2 February, 2017
Microsoft’s Successful Transformation: From Microsoft To Microcloud
Last week Microsoft announced its latest earnings, and there were some enlightening gems in the disclosure. A few years ago some questioned whether Microsoft could make the transition to the new tech world, especially after the complacency of the Ballmer regime, but it is now pretty clear Satya Nadella has a done an excellent job pivoting the company into a leadership position. Let’s have a look at what the latest earnings tell us about Microsoft’s health.
First, the world has changed to one where cloud is the critical platform going forward. Although the company still relies on sales of packaged applications (e.g., Office), it’s pivoting rapidly, especially at its enterprise customers. Microsoft’s commercial cloud revenues grew to almost 60 percent of revenues. This indicates that the company has effectively made the transition to a cloud company and the growth as a percentage of overall revenues will likely continue to increase.
In addition, Azure revenues increased 94 percent. That indicates Microsoft is doing a good job of holding off competitors (e.g., Google, AWS) from impacting its core business clients’ transition to cloud-based applications and puts Microsoft in a solid position of supplying its core base of business users. This is where the “big bucks” are going to be made in cloud, not in the cutthroat consumer “sell any web services you can for whatever price you can get” space. It’s a strong indication of the high comfort level companies have with staying on Microsoft products and using the Microsoft tools they know well and have used for years. It’s also an endorsement that companies feel Microsoft can offer the security and operations flexibility necessary to keep them on track, including with additional services like Dynamics, which also increased its revenues.