The big message from Microsoft's quarterly results issued
this week is that the Microsoft cloud is winning significant customer support
and is now on a $12 billion annual run rate.
(Commercial cloud annualized revenue run rate is calculated by taking
revenue in the final month of the quarter multiplied by twelve for Office 365
commercial, Azure, Dynamics Online, and other cloud properties.) This means
Microsoft is catching up to Amazon and Azure could surpass AWS in revenue terms
in the near future. Nadella's stated
ambition is for Microsoft to achieve $20 billion in commercial cloud revenue in
FY18 -- and he believes the company is on track to doing so.
“This past year was pivotal in both our own transformation
and in partnering with our customers who are navigating their own digital
transformations,” said Satya Nadella, chief executive officer at Microsoft.
“The Microsoft Cloud is seeing significant customer momentum and we’re well
positioned to reach new opportunities in the year ahead.”
Here are some of the key metrics revealed this week:
·
Office consumer products and cloud services
revenue grew 19% (up 18% in constant currency) with Office 365 consumer
subscribers increasing to 23.1 million
·
Server products and cloud services revenue
increased 5% (up 8% in constant currency) driven by double-digit annuity
revenue growth
·
Azure revenue grew 102% (up 108% in constant
currency) with Azure compute usage more than doubling year-over-year
·
Enterprise Mobility customers nearly doubled
year-over-year to over 33,000, and the installed base grew nearly 2.5x
year-over-year
·
70% of Office enterprise renewals are in the
cloud. New Office 365 enterprise customers include Facebook, Hersey’s and
Discovery Communications
·
The Intelligent Cloud segment delivered slightly
more than $6.7 billion in revenue, growing 7% and 10% in constant
currency.
·
At least 60% of Fortune 1000 firms are now using
at least three of Microsoft's cloud offerings
·
Microsoft now has 33,000 customers for its
Enterprise Mobility Solution -- roughly double the number over the past year.
·
Nearly one third of customer virtual machines on
Azure are now running Linux.
·
Office commercial products and cloud services
revenue grew 5% (up 9% in constant currency) driven by Office 365 commercial
revenue growth of 54% (up 59% in constant currency)
·
Office consumer products and cloud services
revenue grew 19% (up 18% in constant currency) with Office 365 consumer
subscribers increasing to 23.1 million
·
Office commercial products and cloud services revenue grew 5% (up 9% in
constant currency) driven by Office 365 commercial revenue growth of 54% (up
59% in constant currency)
Globalization Remains
a Key Advantage for Azure
Microsoft states that one of Azure key advantages it spans
multiple jurisdiction, covering more countries and regions with local support
than any other cloud provider. This enables Azure to support regulatory
requirements with the maturity and experience that are simply lacking in the
other quickly growing clouds.
For instance, Microsoft is the only big cloud provider that
operates in China under Chinese law and in Germany under German law. The company is currently at 26 global data
center regions and has announced plans for 34 data centers, but whether this
number continues to expand depends on continued cloud growth and the
development of regulatory issues.
Regulatory trouble could hamper Microsoft’s top competitors,
especially Google and Amazon.
While Microsoft says that it is in-step with global
regulators, recent news reports suggest that Google will be facing increased
scrutiny from the EU. A report from CNBC
this week stated the Google (Alphabet) could be subject to three separate
anti-trust cases from the European Union, accusing the firm of using its
dominant position in search, advertising, mapping and mobile OS to stifle
competition. Charges have not yet been formally made, so the impact to Google
financially and strategically is just speculation. Likewise, for Amazon, which has moved so
aggressive in online commerce across so many markets, the question of which
cloud continues to grow the fastest with the widest range of services, may be
obscured by other activities underway at the parent companies.
Performance Could Be
Significant Differentiator
Recently, Cedexis, a San Francisco-based company providing
Internet performance monitoring and optimization, released data company the
end-user latency measurements for AWS, Azure, IBM Softlayer, Rackspace, and the
Google Cloud Engine, as experienced from different regions across the
continental United States. The data, which was collected in March and April of
2016, measured latency to specific cloud data centres.
The Cloud Latency results were reported as follows (best to
worst in milliseconds):
Rackspace Cloud – ORD: 56.11
Azure Cloud – US North Central: 56.56
IBM Softlayer – Dallas: 56.89
Google Compute Engine – U: 58:33
Softlayer – Washington: 61.22
Azure Cloud – U.S. East: 62.22
IBM Softlayer – Houston: 62.33
Rackspace Cloud – DWF: 63.22
Rackspace Cloud – IAD: 63.56
AWS EC2 – US East (VA): 63.56
Azure Cloud – US West: 73:11
AWS EC2 – US West (CA): 75.44
AWS EC2 – US West (OR): 84.78
The Cedexis report shows that the Microsoft Azure facilities
in general doing better than the pack, and in particular better than its
closest market rival, AWS. The western US performed worse than other regions
perhaps because of more congested peering points affecting all providers,
according to Cedexis.
Nevertheless, performance and security are becoming
important differentiators as the big clouds move into real-time service for IoT
devices.
Newly Announced IoT
deal with Boeing Points in the Right Direction
Microsoft has just scored a bit IoT with Boeing, which has
just agreed to use the Azure IoT suite + Cortana for machine learning
capabilities. On the partnership, Boeing will move its extensive digital
toolset for its airline customers to the Azure cloud. The companies said this will “improve commercial
aviation by enhancing factors like predictive aircraft maintenance, fuel
optimization, airline systems and the overall cabin passenger experience.” Potentially, vast amounts of data from Boeing
aircraft will be streamed into Azure data centers, where predictive algorithms
will identify issues of concern to airlines and their passengers.
Just a week earlier, Microsoft and GE announced a
partnership that will make GE’s Predix platform for the Industrial Internet
available on the Microsoft Azure cloud. GE of course a major supplier of
aircraft engines, and has advertised heavily to promote its idea of embedding
sensors into its industrial products. A
year ago, GE first introduced its Predix Cloud -- a platform-as-a-service
(PaaS) designed specifically for industrial data and analytics. This tie-up
with Microsoft will provide Predix customers with scalable infrastructure, data
sovereignty, hybrid capabilities, and advanced developer and data services. In
addition, GE and Microsoft plan to integrate Predix with Azure IoT Suite and
Cortana Intelligence Suite along with Microsoft business applications, such as
Office 365, Dynamics 365 and Power BI, in order to connect industrial data with
business processes and analytics.
Microsoft has said that it is moving quickly to add
intelligence and machine learning to the Office 365 product suite as well. If
the company can bridge these same machine learning and Big Data analytics from
Azure IoT to Office 365, then its relationship with the Fortune 1000 will
become much more deeply embedded and increasing difficult for AWS to match
given that Amazon lacks the Office suite to reach corporate works.
Distractions Could Be Costly
As always, with big
corporations there can be big distractions.
In recent year, the Windows phone failure followed by the Nokia debacle
proved quite costly to Microsoft. With
Nadella in charge, the company has hopefully moved beyond these distractions.
But the recent $26 billion bet to acquire LinkedIn acquisition may take some
time to demonstrate how it delivers an equivalent business value to the
company.
“This is an L2/L3 SDN fabric with state-of-the-art white box hardware and completely open source switch, controller and application software,” said Saurav Das, principal architect at the Open Networking Foundation. “No traditional networking protocols found in commercial solutions are used inside the fabric, which instead uses an integrated SDN-based solution. In the past, the promise of SDN has fallen short in delivering HA, scale and performance. The fabric control application design, together with ONOS, and the full use of modern merchant silicon ASICs solve all of these problems. In addition, the use of SDN affords a high degree of customizability for rapidly introducing newer features in the fabric. CORD’s usage of the fabric is an excellent example of such customization.”
“This is an L2/L3 SDN fabric with state-of-the-art white box hardware and completely open source switch, controller and application software,” said Saurav Das, principal architect at the Open Networking Foundation. “No traditional networking protocols found in commercial solutions are used inside the fabric, which instead uses an integrated SDN-based solution. In the past, the promise of SDN has fallen short in delivering HA, scale and performance. The fabric control application design, together with ONOS, and the full use of modern merchant silicon ASICs solve all of these problems. In addition, the use of SDN affords a high degree of customizability for rapidly introducing newer features in the fabric. CORD’s usage of the fabric is an excellent example of such customization.”
