In October, Microsoft
Microsoft's unexpected growth can be directly linked to its bustling cloud computing industry. Cloud computing involves the storage and management of data over the internet rather than on local servers. An Oxford Economics and SAP study, "The Cloud Grows Up," predicts that even though many new business are already on the cloud, the technology could be used by 50% more consumers in as few as 3 years. It's the next big thing, and Microsoft is taking advantage of that.
Kevin Turner, the chief operating officer at Microsoft, said "We're seeing great traction with businesses who want to bring Microsoft's cloud, mobile device management technology and data analytics together to improve security and productivity resulting in almost 70 percent year-over-year growth in our commercial cloud run rate."
Revenue from cloud computing alone exceeded $5.9 billion and accounted for almost 30% of total Microsoft revenue. What captivates investors is not the value of this market right now but its apparent potential in coming years. $5.9 billion represents a massive 8% increase in cloud revenue since last quarter. And Microsoft doesn't want to stop there. Satya Nadella, chief executive officer at Microsoft, says "we're making great progress towards our goal of $20 billion in annualized commercial cloud revenue run rate, which now exceeds $8.2 billion."
The company's cloud computing platform is called Microsoft Azure (previously Windows Azure) and has been in the works since 2008. It entered the market just as cloud computing took off and now dominates it.
Microsoft isn't completely alone in cloud computing today, though. We've seen its competitors Amazon
On the other hand, some companies aren't able to embrace the cloud and are probably regretting it. They were crowded out because they joined too late. HP
By correctly calculating the potential of cloud computing early on, Microsoft, like Amazon and Google, reaped enormous profit benefits. Nevertheless, Microsoft's overall raw revenue has decreased by $2.8 billion since the first quarter in the 2015 Microsoft fiscal year.
The large loss is not actually that disheartening, partly because profits still increased. Microsoft management correctly claims that there are two main reasons for the revenue drop. First, Microsoft's "Personal Computing" revenue decreased by 17%, primarily due to lower revenue from phones. This loss purposefully "reflects a change in strategy for the phone business" that will play out positively in the long-term. Second, Windows 10 net revenue deferrals masked the true potential of Microsoft growth during the first quarter. The deferrals accounted for $1.28 billion of hidden revenue. They will not be included in this quarter's earnings because of an American accounting caveat. Microsoft marked Windows 10 as a free upgrade for existing Window's users meaning it could not legally cite profit from OEMs (Original Equipment Manufacturers) during this quarter.
Microsoft ultimately adapted very well to its changing environments. Much like Apple