, it takes patience and willingness to stick to the plan.

    These last two are not typical traits publicly owned corporations can usually afford. But Nadella's track record at turning MS into a 3 Trillion dollar property has earned him the credibility and time to execute an industry changing model just in time for the changing market of the next decade.

    Because like it or not, the next decade will only get worse from here on out. And $200B a year of continued game sales are no sure thing. A whole separate story.

    But make no mistake, the current team and studio closures are just the beginning.
    And MS knows it and are prepared for it.
    The time is coming when $500 consoles and $1000 gaming PCs will be unaffordable but $50 FIRE TV Sticks will be.

    Trust Nadella's vision. His stock holder do.
    (with a bit of sweet talking.)
    Reply
  • fjtorres5591
    BTW, GAMERANT (hardly an XBOX friendly site) is reporting that MS is cutting back on PlayStation ports and set a redline of franchises that will never go there. Starting with HALO and GEARS but not ending there.

    It may be that the added revenue isn't worth the effort or it might be in retaliation for the blocking of third-party releases.

    Story is developing; expect lots of clickbait pieces all weekend.
    Reply
  • Jez Corden
    fjtorres5591 said:
    BTW, GAMERANT (hardly an XBOX friendly site) is reporting that MS is cutting back on PlayStation ports and set a redline of franchises that will never go there. Starting with HALO and GEARS but not ending there.

    It may be that the added revenue isn't worth the effort or it might be in retaliation for the blocking of third-party releases.

    Story is developing; expect lots of clickbait pieces all weekend.
    tbf i don't think that report about xbox "cutting back" on playstation ports is even vaguely true. they've had a plan in place for latitude since last year and they've not changed course.

    and tbf like I said in the closing, I know satya is a savvy businessman loll. i just wish they would do more for customers in the ecosystem today, and not just recklessly abandon the users they have. the fact surface duo only had one real update is absolutely criminal. shows serious contempt for customers. that kinda attitude won't filter down well to xbox.
    Reply
  • fatpunkslim
    Jez Corden said:
    tbf i don't think that report about xbox "cutting back" on playstation ports is even vaguely true. they've had a plan in place for latitude since last year and they've not changed course.

    and tbf like I said in the closing, I know satya is a savvy businessman loll. i just wish they would do more for customers in the ecosystem today, and not just recklessly abandon the users they have. the fact surface duo only had one real update is absolutely criminal. shows serious contempt for customers. that kinda attitude won't filter down well to xbox.

    Why are you mixing everything up, we're talking about xbox and gaming, hasn't the xbox console received lots of updates? Don't the facts show you that your fears are unjustified? And why don't you believe what gamerant says about the red line. Are you willing to believe other rumors but not these? In any case the facts show, until proven otherwise, that there is indeed a red line !

    PS: you didn't respond to my message :(
    Reply
  • fatpunkslim
    @Jez Corden i 've a gift for you:
    Microsoft annual report 2024first seen on tweaktown
    Microsoft says that exclusive games and content are still important for the Xbox brand and is one of the main metrics used to determine gaming growth.

    I quote this annual report
    "Xbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base.

    "Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising.

    "Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences."

    Read more: https://www.tweaktown.com/news/101325/xbox-exclusives-are-still-important-for-microsoft-and-used-to-determine-growth-in-gaming/index.html
    there is clearly a difference between Nadella's mega-simplified speech and the facts in practice.

    thank you for your next tweet on this subject!
    Reply
  • johnnypop
    I'm sure the thousands of people laid off by Microsoft are very happy for their former CEO.
    Reply
  • fjtorres5591
    fatpunkslim said:
    @Jez Corden i 've a gift for you:
    Microsoft annual report 2024first seen on tweaktown
    Microsoft says that exclusive games and content are still important for the Xbox brand and is one of the main metrics used to determine gaming growth.

    I quote this annual report

    there is clearly a difference between Nadella's mega-simplified speech and the facts in practice.

    thank you for your next tweet on this subject!
    There is also his testimony in the FTC trial:

    "If it was up to me, I would love to get rid of the entire sort of exclusives on consoles, but that's not up to me to define," Nadella said. "Especially as a low share player in the console market that the dominant player there has defined market competition using exclusives, and so that's that's the world we live in... I have no love for that world."

    The console gaming war of exclusives and paying developers not to support XBOX is Sony's strategy because it is quicker and cheaper to block XBOX support than developing more games inhouse.

    For some reason, the FUD merchants in the gaming media see that as fine and prefer that MS unilaterally "disarm" and give up their best tools to effectively compete against the dated short term thinking Sony relies on.

    I have no doubt that some of the staff of the studios that MS has would prefer that XBOX vanish and simplify their work lives. Not going to happen.

    Franchises that are traditionally XBOX signature exclusives it is extremely unlikely to see them on playstation as long as Sony seeks to starve XBOX of third party support. It might happen but first Sony needs to earn that support by ending their anti-competitive practices. I do not see that happening any time soon.

    There might appear to be an opportunity to suck some money off the PlayStation customer base by going multipart on the signature exclusives but that is short term thinking, sacrificing long term strategic tools for the illusion of next quarter profits. Kotick would do it but Nadella and Spencer don't work that way. Their game is stable long term revenue not trying for a quick buck before sony gets their game pipeline refilled. Which is already going on via third party exclusives.

    It is a fool's game trying to compete fairly against an anticompetive operation.
    Nadella has never been a fool before. i doubt he'll start now.
    Reply
  • Kjw24
    Bit over the top negative. I just don't see how people go make a profit off of AI. A lot of hype and that's about it.
    Reply
  • fjtorres5591
    Kjw24 said:
    Bit over the top negative. I just don't see how people go make a profit off of AI. A lot of hype and that's about it.
    You sure this is the right thread?
    In the right thread you might get a hundreds agreements.
    Somebody 'round here is waayyy too invested in yelling at the wind.

    BTW, there's two ways people make money off "AI": one, legit, is by helping companies create LLM/SLM software to mine/manage their inhouse big data hoards. That is real, profitable for both sides, and never going away.

    The second, is by promoting hype, and debunking it vigorously with clickbaity headlines.
    Reply