Microsoft CEO Satya Nadella is riding high with analysts and investors -- but look at the remaining hurdles.
between managing resources on-site and moving some work to the cloud. Amazon still beats Microsoft in total cloud revenue, but Microsoft could win out in the long term, because it is building bridges between Azure and customers' infrastructure, which theoretically allows on-premises environments to move specific operations to the cloud at their own pace.
Microsoft has also upsold basic Azure customers to premium cloud services. CFO Amy Hood said this week that more than half of Azure customers also use products such as Microsoft's Enterprise Mobility Suite, which launched this year. Cloud resources such as storage and compute could become commoditized and thus subject to lower margins, so Microsoft's ability to add up-market services could prove another ace in the hole.
All of that sounds promising -- so where's the problem?
In many conversations, Microsoft's strategy has been reduced to "cloud" in recent months. But looking at where its revenue comes from, Microsoft is still more a server company. In the most recent quarter, its "Commercial Licensing" revenue, which includes income from server products and Windows Commercial, accounted for nearly half of the company's overall revenue. "Commercial Other" -- home to its business-oriented cloud services and their vaunted 147% revenue growth -- accounted for less than 10%. That's not necessarily a problem as long as synergies between server products and Azure continue to shine, but it puts into context where Microsoft gets its revenue.
Ultimately, Microsoft's cloud is growing quickly, but it's still a small piece of the pie. With Windows revenue potentially unsteady and costly device efforts still being brought under control, Microsoft's critics will be sensitive to any lapses in Azure momentum.
Moreover, as it gains more cloud customers, it could become harder for the company to maintain the synergies that seem to be working well today. It also remains to be seen how Nadella will balance openness, evidenced by deals with Salesforce and SAP, with strategic strikes against competitors.
3. Can Windows rebound?
Windows still holds more than 90% of the PC market, but Windows 8 and 8.1 hold only around 12%, according to the web-tracking firm Net Applications. In the short term, this struggle hasn't impacted Microsoft's books as much as you might think. Windows revenue was actually up in the past quarter, thanks largely to business upgrades compelled by Windows XP's end-of-service deadline. But most of those businesses moved to Windows 7, not Windows 8.1. Microsoft's consumer Windows business, meanwhile, is as poor as it's been in recent memory. Windows is clearly living more on its past glories than on Microsoft's newest strategies.
Execs have shown only glimpses of the next version of Windows, which will converge Windows Phone, Windows RT, and full Windows into a single framework. Crucially, the desktop UI will have a Start menu. But will it help Microsoft maintain its PC dominance as Chromebooks eat into the low end and Macs remain popular at the high end? Will the Windows PC user base help the OS gain share on other form factors? Microsoft has
Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio
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