How Microsoft Is Luring Enterprises to Its Cloud

Once considered a tech stalwart, Microsoft is now riding high amid its transition into a "cloud-first" business. Here's why.

Microsoft cloud

Microsoft posted strong first-quarter fiscal 2017 results Oct. 20, once again crediting its cloud computing portfolio for lifting the Redmond, Wash., software maker's fortunes.

Not too long ago, Microsoft was viewed as a PC-obsessed company that maintained a suffocating grip on its technology platforms. Today, Microsoft is a leading cloud provider that champions some open-source software initiatives, due in no small part to competition from Amazon and the countless number of web-focused startups that disrupted the IT landscape.

eWEEK asked leading technology analysts what Microsoft's latest financial results said about the company's cloud computing strategy. Gartner Research Vice President Adam Woodyer observed that the software giant's cloud offerings are aligning with the IT requirements of enterprises.

"It's clear that Microsoft continues to make progress in the shift to cloud and its hybrid approach to computing in the market is ringing true with customers," said Woodyer. Embracing a platform-agnostic approach is also paying off.

"Ultimately, the work Microsoft has done over the past several years to position for a more open platform based on a hybrid computing model is resonating with customers," he said. "While there are puts and takes in terms of license cannibalization and profitability, Microsoft is a net share gainer in the cloud with a value-add approach that will drive significant growth for the foreseeable future."

Jack Gold, principal analyst at J. Gold Associates, noted that Microsoft Azure's ascendancy is chipping away at Amazon Web Services' (AWS) reputation as the go-to cloud platform for businesses.

The company "showed substantial growth in its Azure cloud services and has become a real alternative to many companies automatically selecting AWS by default," he said. "Also, the shift to online services like Office 365 is moving rapidly, and even more rapidly at the consumer space than I had expected. Businesses are also moving toward online for Office."

During an Oct. 20 investor conference call, Microsoft CEO Satya Nadella revealed there were more than 85 million commercial users of its cloud-enabled Office 365 productivity software suite, a 40 percent year-over-year increase. The number of Office 365 consumer subscribers hit 24 million last quarter, compared with 23.1 million in the previous quarter.

Dave Bartoletti, principal analyst at Forrester, said that while Microsoft's revenues were essentially flat across the past two sequential quarters ($22.6 billion in Q4FY16 compared with $22.6 billion in Q1FY17), "the steady expansion in Intelligent Cloud is certainly the growth engine."

Microsoft's Intelligent Cloud segment "grew 8 percent to $6.4 billion," noted Bartoletti. "That's a continued steady growth and is 116 percent year-over-year growth from this time last year," he said, adding that "the overall cloud business growth continues to be impressive." (Intelligent Cloud encompasses Azure, Office 365, and the Dynamics 365 CRM and ERP software suite.)

Moreover, customers aren't only turning to Microsoft for cloud basics, they're coming back for more.

"When combining Azure with other cloud services such as Office 365 and Dynamics 365, the real driver of success has been premium added features with higher selling prices," Woodyer said. "So as customers adopt these services, Microsoft has strong pricing power based on the increased functionality of these services."

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the Internet.com network of...