Can Microsoft Hit $20 Bn Cloud Target By 2018?

by CXOtoday News Desk    Apr 30, 2015

microsoft

Microsoft is targeting a dramatic $20 billion in annual revenue from its cloud-computing businesses by the end of fiscal 2018, Chief Executive Satya Nadella said at an analyst call. Commercial cloud at the company is currently on a $6.3 billion from nearly $1 billion the preceding year. In other words, Microsoft plans to triple its cloud revenues in the next 4 years, going by Nadella’s statement.

Analysts believe that’s a big sum, though not unattainable, considering Nadella’s big cloud ambition. The tech major is already one of the leaders in the cloud, offering computing power and storage to customers through its network of data centers.

Read more: 3 Ways Microsoft@40 Looks Futuristic

Aiming high

In its quarter ended March 31, Microsoft reported profit that exceeded analysts’ estimates as growth in cloud software sales and more expensive versions of server programs made up for slowing demand for PC products. In his second year, Nadella has been shifting focus at the tech giant, making cloud and mobile a priority. Under Nadella, Microsoft has released new services for the company’s Azure and Office 365 cloud programs.

Microsoft reported that its commercial cloud revenue - commercial cloud that includes Azure, Office 365 for businesses among others - more than doubled for the seventh quarter in a row, with its revenues jumping 106 percent this year. With its Azure cloud-computing business and Office 365 products in the lead, Microsoft’s cloud is now a $6.3-billion-a-year business, up about a $1-billion from a year before.

“Right now more than 5 million organizations are using Azure and a total of 12.5 million Office 365 subscribers on the consumer side, which is bringing in a lot of revenues for the company,” explained a company official. Sales in the commercial unit that includes cloud programs was $2.76 billion, compared with a $2.66 billion average estimate of analysts.

The tech giant is also working to convert Windows and Office users into Windows and Office subscribers. At the same time, Office 365 for consumers is growing quickly, picking up 35 percent new subscribers in the most recent quarter on a sequential basis.

An analyst at Sanford C. Bernstein & Co, Mark Moerdler, told Bloomberg, “They’ve got a growing cloud number that isn’t stopping.”

Beware of Rivals

Last week, Microsoft’ closest rival in the cloud, Amazon.com Inc, broke out the sales of its Amazon Web Services (AWS) unit, which offers cloud computing to a variety of high-profile apps. Sales for the first quarter were up 49 percent and revenue reached $1.57-billion and the business was profitable. This was around what most analysts had predicted - about $6 billion per year.adding $265-million to Amazon’s bottom line. Amazon CEO Jeff Bezos told investors AWS is a $5-billion business and still growing fast – in fact, it’s accelerating.

Analysts see Amazon too enjoying a very healthy margin with AWS and they should get a higher margin as they continue to grow. This is one company Microsoft should be wary of, believe analysts.

IBM is also steering clear in the cloud. Last week it said in a Business Insider report, when you combine all the things it calls a cloud: on a trailing twelve-month basis its cloud revenue was $7.7 billion. The company is doing well in private and hybrid cloud. Google earns about $7 billion a year from all non-advertising businesses. Google is thought to be behind Amazon, Microsoft and IBM in this race, but catching up fast.

A big move

Microsoft’s tryst with the cloud is an optimistic move, believe analysts. CIOs are now becoming key decision-makers in the evaluation of hosting and cloud services, according to a new survey by 451 research. Stating that hybrid cloud infrastructures are becoming the norm for customers,” said Michelle Bailey, senior VP and researcher, 451 Research mentioned that almost 50 percent CIOs expect that they will deploy a newer version of Windows Server in multiple on-premises and off-premises hybrid cloud environments.

Finally, Bloomberg reported Salesforce.com is working with financial advisors after being approached by a potential buyer, and there is a possibility that Microsoft will be a potential suitor. If that happens then Microsoft’s cloud ambition is obvious. The report states, the San Francisco-based company is not only one of the largest cloud computing businesses around giving an edge to Microsoft, but this will be the largest software company takeovers ever – we need to watch out this space!