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The Satya of Satya’s Layoff Memo
To paraphrase Sigmund Freud, sometimes a memo is not just a memo. That’s why we have to read between the lines of Satya Nadella’s 1,150-word memo. Microsoft’s chairman and CEO, in his message, tried to rationalize the 9,000-employee layoff. I was interested in how he was positioning the AI-based disruption in the software industry.
This memo is not just about Microsoft. In a way, it’s a weather forecast for the rest of the software industry, which must confront the reality of artificial intelligence. Just as rapid automation transformed the industrial economy, we’re poised to see the same with the digital economy. The software business, as it stands today, will bear the brunt of AI’s impact.
Here’s a breakdown of what Nadella’s memo—which may appear to be a pastiche of corporate doublespeak—is trying to convey. Let’s begin with the paragraph that has received the most attention.
By every objective measure, Microsoft is thriving: our market performance, strategic positioning, and growth all point up and to the right. We’re investing more in CapEx than ever before. This is the enigma of success in an industry that has no franchise value. Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding. But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before.
In a more traditional industry, such as healthcare, it would be akin to saying: We are making a ton of money, but we’re going to layoff nurses and replace them with machines. Or a CEO of a steel factory saying, “Sure, we’re making profits, but we’re going to layoff workers because we’re on the cusp of smart manufacturing.”
Nadella is trying to reconcile two seemingly contradictory realities: How can a company be “more successful than ever” while still eliminating jobs? His narrative framework attempts to make the brutal reality of our AI-driven future psychologically tolerable.
This narrative framework captures the harsh reality that AI, in theory, will make companies more profitable while employing fewer people. It’s great for shareholders but not so good for those who work for technology companies like Microsoft. Satya, and other corporate leaders can’t really say that, so they resort to verbal obfuscation.
The phrase “enigma of success in an industry that has no franchise value” is another bit of rationalization at work. At best,it’s a psychological sleight of hand, as much for himself as for his audience. Nadella’s comparison of the current shift with the 1990s PC revolution is very calculated. It stirs excitement and fear of missing out, while simultaneously normalizing the idea that major technological shifts require human casualties.
Sure, they do.
Having read the memo several times, I attempted to translate what the memo stated and what it actually meant.
- The “transformation is messy but exciting” narrative attempts to reframe the trauma of layoffs as an opportunity. It’s a way to make the current employee base feel less anxious while also feeling special for being part of something historic.
- When he says, “The success we want to achieve will be defined by our ability to go through this difficult process of unlearning and learning,” he’s attempting to shift attention from the immediate challenges to future possibilities. However, this approach glosses over the harsh reality: The pain of today and near future will be brutal.
Microsoft’s leader is essentially saying they laid off employees not due to financial struggles, but because those workers didn’t fit into the company’s AI-focused strategy. The repeated mentions of “unlearning” and “learning” suggest that some employees’ skills have become outdated. Rather than invest in retraining, the company opted to hire fewer workers with more relevant expertise.
When Nadella uses the phrase “learning,” it isn’t inspirational. It’s a warning disguised as motivation. This harsh reality will confront many employees.
Like I said at the start, this is not just about Microsoft, but pretty much every software company will be hit hard by this wave of transformation. If you’re an employee at Microsoft (or any other software company), the reality is that you’re only valuable if you have perceived value in the company’s AI transformation. In other words, adapt, and adapt quickly. Because if you don’t, well, you’re on your own.
The Microsoft memo portends the new reality of the technology industry. For years, the sector has been generous to its employees, offering unheard-of perks and placing a premium on skills such as software development. AI, however, inverts that relationship. As a result, we now face a different set of parameters.
- Loyalty has become a one-way street: Employees must be committed, but technology companies owe only “opportunities,” as and if they deem necessary.
- Layoffs will be used for strategic positioning, regardless of a company’s financial health.
- Profit provides an opportunity to invest in transformation, which sometimes involves eliminating jobs.
Don’t be surprised if normalization of profitable layoffs becomes the next big Silicon Valley export to broader economy.
That’s really the satya (truth) of Satya’s memo.
July 26, 2025. San Francisco.
Brilliant analysis but we’ve come to learn to expect that from you, Om.
The email was as much a Mea culpa as it was aimed at the investment community. It wasn’t just doublespeak, it was written for multiple audiences. AI likely helped make that easier.
Andy
Thanks for the note. I always ask the question — why — is someone doing something. More you think about it, the more you think this is just the start of what is to come in a few months across the board.
I am going to do a John Gruber here. Mark this memo for future fodder. While some things AI have value, most are what I would call complete garbage. Many will fall when the shine wears off and we find ourselves in a world of AI slop, no jobs, and no way out but down.
Bob,
AI (as we know it) is for real. It is good at automation. And frankly, the bespoke nature of software industry makes it ripe for automation. I have no idea what “singularity” or “sentience” looks like, but software is going to be automated, and fast. You can see how much it is working at a low-level. Claude Code is a good tool to experiment.
That said, so many of the AI concepts are just non-sensical. Redressing the past ideas for AI (automation) age and this new way of “interacting” with software/computers will not work. I am excited for new ideas to emerge.
I think you missed the encoded language. The limiting factor everyone is talking about right now is compute. Which is synonymous with CapEx. What he’s saying is they’re trading away labor (through layoffs) so they can spend more on infrastructure for compute.
“More you think about it, the more you think this is just the start of what is to come in a few months across the board.“
This is what people have been warning about since 30 minutes after ChatGPT was publicly launched.
Every time someone brought it up, they were met with a chorus of “don’t be such a naysayer” statements.
You’ve always been great at reading the tea leaves, amigo. Don’t pretend this is some suddenly visible new insight. We all saw this coming. Now we just have to hang as a new existence is defined.
Well, the wolf is at the door. And now a major Ceo is publicly admitting it but doesn’t want to use blunt talk.
The only thing I would dispute in the analysis is that I would think it’s been pretty clear for a long time that loyalty is one way in business period. All the companies that tried to have more of a two way street got their CEO fired (thinking of Jet Blue for example). And considering all the other round of layoffs Microsoft, Google, and Amazon have done, it’s always been the bottom line that is important.
Everything else in it was spot on. The curious question is whether this will give them edge or whether it drops the cost of start ups by so much, they face disruptive innovation.
Paul
There is no disagreement from me. I do think tech companies in the recent past and during boom times have given the perception of being kinder, gentler and more giving than their real world counterparts. It is obviously BS 🙂
“ Loyalty has become a one-way street: Employees must be committed, but technology companies owe only “opportunities,” as and if they deem necessary.”
Perfect. Brilliant restating of a bullshit corporate doublespeak memo. Thank you.
Thank you Ray.
Thank you for the excellent insights in deciphering the memo lines and betweens. Questions:
1) Any prognosis for productivity increases translating into customer/consumer savings vs. only enjoyed by shareholders?
2) Is AI truly going to be less expensive than humans? Powerplants are pretty expensive…
Mona
I will answer the #2. My bet is that this will change. Just as we changed towards more efficient and power-intelligent computing on the desktop and mobile, we are going to see improvements. I think DeepMind (flawed as it might seem) was a good indication that we have not really explored efficiency of systems, power management and other techniques. Most of these companies are being lazy as they are flush with money. We saw this movie play out when fiber networks emerged. Later, things evolved.
I don’t quite have a comment on #1 just yet.
Om Malik, on learning – what should one learn in order to adapt? Please comment.
Boaz
I might have to think about it. From a personal perspective, I have been working on learning to use these systems to help me do my work faster, and become more efficient. Just the “search” alone is a massive time saver. However, as a former reporter, I am more equipped to adapt, adopt new personas and ask better questions of the systems. I am also a natural born skeptic, I tend to question what I am told more often and that is why I have been able to adopt “LLMs” a bit better in my workflows.
Saying you’re a natural born skeptic doesn’t really jive with “AI (as we know it) is for real”.
Excellent analysis Om.
As an investor, these companies doing so much more with fewer people is very profitable. I just charted Microsoft revenue (going way up), against number of employees (flattening the last few years).
As a member of society, this is going to be very rough on many people: I read the big 4 accounting firms are hiring 40% fewer graduates.
As an AI user: writing a GPT that can help find profitable stocks, write a business plan, provide care instructions for my garden, etc, etc. – is beyond remarkable.
And no, it’s not a 100% solution. But it gets you 85% there in minutes.
Jim
Good points. I think we need to see how much improvement is possible in the years to come in these so called AI systems. That to me is the key. I know that things are very different from the time ChatGPT launched and what I can do with it is amazing. I think the speed of change has accelerated a bit
I wrote this in 2011, long before AI was a thing, and I think it holds up.
It’s called “John Henry in Dilbert’s Cube.” https://danablankenhorn.com/2011/05/john-henry-in-dilberts-cube.html
Hi Dana
Thanks for sharing this
I’m curious what internal metrics lead to this. It doesn’t look like Microsoft has accelerated delivering new products and features to the rate where engineering is far outpacing the product team’s capacity to design. So are these people dinosaurs who wouldn’t get with the program? How do they measure that internally?
I’ve been looking for analogies to explain my experience with coding assistants to non programmers. It’s a meaningful speedup but not a replacement. Think of an accountant going from doing spreadsheets with a calculator and pencil (like they did in the 70’s) to using Excel. Or an architect moving from a pen and ruler to CAD. It’s a new tool for interacting at the lowest level, but you still need to know what’s needs to be done and what the ramifications of it’s decisions are.
Ok. I’m going out on a limb here – layoffs are a fact of life where I grew up. I invite anyway to join me in the Hot Tub Time Machine (if we could find it) and journey back to Pittsburgh, PA circa 1980’s. It was brutal. Not just for steel workers but all the supporting industries. Sorry for sounding like a hard nosed idiot, I do feel for anyone that gets laid off. But been there, done that.
At least they had some random excuses. Now they are not even trying to make an excuse. This is what is my summary.
And yet, after 50+ years in the systems business, and who, most who know me will agree, is a serous programmer with more than 40 patents and 4 startups, I was faced with a challenge. Some code I wrote years ago broke. I tried to figure out how to fix it, and the solution evaded me because a website changed its architecture, and not being a web page guru, I couldn’t figure out a good solution. So, after a suggestion from a nephew, I asked ChatGPT to rewrite my program from scratch. After some obvious bugs which were easy to fix, it worked. And I asked it a different way, to changes some assumptions, and after some additional buggy solutions, it worked again. It was a real win. Saved me a lot of time.
I think that is a great example. I have personally been building small things I could have never imagined. So tells me that there is a lot more room for this to improve. Thank you for the comment Ike.
Excellent, Om. We are building the “perfect profit machine” and it will be brutal in its efficiency.
It is hard for build a profit machine when profit is concentrated in a singular entity. That profit doesn’t grease the society and you ultimately end up with a much smaller economy and this eventually much smaller profit machine. This will be interesting to watch play out.
Great analysis as always. The thing that struck me most was the explicit tradeoff between the fixed capex requirements for building data centers and infrastructure to support AI versus the variable costs of employing people. Right now it feels like infrastructure spending requirements and putting pressure on the opex side of the business for everyone building in AI.
All these comments talking about seeing this coming, and yet you and most people are still using AI tools and giving the companies more money to push their agendas. This only stops causing people pain if the people who see it stop using the stolen work of others and pay soneone to help them. When you use an AI tool you’re helping yourself at the expense of others. Just say no and think for yourself. And help loft others up by hiring them. Or better yet: don’t build something that really doesn’t need to exist. And instead consume less and live more.
I’ve been thinking about this recently and came across the below while reading warfighting. It summarized my belief that no matter what it comes down to people. History has examples of organizations equipped with superior technology being bested by small groups with inferior technology.
MCDP 1 Warfighting
Second, since we have concluded that war is a human enterprise and no amount of technology can reduce the human dimension, our philosophy of command must be based on human characteristics rather than on equipment or procedures.
Thanks Danny. Might be worth checking out for me as well.
There is an excellent article – I’ll go look for it – on the history of war. Afghans against Russia / against America, Mongols against early China, Vietnam conflict. It also talked about modern engagements in the Middle East. Complex / technologically advanced weapons (tanks, helicopters) failed in field, with the AK and the warthog playing major roles in engagements. Even modern communications were outperformed by legacy communications. I’ve used this paradigm when competing in the field with other sales teams.
As someone who worked in the legal profession but is now retired, I can see this process playing out over time in so many fields. Why pay someone mid-six figures or more when AI can do the same work far more quickly and inexpensively.
So this framing is completely generalizable.
When Nadella uses the phrase “learning,” it isn’t inspirational. It’s a warning disguised as motivation. This harsh reality will confront many employees.
There are some aspects of the legal and other white collar work that can be automated, and accelerated. That is going to really lead of “compression” of the number of bodies needed to achieve at least the “rote” aspect of work. It is going to be a very brutal reassessment of human worker value. It is scary, but it has been long time coming.
I live in the Seattle area & I have several friends that are now “former” employees of Microsoft. It’s going to be scary to see what happens to the local tech community as this trend continues here in the NW & across the country.
Dean
I feel for them. If anyone wants to talk, please send them my way.
“Loyalty has become” one sided; it has been my whole 40-year career.
In tech there has been perception of being a two-way thing. Or at least that is the nonsense they talked about at conferences and recruiting pitches. It was always – tech is different. Blah blah.
So yes you are right
Om, I think we differ wildly on this!
Satya is part of an ever growing portion of big tech who have lost the horizon line and seem no longer tethered to anything fundamental about products or business. While AI is certainly a useful way to gain insights and reformat huge amounts of data, it isn’t replacing anyone’s job and the degree to which so many people are just willing to leap into the void without any hard data whatsoever is the perfect mirror of people who now treat headlines as “news.”
In my mind there are two ways of interpreting this memo, neither particularly flattering. One, Satya has realized that the bloat of MS has been happening for 30 years and only exacerbated by financial success so it is time to actually have a workplace that isn’t overstuffed with people having meetings (something I first witnessed at Excite@Home). And using the guise of AI (not the result of AI), they can clean it up with less abandon than Elon did at Twitter/X.
Or two, that Satya really isn’t very bright and is somehow mesmerized by Altman’s Grima Wormtongue impersonation about AGI which is all non-sense. But mostly with all that free cash, we’ve got titans putting chips in with zero discipline and invariably the shoes will drop, Nvidia will plummet like Sun Microsystems and we’ll have some reasonably better ways of organizing data with a whole new messy soup of externalities.
Tech today is best seen by a this line from Joyce , “the men that is now is only all palaver and what they can get out of you.”
🎤
all those ceo want to replace humans will machines.
then, they will all make a surprised pikachu face when there is no one left to buy their products.
and around and around we go. I’m not surprised to see this happen but the human cost is always chilling to read about each time. thank you for covering this.
I think this is a result of as you say automations, and also heavy investment in AI and now big tech has to eat there own dog food in order to show AI is increasing efficiency.
The infrastructure investments are part of the overall tactics. There is nothing wrong with spending your capital on bulking up your infrastructure and capabilities. I think when contextualized by layoffs, well that’s a different story all together.
[trivial typo?] “… In industry, which mustconfront the reality of …”, would you like to buy a space?
[trival typo] “but we’regoing to” could use a space.
Microsoft is now “unburdened by what has been.”
The CEO’s memo is too many words long; it should be more direct. It is disrespectful to all employees but especially to those loosing their employment / careers with Microsoft.
Agreed. However, we live in the golden age of corporate BS. So we shouldn’t be surprised.
It is not an easy task to decipher these memos. I have tried many times and mostly failed, lol. This one was a tad more revealing than usual and you nailed it
7 months ago, Nadella said it pretty straight forward:
“Our total people cost will go down, our cost per head will go up, and my GPU per researcher will go up.”
Here is this exact moment: https://www.youtube.com/clip/UgkxAY85J7sJO7gcd9jzzm_OQGX4dXIGGTU3
Thanks for sharing this.