Microsoft's Quarter Defined by Office 365, Skype, Cloud Plans

Microsoft will release quarterly earnings July 21. But the most important events of its quarter, like the Office 365 launch, aren't yet major revenue drivers.

Microsoft will release its quarterly earnings after the market closes July 21. Analysts are apparently expecting an increase in revenue from the year-ago quarter, with hefty sales of flagship software such as Windows and Office.

No matter what those ultimate numbers, however, the most interesting parts of this previous quarter were the things unlikely to generate revenue for some time: Office 365, Microsoft's latest major foray into the cloud, and the reveal of "Windows 8," its next-generation operating system. The company also used its recently concluded WPC (Worldwide Partners Conference) to again highlight its mobile efforts, including its Windows Phone "Mango" update due sometime this fall.

Despite the hefty revenue boost from "traditional" desktop-bound software, Microsoft has increasingly dedicated itself to an "all-in" cloud strategy. "We're moving forward to the cloud, public and private," CEO Steve Ballmer told those assembled to hear his July 11 keynote speech at WPC. "We're all in, and we want partners who are all in with us."

Mobility and the cloud are also somewhat problematic areas for Microsoft, at least in terms of revenue. In contrast to, say, the 100 million Office 2010 licenses shipped since last year, or the impressive sales run of the company's Xbox Kinect hands-free game controller, market share for Windows Phone has steadily declined in the months since the smartphone platform's release. "We know we've got a lot to do," Ballmer also told the audience during that same keynote. "We're all in when it comes to mobile devices."

For the three-month period between the end of February and the end of May, research firm comScore estimated Microsoft's U.S. smartphone share as dipping from 7.7 percent to 5.8 percent. During the same period, adoption of Google's Android platform rose from 33 percent to 38.1 percent, while Apple enjoyed a slight uptick from 25.2 percent to 26.6 percent. Research In Motion continued its market slide, declining from 28.9 percent to 24.7 percent. Microsoft has been tight-lipped about Windows Phone sales and revenue.

It will also be some time before the cloud side of Microsoft's equation starts generating cash. During previous earnings calls, Microsoft executives have been reluctant to discuss any hard metrics for business cloud adoption; nonetheless, the company has initiated a full-on press for Office 365. Released in its final version near the end of June, Office 365 is fundamentally a rebranding of the company's BPOS (Business Productivity Online Suite), linking Microsoft Office, SharePoint Online, Exchange Online and Lync Online into a platform that costs between $2 and $27 per month, depending on options. It comes with an Office 365 Marketplace loaded with productivity applications and professional services.

Microsoft also used WPC to again show off Windows 8, whose release is expected sometime in 2012. In place of the "traditional" Windows desktop and Start button, Windows 8 offers a variety of color tiles designed to be equally tablet- and PC-friendly.

Finally, executives on the July 21 earnings call will almost certainly reference Microsoft's recent acquisition of Skype for $8.5 billion, and emphasize how the communications company's assets will act as a force multiplier for existing products such as Lync.

As with the cloud and mobility, it could be some time before the monetization of the Skype platform truly begins; but if Microsoft's numbers hit or exceed analysts' expectations, the company could have a little more space to let these grand plans take root.

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