Satya Nadella, CEO of Microsoft Corp., speaks on Monday, October 24, 2016 at the WSJDLive Global Technology Conference in Laguna Beach, California, USA. The conference brings together an unparalleled group of top executives, founders, pioneers, investors and bodies to explore technological opportunities around the world.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft’s Azure cloud for hosting websites and applications will replace the Office productivity software as the largest source of revenue at some point in 2022, predicts Brent Bracelin, analyst at Piper Sandler.
This would be a striking milestone highlighting Microsoft’s successful transition from local software to cloud-based services since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, which has the equivalent of a buyout rate on Microsoft shares, said Azure revenue ended the quarter at $ 7.20 billion in the quarter ended December 2020, which would mean 17% of Microsoft contributed 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 broader sentiment. Analysts at William Blair, which also has the equivalent of a sales figure for Microsoft, estimate that Azure’s revenue is $ 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 revenue in the quarter, according to Microsoft’s revenue statement.
Piper Sandler estimates that Azure also exceeded Office 365 revenue from commercial customers in the fiscal second quarter.
It’s now a matter of determining when Azure can already obscure Office, including subscribers to Office 365 and traditional Office licenses. Piper Sandler says it will probably happen next year.
“We have quarterly Azure revenue of $ 11.8 billion by June 2022 (Office total revenue downgraded by $ 10.9 billion for the first time),” Bracelin said in an email to CNBC on Wednesday.
Microsoft’s Office franchise has existed since 1989, and the oldest component, the word processing software Word, has existed since 1983. It has a controlling market share, and under Nadella, Microsoft has moved many of its business customers to buy Office software licenses to constantly pay for Office 365 subscriptions.
In contrast, Azure has only been available since 2010 – it was originally called “Windows Azure” – and research firm Gartner of the technology industry estimates that in 2019 it will be about 40% of the size of Amazon Web Services, which Amazon launched in 2006. has. .
Both Office 365 and Azure had their origins at Microsoft while Ballmer was CEO, but Nadella made Azure an area of greater emphasis and formed cloud partnerships with companies that were previously competitors, including Salesforce and Sony. Nadella also led Azure before accepting the CEO title.
“He has been at the forefront of key strategy and technical shifts across the company’s products and services, in particular our move to the cloud and the development of one of the largest cloud infrastructures in the world supporting Bing, Xbox, Office 365 and other services,” said Microsoft. Nadella in his 2014 proxy statement after becoming CEO. “This experience is fundamental in the current strategic direction of the business.”
Nominations are open for 2021 CNBC Disruptor 50, a list of private enterprises using breakthrough technology to become the next generation of large public companies. if by Friday, Feb. 12 at 3 p.m. EST.
LOOK: Azure is the main driver of the growing Microsoft: Bernstein’s Mark Moerdler