Select the directory option from the above "Directory" header!

Microsoft sees silver lining in clouded Windows

Microsoft sees silver lining in clouded Windows

The company is in the midst of a great transition, and current indications are that it is going well

In case you haven’t noticed, Microsoft — yes, sleepy old Microsoft — has been on a tear the last few years. Windows 10 was released last year to nearly universal praise, Microsoft’s HoloLens augmented-reality headset has been called groundbreaking, and the company jumped to No. 3 on the BrandZ list of most valuable global brands in 2015 after languishing at No. 7 as recently as 2013. More important, between early September 2015 and Feb. 1 of this year, the company’s stock price surged more than 25%, while the S&P and the Dow Jones indexes stayed flat, the Nasdaq dropped more than 1.5%, and Apple’s stock price plunged 14%.

Windows for now is Microsoft’s most visible product and the public face of the company. But it’s probably a last hurrah. Microsoft’s future is all about the cloud, so much so that one day Windows may become an afterthought.

Microsoft’s most recent earnings report, released in late January, makes that clearer than ever. Overall revenue dropped to $23.8 billion from $26.47 billion a year previously, but investors rewarded the company with a 5% increase in its stock price in after-hours trading when the results were released.

Why the celebration, particularly when Windows revenue had declined 5% in the quarter? In a word, the cloud. While Windows revenue continued its slide, driven by declining PC sales, Microsoft’s cloud group saw sales rise 5%. Just one example of why: Office 365, the cloud-based subscription version of Microsoft Office, had 20.6 million consumer subscribers in the quarter, more than double the 9.2 million in the same quarter a year earlier.

As for the business side of the cloud, that’s booming as well. The New York Times reports that Microsoft’s commercial cloud business now has an annualized revenue rate of $9.4 billion. And sales in the company’s Azure cloud platform and infrastructure were up 140% compared to a year earlier, according to its earnings report.

Long gone are the days when Steve Ballmer touted Windows as the future of the company while sales lagged and the world moved on. During a call to discuss Microsoft’s recent quarterly results with analysts, CEO Satya Nadella said, “The enterprise cloud opportunity is massive. It's larger than any market we've ever participated in."

Yes, you heard that right: The business cloud is larger than Windows ever was or ever will be, according to Nadella. And Microsoft is already a leader in it. The company is the second-largest cloud vendor, behind Amazon, and it’s the fastest-growing major cloud vendor, Reuters reports.

Nadella isn’t alone in believing Microsoft’s future is the cloud rather than Windows. Daniel Ives of FBR Capital Markets told USA Today, "We believe Microsoft is seeing a generally healthy demand on cloud and core enterprise build-outs and is slowly moving away from the PC environment, which clearly has massive headwinds."

In Microsoft’s future all roads will lead to the cloud. Microsoft Office will become all subscription-based and cloud-based. And given that Office will likely continue to dominate the productivity suite market in enterprises, Microsoft will use it to get companies to move to its cloud offerings rather than a competitor’s. Imagine you’re a company that’s standardized on Office. When you want to build custom apps based on Office, you’ll be more likely to go with Azure than a competing technology, because Microsoft will make it easy to do that. Customers of Microsoft Exchange Server are already migrating to the Microsoft cloud. And if you want cloud storage, access to Microsoft OneDrive is built into both Windows and Office. Why bother to go with someone else’s cloud storage when Microsoft’s is already there?

None of this should surprise anyone who has followed Microsoft. It became clear that Microsoft would bet big on the cloud when Satya Nadella was made CEO two years ago — after all, he was promoted to the job from executive vice president of Microsoft's Cloud and Enterprise group.

This isn’t to say that Microsoft’s cloud future is secure. There are plenty of competitors. And the big numbers posted in the most recent quarter by the company’s cloud division are due in part to revenue from sales of Windows Server, which the company now includes in its cloud revenue.

Still, it’s clear that Microsoft Windows is yesterday and the cloud is tomorrow. And that should make for a sunnier future for the company than anyone would have imagined just a year ago.

Follow Us

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags Microsoft

Show Comments