Microsoft reported earnings last night that surpassed expectations and gave us insight into their cloud business. I am not a stock analysts, but I thought I would spend some time reviewing some of the highlights and my opinion for what’s next for the software (I mean cloud, actually, no -I meant Intelligent Cloud) giant.
Azure – Microsoft did not provide specific revenue numbers for Azure, but did say revenue grew 97% y/y. Although exact numbers for Azure revenue is not specified, Azure is part of the all-important commercial space, which includes Dynamics 365, Azure, and a little program called Office 365. That revenue number combined was over 18B which more than doubled last year’s number.
Office/Dynamics and Competition – Office 365 subscription business just surpassed the traditional Office model with revenue up 43%. When was the last time you went to a box retailer and purchased software? That’s a telling sign that more and more organizations prefer subscription pricing over box products. Dynamics 365 was up 74%, probably because Dynamics in SPLA is about as complex as it can possibly get. Need help with a Dynamics licensing question? Ask your reseller. The reseller will ask Microsoft – and then it goes into a big, dark, black hole until someone loses their mind. Nothing happens. Microsoft also revamped Dynamics in SPLA to make it very difficult to compete. The same can be said for Office. Where I see concern for Microsoft is with Google, who is just getting their foot in the door in the enterprise space. If they make traction (and they will) it will be interesting to see the two giants go at it. Google’s cloud platform is growing exponentially as well.
Surface Sales – I guess you can say is one of the low points of the conference call. Surface revenue dropped 2%. Xbox sales also dropped and became less profitable with price drops and competition. That’s the bad news – the good news? Maybe with the new CSP Windows 10 thing Microsoft will include Surface as part of the program to those not already a Surface Authorized Distributor, or make Surface authorization available to every CSP Direct partner.
LinkedIN – Only Microsoft can spend over 26B for an acquisition and investors are still wondering what it is they bought; and more importantly, not hurt their quarterly earnings. Yeah, they can tie it in for Dynamics and Yammer/Teams with all those users. They also have a pretty impressive data list of users to sell additional collaboration products and services to. I guess the jury is still out on this.
Opinion – Microsoft recently announced a major change in their sales organization. Their sales teams that were focused on the enterprise need to focus more on solution type selling. A lot of organizations in the industry are going through the same transformation. It’s also not an easy thing to do. Time will tell.
I wrote an entire article without mentioning Amazon, they report earnings next week. It will be interesting to see how they compare to Microsoft and how much they grew year of year in comparison. Lots of analysis say Microsoft will surpass AWS as the king of the cloud. I still think Google is lurking in the background and might surprise some people as well.
What does all this mean for SPLA? In my humble opinion, I think Microsoft better be careful with the way they are handling their third-party hosters. Those numbers they threw out yesterday were great, but they can get even better.
Microsoft built a program for partners who have their own datacenters, relationships, and sales resources to promote Microsoft products and technology. There are close to 30,000 SPLA partners (rough estimate) that have datacenters spread throughout the globe. Nobody, can have the reach like your SPLA partners. Google and Amazon do not have 30,000 datacenters, why disrupt it? Don’t audit them, partner with them and help grow this business to build a true hybrid cloud ecosystem. The strategy should be their cloud – our cloud, and customers will thank you. Teaming with Walmart makes sense too. Say what!
Thanks for reading,