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#NRF2020 Keynote: Microsoft CEO insists retailers must be technically independent to survive

Satya Nadella, CEO of Microsoft, used his opening keynote at NRF: Retail's Big Show in New York City on January 12 2020, to advocate for tech intensity and tech independence for retailers. He also called for retailers to build their own online advertising business to increase gross margin. 

Microsoft’s mission, Nadella told the audience, is to help retailers to build their own tech intensity and tech independence. The term ‘tech intensity’ is “tech adoption X tech capability ," explained Nadella. “[Retailers] need to use digital to take what they’ve always done to the next level… Capability around tech intensity underlines all of this. Every retailer will need to build their own tech intensity – reinforcing the core excellence of retail with this tech intensity. You don’t want to fall behind, you don’t want to reinvent the wheel,” he said. 

Taking pride in digital capability is key to success for the retail industry, Nadella advocated. “Retailers need to build and importantly trust their own digital capability. They have to build trust with consumers through security, privacy and ethics around artificial intelligence.” 

It’s important that retailers aren’t putting a growing dependence on technology companies and communities to advance this mission, explained Microsoft’s CEO. Instead, “it’s about enabling them to build their own independence when it comes to the tech mission,” Nadella insisted. 

Nadella also used his time on stage to recommend that retailers build their own digital commerce marketing platforms and capabilities. “Strategy around digital commerce marketing is one of the biggest strategic decisions we collectively have to make,” he said. “Online advertising is a monopoly. There’s death, there’s taxes and there’s ever-increasing online marketing spend.” 

"If all you’re doing is allocating online advertising elsewhere and not creating a new revenue stream, you will not have the gross margin to meet the needs of your customers"

Nadella’s suggestion was to change that dynamic. “Depending on the decisions we make now, there is something we can do about [ever-increasing marketing spend]. We have to change the dynamics here. You have the real data. As retailers, you have the most valuable assets, which is commercial intent consumer behavioural data. The question is, how can you convert that to your marketing efforts into effectively new online advertising channels. This, to me, is how you can reshape retail and retail business models.” 

Nadella advocates for retailers to “build their own online advertising business, their own digital commerce business.” He uses Home Depot as an example. Home Depot is the fifth largest eCommerce site in North America, with two billion annual visitors. “They are now using this engine to build their own online digital commerce marketing."

He added: “Every brand or supplier who is tired of dealing with these online channels can now work with you, in a deep partnership. Think about all of these folks working with you, tuning their own campaigns, tuning their spending to be able to get more effectiveness. For you, this is going to be the highest gross margin business model across what you do, and you need it because consumer expectations are only increasing. 

“You can be doing amazing things, but if all you’re doing is allocating online advertising elsewhere and not creating a new revenue stream, you will not have the gross margin to meet the needs of your customers.” Nadella believes this model will also make brands and suppliers happier because not only does it increase engagement, but “they have more channels to allocate advertising dollars to. They will no longer just have the choice of one or two channels with ever-increasing prices".

Nadella considers this “a super important initiative. Thinking through where your data goes, this is a way to protect your data".

Nadella’s closing statement reinforced his bold message. “Your own technology intensity and independence when it comes to digital tech is what it is all coming down to. [Microsoft’s] mission is to help you build that intensity and independence.”