"We started out as a company that was focused on developers…we’re again in that era now," proclaimed Microsoft CEO Satya Nadella on stage at the company’s Build conference last week. The stakes are high: long renowned for its great relationship with developers, Microsoft is now watching them slip away. Last week’s dev-focused event was Nadella’s chance to prove that he would fight to win them back. In this moment of crisis, he stands poised to radically alter Redmond’s future.

Take free Windows on small devices, for example. Ten years ago, the concept of giving away the crown jewel of Microsoft’s product portfolio would have been unthinkable, but the rules have changed: Android and iOS are in charge. Exciting new hardware like Pebble, Nest, and various fitness wearables are emerging, leaving Windows behind. Microsoft will now compete directly with Android’s model, a move that will result in cheaper devices for consumers, and — as Nadella undoubtedly hopes, anyway — more devices for developers to target.

Nadella is pushing the biggest change to Windows in years

It’s a microcosm of Nadella’s cloud-based strategy for the entire company. While Microsoft has been toying with the idea of giving away Windows for months, Nadella has pushed it through, leaving the platform to make money via services and advertising alone. It’s a risky change, but one that’s essential in a world where Windows is facing irrelevance and Android continues its dominance across devices.

But Nadella’s not just charging forward, he’s also taking a step back. Microsoft is planning to bring back the Start menu in a future update and eventually make "Metro" apps run in a window. Combined with recent changes to bring back the power button and boot-to-desktop on a large number of machines, this means that Microsoft is backtracking on practically every part of the Windows 8 interface that developers abhorred.

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Three screens and a cloud might finally become a reality

And while Microsoft has been promising "three screens and a cloud" for years now, it’s finally starting to align Windows, Windows Phone, and Xbox to pull that promise off. The so-called universal Windows apps shown at Build can run across PCs, phones, and televisions alike, significantly reducing the amount of work developers need to do. You could buy an app on Windows and not have to buy it again on Windows Phone, all while running it on your TV with an Xbox One — and the developer would’ve only had to make a single app to do it.

"The new changes appear to indicate that they have at least been listening to developers," explains Xbox and Windows developer Neil Turner. "They’re trying to make the platforms more similar so that when I go to make an app it doesn’t require as much work to port from one platform to another, even though they are quite similar now. Ideally then in future we can start porting to other platforms, either being non-Windows platforms or the Xbox One."

Microsoft is also open-sourcing some of its developer tools, focusing heavily on improving its Azure cloud service, and creating a new version of Windows for small "Internet of Things" devices. "We’re at a time when the devices that we are programming are going to change," explained Windows chief Terry Myerson. Microsoft appears to be preparing itself for that change, and for the huge battle for what’s next. For now, the Internet of Things is still a grand vision that developers are just beginning to explore. There are smart bulbs, smart door locks, and smart dog collars, but they’re purpose-built devices that don’t really talk to each other (yet). And it’s easy to see how the initiative cues up Redmond to get a dog in the wearables fight — in fact, a stylized drawing of a smartwatch was shown during the Build presentation, 10 years after Microsoft's failed SPOT smartwatch. "We really do believe in the Internet of Things," said Myerson on stage at Build. "We think as the screens get smaller and the devices get smaller, the cloud gets bigger and we’re going to make some incredible new things possible."

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But getting its army of third-party developers to look beyond Windows entirely will be critically important. Microsoft knows Windows won’t be powering all devices going forward, but it can be there to help manage, understand, and support them with its own cloud services and software like Cortana, the digital assistant that’s launching on Windows Phone 8.1 — and could easily appear on Android, iOS, or elsewhere in the future. Regardless of operating system, regardless of device, Microsoft will need to be able to capitalize on creating a platform for these devices to talk to each other and understanding these sensors and the data they’re providing.

Microsoft looks to home automation for Kinect and Xbox One

"We think home automation around entertainment is a great category to start with," explains Microsoft’s Michael Mott, general manager of Xbox applications and developer relations. Microsoft has a huge opportunity with Kinect and its Xbox One to turn the device itself into a hub to control and connect these Internet of Things devices. "As we move towards a more open ecosystem, people will really build those applications that weave those experiences together." It’s these apps that people want to build right now.

Steven Eidelman, founder of Whistle, an on-collar device that measures and tracks a dog’s activities, wants to see Microsoft turn its Xbox One into a hub for the Internet of Things. "We don’t want to build that hub. We believe there will be hubs in the home," explains Eidelman in an interview with The Verge. "So there is an example of Microsoft building hardware and enabling Bluetooth on it to communicate with other Bluetooth devices and having a protocol that other developers are actually building for." Eidelman gets requests for Windows support, but Whistle is focusing on iOS and Android because that’s where most users are. Until Microsoft is at a point where it can offer Windows directly on these small devices — or an attractive platform for its mobile apps to control and interact with them — the Xbox is an attractive entry point.

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It looks like the Internet of Things could be the next big computing battleground, and Microsoft seems willing to sacrifice a few battles in order to win that war. Facebook is chasing virtual reality; Google wants home automation, smartwatches, and internet-connected glasses. More than 200 billion devices are likely to be connected to the internet by 2020, a huge example of the way the technology industry will shift and new battles will emerge. Satya Nadella believes the future isn’t Windows desktops, Windows tablets, and Windows Phones. It’s not Windows everywhere, it’s Microsoft everywhere, offering software and services for every device — including an entire world of interconnected devices that have yet to be built.

Connected devices are the next big computing battleground

And in making that bet, Nadella has set the stage for the next 10-plus years of Microsoft. It’s a decade in which Microsoft needs to convince developers that it will take them to the internet of the future. If developers are ignoring Microsoft’s mobile platforms while they’re looking to enable future devices, then that could be another major wave of computing that Microsoft misses out on. As Windows chief Terry Myerson puts it: "We really want to get this platform out there."

Sean Hollister contributed to this report.