Satya Nadella believes Microsoft needs to completely rethink its business model for the AI era, and he’s turning to an executive who influenced the company’s cloud reboot 15 years ago.
Nadella tapped Rolf Harms as an advisor on AI economics to help with the ambitious plan, according to a memo the CEO sent top Microsoft executives this month.
Harms wrote the white paper “Economics of the Cloud” in 2010 that helped force a cultural reckoning at Microsoft and pave the way for the company’s cloud-computing success.
“We need to rapidly rethink the new economics of AI across the company — just as we once did with the cloud,” Nadella wrote this month in his message, a copy of which was obtained by Business Insider. “This platform shift is all about building a new AI factory and family of Copilots and agents that drive diffusion and usage across the full stack.”
AI companies are facing mounting questions over whether massive infrastructure investments will pay off. Microsoft took its foot off the AI spending pedal earlier this year, helping to stoke these concerns. However, in recent weeks, the company has doubled down again through huge new deals with OpenAI and Anthropic.
The dynamics were similar in the early days of the cloud. Back then, big tech companies spent heavily to build data centers even though the payoff was uncertain, as some observers worried whether customers would adopt the new technology.
The 2010 missive Harms coauthored “had profound impact on how we completely rethought our business models,” Nadella wrote in the early November memo to Microsoft executives.
The white paper was considered a watershed moment in cloud computing, and helped make the case for Microsoft’s investments by crunching the numbers to show why customers would eventually use large-scale cloud services to save money despite concerns about security and availability.
At the time, people at Microsoft complained to Harms that he was “throwing bombshells into their org,” according to Nadella.
“His response was, ‘they’re already there, I’m just helping you find them,'” Nadella wrote. “And this is the same mindset we need to take today as our business becomes much more capital and knowledge intensive.”
AI will require a similar reboot, the CEO wrote, and he’s expanding Harms’ role to include working closely with Nadella and Microsoft’s top executives, advising them on how to adapt to the new economics of AI, from infrastructure to platform technology and applications.
Harms was a director of corporate strategy when he coauthored the 2010 paper. Business Insider featured him in a 2021 article on the power players helping Microsoft with AI.
Now Harms works under Cloud + AI boss Scott Guthrie as a corporate vice president. Harms will continue to report to Guthrie.
Harms’ “new scope will extend beyond AI Infra as we take a new approach and gain a clear understanding of how existing categories will be transformed and new categories will be birthed as we navigate this shift,” according to Nadella’s memo.
Microsoft did not comment when asked about the memo.
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