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How Microsoft Plans to Beat Google and Facebook to the Next Tech Breakthrough

The company behind Windows and Office is remaking its research arm to ensure its greatest inventions actually find their way into people’s hands.

At a Microsoft executive retreat during his first month as chief executive officer, Satya Nadella saw a research project that captured his attention. The demonstration in February 2014 used speech recognition and artificial intelligence to translate a live conversation into another language. Nadella told the team he wanted the tool combined with Skype and ready in time to show off at his first public speech three months later.

This is not how Microsoft typically works. As Nadella, a 24-year veteran of the company, would have known, the process of turning a Microsoft Research project into a product would often happen slowly, if at all. That's partly by design. The company's research group was set up in isolation from the product teams to allow researchers to envision the future without worrying about how their inventions will make money or fit into the company's mission.

Photographer: Matthew Busch/Bloomberg
Satya Nadella.

But Nadella's tight deadline left executives with no time to debate the separation of church and state. "We did not have a formal team working on this when he made that statement," said Lilian Rincon, the Skype group program manager. So they assembled one and immediately went to work on what would eventually become Skype Translator.

Without Nadella's direct intercession, the translation work might have amounted to little more than a talking point among academics. While Skype Translator would set an important precedent for the company, relying on the CEO to personally vet every lab project isn't a sustainable business plan. That's why Microsoft is overhauling its research arm and the way it works with the rest of the company. The goal is to quickly identify technology with the most potential and get it into customers' hands before a competitor replicates it.

To break down the walls between its research group and the rest of the company, Microsoft reassigned about half of its more than 1,000 research staff in September 2014 to a new group called MSR NExT. Its focus is on projects with greater impact to the company rather than pure research. Meanwhile, the other half of Microsoft Research is getting pushed to find more significant ways it can contribute to the company's products.

Besides Skype, other services that have benefited from the recent transformation include cloud productivity tools in Office, faster and more power-efficient servers running Bing, and the augmented-reality headset HoloLens. The latest to come out of this initiative is a new feature for Cortana. Microsoft plans to release an update to the digital assistant on Monday that relies on work from the corporate research group. It will give Cortana...


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