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Microsoft sells software and cloud computing services that help people work, play games, and run their businesses.
Microsoft is the company behind the software most of the world's offices quietly run on. Its biggest business today is renting out computing power over the internet through its Azure cloud, which companies use to run their websites, store data, and train AI models. Sitting on top of that are the tools people actually touch: Windows, the operating system on most PCs; Microsoft 365, the subscription bundle of Word, Excel, Outlook, and Teams; and LinkedIn, the professional social network. It also sells the Xbox console and games, though that's a smaller slice.
The money works like this. Instead of buying software once and owning it, customers now pay Microsoft a subscription every month — per employee, per user, per gigabyte of cloud storage. That steady rental model is the engine of the whole company, and it's why Microsoft is one of the most reliably profitable businesses on earth. In its most recent fiscal year it pulled in roughly $245 billion in revenue. The genius move was the shift from selling software in boxes to renting it over the internet, a transition that started under CEO Satya Nadella in 2014 and turned a mature company into a grower again. Its relationship with OpenAI, the maker of ChatGPT, is the thing to understand right now. Microsoft plowed billions into the startup and, in exchange, got early access to its models and the right to resell them through Azure. That gamble made Microsoft look like the smartest company in tech when AI exploded, and it now sells AI tools across its products. But the partnership has grown complicated — Microsoft has since loosened the exclusive ties, and OpenAI has cut deals with rivals like Amazon and Oracle, so the cozy arrangement is no longer quite so cozy. The competitive picture is a heavyweight fight. In cloud, Microsoft scrapped with Amazon Web Services to become one of the two giants, with Google a strong third. In workplace software, Google's Workspace is the main challenger. What keeps Microsoft on top is the sheer stickiness of its products: once a company runs its email, files, and cloud on Microsoft, ripping it out is painful and expensive, which gives the company enormous pricing power. Regulators in the US and Europe have taken notice, scrutinizing the OpenAI ties and how Microsoft bundles products.
In 1975, two friends, Bill Gates and Paul Allen, started a company with a made-up name: Micro-Soft, a mashup of microcomputer and software. Their big idea was to write the programs that made those early machines actually do something. They wrote BASIC for the Altair, the first personal computer, which was the spark that got the whole thing going.
A few years later, IBM released its first personal computer, and it ran on Microsoft's MS-DOS. That one deal made Microsoft the go-to supplier of operating systems for personal computers, a position that would define the company for decades.
When Microsoft went public in 1986, the shares started at $21 and jumped to $35.50 by the end of the first day. The offering turned an estimated 12,000 employees into millionaires. The company was no longer just a scrappy startup; it was a money machine.
Windows 3.0 launched in 1990 with a graphical interface and multitasking, and it caught on in a big way. By 1993, nearly 90% of the world's PCs ran on a Microsoft operating system. The company had become the standard.
In 2000, Bill Gates stepped down as CEO and Steve Ballmer took over. That same year, a U.S. judge ruled Microsoft had violated antitrust laws and later ordered the company to be broken up. An appeals court reversed the breakup in 2001, but the legal fight had rattled the giant.
In 2014, Satya Nadella was named CEO. He doubled down on the company's cloud efforts, a bet that would reshape Microsoft's future.
In 2016, Microsoft acquired LinkedIn for $26 billion. The deal deepened Microsoft's reach into professional networking, adding a new layer to its business.
In 2023, Microsoft completed its $68.7 billion acquisition of Activision Blizzard. The deal expanded Microsoft's video gaming business and the Xbox brand, a big bet on a different kind of software.
In early 2026, Microsoft shares fell about 10% in a single day, wiping out $357 billion in market value. Investors were worried about soaring AI capital spending and slower Azure growth, with 45% of Microsoft's $625 billion backlog tied to OpenAI. The company's huge AI bet suddenly looked risky.
In fiscal Q1 2027, Azure revenue surged 48% to $33.17 billion, and Microsoft Cloud revenue topped $50 billion. Microsoft generated $18.6 billion in free cash flow as AI investments showed returns, easing fears over its heavy AI spending. The bet was starting to pay off.
Microsoft throws off mountains of cash — well over $70 billion in a recent year — and it spends it aggressively: building huge data centers for AI, paying a small dividend, and buying back its own stock. It even paid about $69 billion for Activision Blizzard in 2023 to bulk up its gaming arm. That's the picture: a mature company that found a second act by renting out the brains of the AI boom.
Saved answer · last researched 20 Oct 2026