Satya Nadella, CEO of Microsoft Corp., speaks during 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 luminaries to explore emerging technology opportunities around the world.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft’s Azure cloud for hosting websites and applications will replace Office productivity software as the company’s biggest source of revenue sometime in 2022, predicts analyst Brent Bracelin of Piper Sandler.
It would be a milestone, highlighting Microsoft’s successful transition from on-premises software to cloud-based services since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, which has the equivalent of a Microsoft stock purchase rating, said Azure revenue for the quarter was $ 7.20 billion in the quarter ended December 2020, which would mean it contributed 17% of Microsoft’s total revenue, compared to 4% three years ago. Microsoft does not disclose Azure revenue in dollars, but Piper Sandler’s estimate is in line with the broader sentiment. Analysts at William Blair, who also have the equivalent of a Microsoft purchase rating, estimate Azure’s revenue to be $ 7.40 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 $ 5.72 billion in quarterly revenue, according to Microsoft’s earnings report.
Azure also exceeded Office 365 revenue from commercial customers in the second fiscal quarter, estimated Piper Sandler.
It is now a matter of determining when Azure could eclipse the entire Office, including consumer subscriptions for Office 365 and traditional Office licenses. Piper Sandler says this is likely to happen next year.
“We have Azure quarterly revenue of $ 11.8 billion in June 2022 (exceeding the total Office revenue of $ 10.9 billion for the first time),” Bracelin told CNBC in an email on Wednesday.
The Microsoft Office franchise has existed since 1989, and its oldest component, word processing software Word, has existed since 1983. It has control of the market and, under Nadella, Microsoft has changed many of its business customers from purchasing licenses of Office software for continually paying for Office 365 subscriptions.
Azure, on the other hand, has only been available since 2010 – originally called “Windows Azure” – and technology industry research firm Gartner estimated that in 2019 it was about 40% the size of market leader Amazon Web Services, launched by Amazon in 2006.
Office 365 and Azure originated at Microsoft while Ballmer was CEO, but Nadella made Azure an area of greater emphasis by forming cloud partnerships with companies that have historically been competitors, including Salesforce and Sony. Nadella also led Azure before accepting the title of CEO.
“He led the key strategies and technical changes across all of 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 with support for Bing, Xbox, Office 365 and other services” , said Microsoft about Nadella in his 2014 proxy statement after becoming CEO. “This experience is fundamental to the company’s current strategic direction.”
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TO SEE: Azure is the main driver of Microsoft’s growth: Mark Moerdler of Bernstein