Microsofts Future Remains Cloudy—And Thats A Very Good Thing Increasingly, Microsoft is looking like a successful cloud-services company that also happens to sell software, a game console and some other devices. Of course, thats not apparent at first glance. In Microsofts latest earnings report, covering the July–September quarter, it pulled in overall revenue of $23.2 billion in revenue and earned a net profit of $4.5 billion. Its commercial cloud revenue, which includes cloud-related revenue from its Office productivity software as well as its Azure public-cloud server business, amounted to just $1.2 billion—a mere 5% of the software giants overall sales. See also: Azure Is Helping Microsoft Catch Up In The Cloud But take a closer look. Microsofts commercial cloud revenue grew 11 times faster than that of the company as a whole, more than doubling in the quarter compared to the year-earlier period. Overall company revenues rose just 11% over the same timeframe. (Thats excluding $2.6 billion in July–September phone sales resulting from Microsofts acquisition of Nokias phone unit earlier this year.) Whats more, the gross profit associated with Microsofts cloud and enterprise service operations almost tripled in the quarter. That profit jumped 194% to $805 million in the quarter. Overall, Microsofts gross profit barely rose at all, edging up only 8% (again excluding the Nokia handset business). Head In The Cloud All of which is to say that the long-held view of Microsoft as an old-school software business dependent on Windows and Office is due for an upgrade. Windows and Office are going to remain key to Microsofts operations for years to come; theyre still enormous, after all. See also: What Microsofts Fiercest Critics Forget: Azure Theyre just not growing. Microsofts devices and consumer licensing revenue—i.e., Windows for consumer PCs and other gadgets—actually dropped 8.7% in the quarter, primarily reflecting the ongoing consumer shift toward tablets and phones away from PCs. Its commercial licensing business—read: Windows for business—bumped up only 2.7% in the quarter. Both segments remain hugely profitable, with gross margin in the range of 92% to 93%. But profits in the two segments combined rose only 1.5% in the quarter. True, together they accounted for almost $14 billion in revenue and $12.9 billion in gross profit—thats basically the definition of cash cow. But these cows dont seem likely to get much fatter; in fact, the opposite is much likelier over time. And while straight-line extrapolations are usually wrong, consider this for perspective. Should Microsofts cloud business keep growing at this rate (which it almost certainly wont), it could eclipse the companys entire Windows business in just four years. Microsoft, of course, continues to do a variety of other interesting things, although theyre likely to remain sidelights in business terms. Revenue from sales of its Surface tablet more than doubled to almost $1 billion in the quarter. Total Xbox unit sales also doubled, although Microsoft still doesnt distinguish between the older Xbox 360 and its newer Xbox One, suggesting that the latter isnt yet something it wants to brag about. But the cloud remains its real future. Lead image by Robert Scoble ReadWrite ift.tt/1whl86V
Posted on: Fri, 24 Oct 2014 09:26:36 +0000
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