Microsoft began planning a major replacement for all of its operating systems in 2001. The project, code-named Longhorn, encountered numerous delays, in part because of efforts to address the public’s growing concern with computer security and consumers’ desire for PCs to have greater integration with a full range of entertainment equipment within the modern electronic home.

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Microsoft Corporation chairman Bill Gates introducing the Windows XP operating system at a news conference in 2001.

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The company started over, and the new operating system, renamed Vista, was released to other software developers late in 2006 and to the general public in 2007. Like most new operating systems, Vista met with initial problems involving incompatibilities with older computer peripherals. More problematic for the new operating system was its “bloated” structure, which required a very fast microprocessor and large amounts of dedicated computer memory for proper functioning. Its high threshold for adequate system resources deterred many companies and individuals from upgrading systems from earlier, and perfectly serviceable, systems such as Windows XP (derived from the term Windows experience). In addition, consumers were baffled by the numerous Vista options—Home (Basic or Premium), Ultimate, Business, and others—while business users (Microsoft’s core market) balked at its major change to the user interface and were unwilling to port their internal applications to the new system.

Microsoft’s corporate users had other reasons to stick with Windows XP. Though still problematic compared with other operating systems, XP was significantly more secure than its predecessors. XP was also faster and much more stable than Windows 95 or 98, and it ran tens of thousands of software programs written specifically for it, which made business users reluctant to switch operating systems. It can be argued that customer satisfaction with XP is what killed Vista among business users. PC makers, who were contractually required by Microsoft to ship products with Vista, were compelled to offer downgrades to XP, and user appreciation even compelled Microsoft to extend its official support of the older OS through 2014, three years beyond its normal support policies.

Adding to Microsoft’s OS problems was increased competition in the marketplace. Apple’s Mac OS X, riding on the huge success of the iPhone and iPod consumer products, grew in popularity. Linux, long an operating system for the technically adept, began to appear in more user-friendly versions, such as Ubuntu, and by the end of the first decade of the 21st century, Linux had captured one-third of the growing low-cost netbook market. Yet, despite its problems in the marketplace, Microsoft remained the dominant supplier of operating systems. Windows held a worldwide market share of 86% to 92%, depending on the research analysis.

With the release in 2009 of Windows 7, the replacement for Vista, to critical praise by reviewers and analysts, Microsoft’s lead remained intact. In 2012, the company released Windows 8, which offered a start screen with applications appearing as tiles on a grid. Windows 10, released in 2015, featured Cortana, a digital personal assistant capable of responding to voice commands (as did the iPhone’s Siri), and a new Web browser, Microsoft Edge, which replaced Internet Explorer.

In 2021, Microsoft released Windows 11, which featured a redesigned Start menu and faster operating speeds. In 2023, the company began introducing Copilot, a generative artificial intelligence assistant that uses large language models to respond to user commands and generate content. Integrated into Windows, Microsoft 365 (including Word and PowerPoint), and Bing, Copilot can perform tasks ranging from drafting documents to creating spreadsheets. Microsoft also phased out Cortana, its earlier virtual assistant.

Early reactions to Windows 11 were mixed, especially regarding its design and compatibility. But as Microsoft prepared to end support for Windows 10 in October 2025, more users began upgrading. By mid-2025, Windows 11 had become the most widely used version of the Windows operating system. Microsoft also began making improvements to the interface in response to user feedback, including updates to the start menu and taskbar to make them more customizable.

In the 2000s Microsoft’s continued OS dominance and its quick recovery in the “browser wars” did not repeat itself in the search-engine market, where Microsoft’s search engine, Live Search, trailed well behind those of Google Inc., the new industry giant, and Yahoo! Inc., the established Internet portal. Microsoft hoped to change the market dynamics with the release in 2009 of Bing, a “decision engine” designed to display more retrieved information in search pages than was typical, thus enabling better-informed decisions concerning what links to follow or, in some cases, displaying enough information to satisfy the original query.

In 2008, Microsoft offered to buy Yahoo for $44.6 billion, but the proposal was rejected by Yahoo. Still, negotiations between the companies continued, and in 2009 an agreement was reached in which Yahoo would use Bing for its website and would handle premium advertisements for Microsoft’s website. The deal was continued with some modifications (giving more flexibility to Yahoo) in 2015. Microsoft followed up the agreement with Yahoo by licensing search content from Wolfram Research, makers of the Mathematica-powered WolframAlpha scientific search engine.

On another front in its competition with Google, Microsoft moved into cloud computing, where application software and data storage are provided by centralized Internet services and are simply accessed by users through their local PCs. Microsoft’s first move was with its Windows Azure (since 2014, Microsoft Azure) platform, announced in 2008 and launched in 2010. Azure lets service providers or businesses build computing infrastructure in the “cloud” and then offer the infrastructure as services to users. In 2011, Microsoft released Office 365, a cloud version of its highly profitable Office business software suite (comprising Word, Excel, PowerPoint, Outlook, and OneNote) that includes services and features similar to those of Google Docs.

In 2011, Microsoft bought the Internet voice communication company Skype for $8.5 billion, which at that time was the largest acquisition in Microsoft’s history. Microsoft added Skype to Xbox, Outlook, and Windows smartphones. The Skype acquisition placed Microsoft in competition with Apple’s video-chat service FaceTime and Google’s Internet communication service Voice. In 2016, Microsoft made an even larger acquisition with its $26.2 billion purchase of the career-focused social networking company LinkedIn.

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Steve Ballmer’s tenure as CEO saw Microsoft expand beyond its Windows and Office businesses.

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In 2000, company cofounder Gates relinquished his role as CEO of Microsoft to Steve Ballmer, whom Gates had met during his brief tenure at Harvard University in the 1970s. He handed over the title of chief software architect in 2006 to Ray Ozzie, a chief developer of the computer networking package Lotus Notes in the 1990s. In 2008, Gates left the day-to-day running of the company to Ballmer, Ozzie, and other managers, though he remained as chairman of the board. Ozzie stepped down in 2010, and longtime Microsoft executive Satya Nadella replaced Ballmer as CEO in 2014.

Microsoft maintained its dominant position in operating systems and productivity software following Gates’s departure from day-to-day management, while expanding its presence in consumer markets, including video gaming.

In 2012, it introduced Surface, a line of hybrid tablet computers with hardware designed by Microsoft itself, a first for the company.

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Satya Nadella became Microsoft’s third CEO in 2014, succeeding Steve Ballmer.

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When Satya Nadella took the helm as Microsoft’s CEO in 2014, the company’s market capitalization stood at about $300 billion. By 2024, Microsoft’s market cap had increased to more than $3 trillion. In July 2025, it surpassed $4 trillion for the first time, driven in part by strong earnings growth and investor confidence in the company’s AI strategy. Microsoft became only the second publicly traded U.S. company to reach that valuation, after NVIDIA (NVDA), which hit the same milestone earlier that month.

Under Nadella, Microsoft expanded its Azure cloud computing business and shifted more of its software products to cloud-based subscriptions. In fiscal year 2014, commercial cloud services generated $2.8 billion, accounting for about 3% of Microsoft’s total revenue. By fiscal year 2025, the broader Microsoft Cloud business generated $168.9 billion, or 60% of the company’s total revenue. That figure rose 27% to $214.4 billion in fiscal year 2026.

In 2019, Microsoft invested $1 billion in OpenAI, beginning a partnership that would become central to its artificial intelligence strategy. OpenAI introduced ChatGPT in November 2022, bringing generative AI to a broad public audience and accelerating Microsoft’s efforts to incorporate the technology into its products and services.

In October 2026, Microsoft offered voluntary buyouts to 60,000 employees, more than a quarter of its global workforce, as the company increased spending on AI and the data centers needed to support it. The offer followed an earlier buyout program in May and the elimination of 4,800 positions in July.

There are many books about Microsoft, including biographies of its founders, such as the critically minded James Wallace and Jim Erickson, Hard Drive: Bill Gates and the Making of the Microsoft Empire (1993); and the more even-handed Stephen Manes and Paul Andrews, Gates: How Microsoft’s Mogul Reinvented an Industry and Made Himself the Richest Man in America (1994). More gossipy than insightful is Frederic Alan Maxwell, Bad Boy Ballmer: The Man Who Rules Microsoft (2002). Although decidedly biased, Bill Gates, The Road Ahead (1995), provides an insightful look at how Microsoft slipped and then regained its footing in marketing and building products in the Internet era. Gates followed that book with Business @ the Speed of Thought: Using a Digital Nervous System (1999), in which he advocates that virtually all companies must dive deeply into all aspects of digital technologies and communications to perform better in markets. Joel Brinkley, U.S. v. Microsoft: The Inside Story of the Landmark Case (2000), is a detailed look into the company’s domestic antitrust problems. Mary Jo Foley, Microsoft 2.0: How Microsoft Plans to Stay Relevant in the Post-Gates Era (2008), speculates on Microsoft after Gates, focusing mostly on the company’s major product lines for business users, though it offers little insight into the company’s efforts to woo consumers. Satya Nadella, Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone (2017), by Microsoft’s CEO from 2014, outlines Nadella’s vision of the technological future and argues for the value of empathy in corporate culture.