Satya Nadella, CEO of Microsoft Corp., speaks at the WSJDLive Global Technology Conference in Laguna Beach, California, USA, on Monday, October 24, 2016. The conference brings together an unparalleled group of top CEOs, founders, pioneers, investors and luminaires to explore emerging technology opportunities around the world.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft’s Azure cloud for hosting websites and apps will replace Office’s productivity software as the company’s largest source of revenue sometime in 2022, predicts Piper Sandler analyst Brent Bracelin.
It would be an amazing milestone, highlighting the success of Microsoft’s transition from local software to cloud-based services since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, who has the equivalent of a Microsoft stock purchase rating, said Azure’s revenue in the quarter reached $ 7.202 billion in the quarter ended December 2020, which would mean that it contributed with 17% of Microsoft’s total revenue, compared to 4% three years ago. Microsoft does not disclose Azure’s revenue in dollars, but Piper Sandler’s estimate fits a broader sentiment. Analysts at William Blair, who also have the equivalent of a purchase rating for Microsoft, estimated Azure’s revenue was $ 7.402 billion.
This means that Azure is already significantly larger than the Windows franchise, which dates back to 1985 and helped make Microsoft the most valuable and powerful technology company in the world in the 1990s. Windows generated $ 5.7 billion in revenue during the quarter, according to Microsoft’s earnings account.
Piper Sandler has estimated that Azure also surpassed Office 365 revenue from business customers during the second fiscal quarter.
Now it’s time to determine when Azure can overshadow all Office, including consumer subscriptions to Office 365 and traditional Office licenses. Piper Sandler says it is likely to happen next year.
“We have Azure’s quarterly revenue of $ 11.8 million in June 2022 (the Office’s global revenue overshadows $ 10.9 million for the first time),” Bracelin told CNBC on Wednesday via email .
The Microsoft Office franchise has existed since 1989 and its oldest component, Word word processing software, has existed since 1983. It has a controlling market share and, under Nadella, Microsoft has moved many of its commercial customers to buy Office software licenses to continuously pay for Office 365 subscriptions.
Azure, by contrast, has only been available since 2010 (originally called “Windows Azure”) and technology industry research firm Gartner estimated that by 2019 it was about 40% the size of market leader Amazon Web Services, which Amazon introduced in 2006.
Both Office 365 and Azure originated at Microsoft while Ballmer was its CEO, but Nadella has made Azure a more prominent area, forming partnerships in the cloud with companies that have historically been competitors, including Salesforce and Sony. Nadella also ran Azure before accepting the CEO title.
“It led major strategic and technical changes between the company’s products and services, most notably our move to the cloud and the development of one of the world’s largest cloud infrastructures that support Bing, Xbox, Office 365 and others. services, “Microsoft said of Nadella in its 2014 statement of representation after he became CEO. “This experience is critical to the company’s current strategic direction.”
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