July 19 2018 was quite the red letter day for Microsoft. For the first time in the company’s history, the corporation announced that its profits exceeded $100bn, a figure that points to an impressive turnaround since Satya Nadella was named as its third CEO in 2014.
Towards the latter stages of Steve Ballmer’s time at the helm, Microsoft was viewed by some as an organisation that had lost its way, not helped by the troubled launch of the Windows 8 OS and a muddled mobile strategy. Nadella’s appointment was also met with a somewhat muted response, many wondering what he could do to nudge Microsoft back to its former glories.
It’s hard to think that anyone in 2014 could have envisaged quite such a successful tenure over such a short period of time. Nadella has made Microsoft relevant again, and he’s done so by largely focusing on one key area: the cloud.
Traditionally, Windows was Microsoft’s core focus, certainly under both Bill Gates’ and Ballmer’s watch. Under Nadella, though, Microsoft has undergone various organisational restructures which have made it clear that the company’s core focus areas are now connected to the cloud and AI.
Under Nadella, Microsoft 365, and more specifically Office 365, has become one of its core products, bringing everything together. Within the detail of its quarterly financials, Microsoft states that its Office commercial products and cloud services increased by 10%, driven by Office 365 commercial revenue growth of 38%. The commercial cloud has become a key revenue earner for the company, and Microsoft, under Nadella, has truly understood the potential of the cloud for its bottom line.
The commercial world has changed, and Office 365, together with Microsoft 365, which brings together Windows 10 and Enterprise Mobility + Security in a complete solution, has addressed that shift in the workplace.
Microsoft’s Azure group of cloud services, first launched in 2010, has also become crucial for the company’s enterprise offering, with revenue growth of 89% compared with the same quarterly period in 2017. Azure has become a core solution for business, and while there is competition in the marketplace - Amazon Web Services remains the dominant player - Azure has quickly established a foothold in the market. Will it eventually enjoy a Windows level of success? Analysts don’t predict monopoly-style growth, but it’s clear that it has an established position in the market.
Microsoft is far from the only company benefiting from the cloud, of course. IBM, for example, recently announced its own results for the second quarter, and its revenues beat analysts’ estimates, helped by its own shift in focus to artificial intelligence and cloud computing.
Microsoft’s story is, however, perhaps the best example of how the cloud is shaping the future. One analyst at Morgan Stanley has gone as far as predicting that Microsoft’s stock will hit a $1 trillion market cap.
Microsoft has placed its focus on what it calls the ‘Intelligent Cloud’, by which it is referring to its core mission of empowering people to improve their own performance and capabilities with the help of its technology and cloud platforms, allowing businesses to work across multiple devices and manage resources within ‘serverless computation’. The company has made a conscious effort to adapt to the changing digital landscape.
Microsoft still has to provide some answers to questions - revenue from the consumer PC market is down, for example - but the company has absolutely proven itself as one of the kings of the cloud.
Several Microsoft products will be reaching end-of-life status in less than 18 months. For more information, including when you'll need to upgrade by, head to www.tmb.co.uk/windows-office-upgrade.