Microsoft's Cloud Revenue and Ramp-Up Speed Uncertain

 
 
By Nicholas Kolakowski  |  Posted 2011-01-28 Email Print this article Print
 
 
 
 
 
 
 

Microsoft is betting that customers will embrace its cloud offerings, but executives on the Jan. 27 earnings call offered no timetable for that future ramp-up.

Microsoft may have adopted an "all in" strategy with regard to the cloud, but its Jan. 27 earnings call suggests the company-at least publicly-is playing a bit loose with its roadmap for client adoption of the technology.

That could be a reflection of some companies' reluctance to embrace the cloud, as opposed to an on-premises platform, as the backbone of their IT infrastructure. But given the "all in" nature of Microsoft's commitment, and the need for cloud-based revenues to eventually replace those from its traditional desktop-based software model, the question of how quickly companies will embrace its cloud offerings is one of prime importance.   

"We obviously haven't given any guidance on the revenue of that and how fast it's going to ramp up," Peter Klein, Microsoft's chief financial officer, told analysts and media during the earnings call. "It's one of those things where it's going to happen, and the exact sort of speed of the ramp is uncertain. I do believe that once it starts to accelerate, it's going to accelerate pretty fast."

That seems roughly in line with what Microsoft executives have been saying for months. Klein also claimed that the "economics are very good" for companies that complete the migration to the cloud. 

"But probably even the stronger driver, especially now in the conversations, is the ability to take advantage of the latest capabilities that we have," he added. "So it's a very easy way to deploy the latest versions of our software, and increasingly, that's really the biggest piece of the dialogue."

One of Microsoft's chief rivals in the cloud space, Salesforce.com, has touted its offerings as the best way for businesses to stay current with their applications' latest versions. "How many SAP customers are on the current version?" Salesforce.com CEO Marc Benioff asked the audience during an Oct. 19, 2010, keynote talk at the Gartner Symposium/ITxpo 2010. "How many Oracle customers ... how many Microsoft? Fractions."

Much of Microsoft's recent cloud effort has been focused on initiatives such as Office 365, whose subscription-based model-allowing organizations to stay up-to-date with the latest versions of Microsoft Office, SharePoint Online, Exchange Online and Lync Online-seems designed to counter that criticism. Microsoft launched Office 365 in limited beta on Oct. 19, with general availability expected in 2011.

Microsoft's traditional lines of business generally performed well last quarter, according to the company, with its Business Division's revenue growing 24 percent year-over-year. Strong sales of Office 2010, Windows 7 and the Kinect hands-free controller all helped contribute to $19.95 billion in revenues and $6.63 billion in net income. That being said, the company has yet to see any substantial profits for cloud initiatives such as Azure.

Microsoft almost certainly has its own internal metrics for cloud adoption over the next year or two, in the same way that it has undisclosed goals for the size of its mobile-applications marketplace. However, those numbers are unlikely to leak online anytime soon.

Microsoft's Server and Tools Business-in many ways the center of its cloud strategy-is primed to undergo a shakeup this year with the departure of longtime division President Bob Muglia. In a Jan. 10 e-mail to employees, Microsoft CEO Steve Ballmer claimed the division needed new leadership to "move forward into the era of cloud computing."

"I had always remarked to folks that Bob's a survivor. His time just finally ran out," the anonymous head of the blog Mini-Microsoft, which frequently serves as a venting place for Microsoft employees, wrote in a Jan. 27 posting discussing the earnings. "It will be intriguing to see what leadership steps in or up and what happens to Bob's current team. And who might be next. Bets?"

 


 
 
 
 
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
 
 
 
 
 
 
 

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