Following publication of its better-than-expected quarterly results on July 20th, the headlines could not have been more positive for Satya Nadella and his efforts to restructure Microsoft around the cloud, as shown by the following:
Bloomberg - Microsoft Regains Turnaround Momentum on Strong Cloud Growth
MarketWatch – Microsoft is challenging Amazon for cloud throne
New York Times - Microsoft Is Rewarded for Turning to the Cloud
Wall Street Journal - Microsoft Profit Jumps, Fueled by Cloud Computing
The numbers were good, with revenue for fourth fiscal quarter of 2017, ended June 30th, of $23.317 billion, up from $20.614 billion a year earlier. Net income (GAAP) amounted to $6.515 billion, up from $3.122 billion a year earlier.
Highlights include:
• Office commercial products and cloud services revenue increased 5% (up 6% in constant currency) driven by Office 365 commercial revenue growth of 43% (up 44% in constant currency).
• Office consumer products and cloud services revenue increased 13% (up 13% in constant currency) and Office 365 consumer subscribers increased to 27.0 million.
• Dynamics products and cloud services revenue increased 7% (up 9% in constant currency) driven by Dynamics 365 revenue growth of 74% (up 75% in constant currency).
• LinkedIn contributed revenue of $1.1 billion during the quarter.
• Server products and cloud services revenue increased 15% (up 16% in constant currency) driven by Azure revenue growth of 97% (up 98% in constant currency).
• Enterprise Services revenue decreased 3% (down 1% in constant currency) with declines in custom support agreements offset by growth in Premier Support Services.
Azure growth is hot
Azure's 97% year-over-year growth comes in contrast to IBM, often ranked as the No.4 public cloud service provider, which last week reported that its cloud revenue grew 17% YoY in Q2 2017, led by as-a-service offerings, which were up 32% year-to-year. IBM's total cloud revenue was $15.1 billion for the last 12 months and XaaS revenue was $8.8 billion at an annual exit run rate in the quarter, up 30% year to year (up 32% adjusting for currency).
Amazon is expected to release its Q2 financial report on July 27th, perhaps giving insight into how fast the leading public cloud vendor continues to grow now that we have passed the mid-year market. As of the end of Q1 2017, Alibaba’s Aliyun cloud division reported a 103% annualised growth rate.
However, it is difficult to make any direct comparisons between Microsoft's cloud growth rate, or Azure growth, to competitors due the various products that are rolled in. However, one can observe some of the announced metrics that illustrate the development of the overall public cloud market.
Microsoft states:
• It is on-track to meet a $20 million annual run rate for cloud service in FY 18.
• It is gaining early 120,000 new Microsoft Azure subscriptions a month.
• 40% of Azure revenue comes from start-ups and independent software vendors.
• 80% of Fortune 500 now on Microsoft Cloud (although the utilisation rate is not specified so in some cases this could mean a Office 365 subscription rather a full-scale enterprise installation).
• 1.2 billion people are using Microsoft Office.
• Facebook recently deployed Office 365 for its more than 13,000 employees globally.
• Nearly 1 in 3 Azure virtual machines are Linux.
• 400 million active users for Outlook.com.
• More than 400 million devices running Windows 10, citing security as the primary upgrade reason to Windows 10, with the recent WannaCry ransomeware incidents impacting earlier versions of Windows.
Building up its reseller channel for the cloud
Microsoft has long relied on partners and independent value added reseller to drive a substantial amount of its business. Over the years, this has included local resellers installing Office, Windows and Exchange solutions on behalf of small and medium-sized businesses worldwide.
Microsoft's Inspire partnership conference in Washington, DC, which ran from July 9th to 13th, attracted about 17,000 people. At the event, Satya Nadella, Microsoft's CEO, vowed that this partnership strategy will continue in the cloud era. With its Azure public cloud, Microsoft sales reps are paid up to 10% of the partner's annual contract value when they co-sell qualified Azure-based partner solutions. Microsoft says it is unique among public cloud vendors in providing this level of opportunity, providing powerful go-to-market differentiator. Microsoft said it now has more than 64,000 cloud partners, more than AWS, Google and Salesforce combined. CSPs can sell the full stack of services and subscriptions, including Windows 10, Office 365, Microsoft Azure and CRM subscriptions through a single partner with one user account, one point of contact for support and one simplified bill.
Now Microsoft is testing a new Azure co-sell program for partners. In its first six months, Microsoft claims that this program helped close more than $1 billion in annual contract value for Azure partners, created $6 billion in Azure partner pipeline opportunity and generated more than 4,500 partner deals.
Gearing up for the new offers
The company is now gearing up to launch Microsoft 365, a new set of commercial offerings that brings together Office 365, Windows 10 and Enterprise Mobility + Security. It promises to be a 'complete, intelligent and secure solution' to empower companies and workers, recognising that people are at the heart of digital transformation.
Microsoft 365 Enterprise is the evolution of the company's Secure Productive Enterprise offering, and includes Office 365 Enterprise, Windows 10 Enterprise, and Enterprise Mobility + Security. This is targeted at large organisations.
In enterprise private cloud infrastructure, Microsoft Azure Stack is now available to order from launch partners Dell EMC, Lenovo, and HPE. Cisco has also announced integrated Azure Stack for its UCS platform. Azure Stack is an extension of Microsoft's public cloud that enables enterprises to run the same software environment in their private data centres. Azure Resource Manager ensures that the same application model, self-service portal, and APIs are operative across either the private, public or hybrid cloud.
Microsoft is also encouraging partners to capitalise on opportunities leveraging Azure data centres and the 'edge of the cloud'. Azure Stack partners cited include Rackspace, Tieto and Resello.
Microsoft 365 Business, which will also be available in public preview from August 2nd, is targeted at small- to medium-sized businesses with up to 300 users and integrates Office 365 Business Premium with tailored security and management features from Windows 10 and Enterprise Mobility + Security. It also includes a centralised console for deploying and securing devices and users in one location.
Microsoft has also launched a new Skype Operations Framework, an end-to-end deployment methodology for partners to deliver Skype for Business Online to their customers. The company describes this as a blueprint for a new practice area. Recently added capabilities include Skype for Business meetings and voice services in Office 365, adding PSTN Calling in the UK, and expanded PSTN Conferencing to additional countries. Microsoft is also refining automatic transcription and translation for Skype Meeting Broadcast to Office 365 customers.
Bringing the Cloudyn acquisition on board
This week, Microsoft also completed its previously-announced acquisition of Cloudyn, a start-up based in Israel that developed hybrid, multi-cloud monitoring and optimisation solutions. Cloudyn's automated monitoring, analytics and cost allocation tools help customers maximize the efficiency of public cloud operations. Microsoft plans to make Cloudyn available to all Azure customers. The company also said that its new Cloudyn business unit will continue to invest in supporting multi-cloud environments including Azure, AWS and GCP.
