Azure cloud is the key to Microsoft's continuous innovation strategy.
Market consulting firm Wikibon believes that in the next ten years, changes in public policy will limit the way large Internet companies obtain user data. At the end of October 2020, with the CEOs of Facebook, Twitter, and Google tit-for-tat against several U.S. senators, large technology companies came under fire again. However, Microsoft CEO Satya Nadella (Satya Nadella) is not among them. Unlike Google, Microsoft is less dependent on advertising revenue. On the contrary, Microsoft's momentum is steadily building around the Azure cloud. According to Wikibon estimates, Azure cloud now accounts for 19% of Microsoft's overall revenue, exceeding $7 billion for the first time.
Wikibon analyzed Microsoft's business at the end of October 2020 and provided a snapshot of Microsoft's ETR (Enterprise Technology Expenditure Research Corporation) data set.
Microsoft Financial Overview
Wikibon believes that Microsoft's business scope is jaw-dropping. The company has approximately $150 billion in revenue, and its revenue in the last quarter (as of the end of September 2020) increased by 12% year-on-year. Microsoft has more than $136 billion in cash on its balance sheet and generates more than $60 billion in operating cash each year. In the last quarter alone (as of the end of September 2020), it generated more than $19 billion in operating cash flow. The gross profit margin of all the company's main businesses is expanding.
Microsoft's three market segments
Microsoft hasn't suffered from the troubles faced by many established technology companies. Companies like IBM, Dell, Cisco, Oracle, and SAP are all struggling for growth because their growth business is not large enough to offset the decline in their traditional internal business units.
At the highest level, Microsoft divides its business into three major categories, and their growth is quite good.
Productivity and business processes
LinkedIn and Office, which grew 16%, fall into this category. This business is changing from a local license to a SaaS cloud computing form using Office365, and Office365 is growing at a rate of 20% in the commercial market, and even the consumer side of Office 365 is also growing at double digits. Dynamics-Microsoft's ERP and CRM businesses belong to this field and are growing at a rate of 18%, compared to the newer Dynamics 365, which has a growth rate of 37%. Therefore, although Microsoft is transforming from a traditional business, it is still prone to growth.
Smart cloud
Wikibon compares the smart cloud business to a "kitchen sink" business, which means everything is packed in. However, Wikibon believes that Microsoft has more freedom than IBM in cloud classification. Smart cloud is Microsoft's $13 billion quarterly business and is growing at a rate of 19%, and Azure cloud accounts for an increasing proportion of this market segment. Azure is the most direct comparison with AWS. Wikibon estimates that in the past quarter, Azure accounted for about 50% of the smart cloud...close to $7 billion per quarter. The annual growth rate of Azure cloud revenue this quarter was 47%, which was the same as the previous quarter.
Ironically, compared with the previous quarter, both AWS and Google Cloud have the same year-on-year growth rate. According to preliminary estimates from Wikibon, AWS is 29% and GCP is 50%. AWS’s revenue last quarter was $11.6 billion, while GCP’s quarterly revenue is still well below $2 billion. It needs to be considered that these are preliminary estimates for Azure Cloud and GCP, and neither of these two companies has explicitly released relevant data.
Back to Microsoft's smart cloud business, it also includes local server software, which is a declining business, which is one of the reasons why Wikibon compares the smart cloud business to a "kitchen sink" business. Microsoft also includes enterprise services in this category, so this is not a pure cloud business data.
More Personal Computing（MPC）
This is a nearly $12 billion business, and it is growing at a rate of 6% per year. Windows OEM business as well as Windows 10 and certain security products are among them. Surface is also in this category. This popular notebook/tablet product line is growing at around 30%. Search revenue is also here. According to Wikibon, this is not Microsoft's main business and is declining.
Electronic games
Video games are also in MPC and are one of the most interesting markets in this category. Microsoft's gaming business is growing at a rate of 21%, and the company just acquired ZeniMax Media for $7.5 billion.
TheCUBE gamers are very excited about Microsoft's Xbox content service, which has grown by 30% in the last quarter. Xbox Game Pass is basically Microsoft's Netflix or Spotify. Users can subscribe for $5 a month, pay up to $15 a month, and have access to a huge catalog of downloadable games. In November 2019, Microsoft released the beta version of xCloud, allowing users to download to a PC or smart TV box. Now finally there is 5G, and the TV box has disappeared. The user only needs a screen and a handle-to play the game without downloading. In fact, this is how xCloud works for Android today.
Just like what happened on Epic Games, Apple blocked Microsoft and some other companies (such as Google’s Stadia), saying that it does not allow streaming media game applications such as Microsoft’s xCloud service because these services do not follow Apple’s guidelines.
What Apple did not say is that its adjacent product Apple Arcade is considered by many hardcore gamers to be inferior, although Apple does have a loyal fan. However, although Apple allows streaming of movies and music from any service on the iPhone, it currently does not allow streaming (Streaming) to provide competitors' game content.
Developer, developer, developer
About Microsoft, the last thing I want to emphasize is its influence on developers. Developers are a big issue. We all remember Steve Ballmer, sweating profusely, running around on stage half-mad, yelling "developer, developer, developer" like a madman, let The audience keeps pace with his clapping hands. Although he was obsessed with Windows, he did it right. The GitHub acquisition is a way to make more developers love Microsoft, and this acquisition focuses on a technology giant. If it's not Microsoft, it's Facebook, Amazon, or Google. Despite some worries in the developer community, GitHub is Microsoft's lever for tighter integration of GitHub with its toolset.
Despite its size, Microsoft's spending momentum is impressive
Wikibon once said that Google needs to pay attention to cloud computing and edge technology, and wake up from advertising. After Satya Nadella took over Microsoft in 2014, Microsoft recovered from Windows myopia. From the ETR survey data, Microsoft is in full swing.
The picture above links Microsoft with some of the most famous companies that both compete with and cooperate with Microsoft. The vertical axis of the XY chart shows the net score-which is a measure of spending momentum, and the horizontal axis shows market share-which is a measure of popularity in the survey. In the table in the upper right corner, you can view the data of each company. This is an ETR survey conducted in October 2020, and more than 1,400 surveys have been completed.
There are three points worth noting: So far, Microsoft is almost everywhere (high market share); however, its net score or spending speed is comparable to AWS, ServiceNow, Salesforce, Workday and Google; only Snowflake (because of its powerful The net score) is included in the background, showing a meaningfully higher net score-but the base is much smaller.
It is impressive because it represents the pan-Microsoft view of the entire product portfolio. It can be seen that compared with Microsoft, companies like IBM and Oracle have stronger spending momentum. This is a problem caused by the small scale of growth of IBM and Oracle.
Wikibon also pointed out that Cisco and SAP, although these two companies have recently faced some challenges in profitability, are still able to maintain net scores. In the table on the upper right of the figure above, although it is not green, it is not red. Green essentially means that the overall customer base is expanding, and red means shrinking.
Microsoft customers are spending more and more on Microsoft
The chart below shows the granularity of ETR's net score at Microsoft. Green represents increased expenditure, and red represents decreased expenditure. What's impressive is that Microsoft's red zone totals only 6%, which is negligible. Overall: Microsoft's customers either spend more money or spend the same money, and few customers leave the platform.
After using the past 18 months to study the ETR data set, Wikibon believes that for a company of Microsoft's size and maturity, this is not only uncommon, but absolutely unique. Microsoft is unique in the ETR data and is the only large company that has shown the same overall spending momentum as a much smaller company that focuses on specialized areas.
Microsoft Azure cloud is the key to its performance
Microsoft has transitioned to a cloud-first business. Most other companies that focus on local enterprise-level technologies are still working hard, and are firmly grasping several main strategies: tightly grasping the local workload of the enterprise, arguing about security, governance, delay, laws and regulations, etc.; tend to Adhere to the hybrid cloud strategy of looping back to the previous one; propose a multi-cloud vision-multi-cloud is today's term; out of necessity to cooperate with the Big Three cloud computing companies (sometimes reluctant).
These are reasonable strategies, but as Wikibon has repeatedly pointed out, Amazon launched S3 in 2006, ushering in the cloud era. In 2007, IBM's investment in research and development was much higher than that of Amazon and Google, and its investment was similar to that of Microsoft. But in the next few years, Microsoft directed its R&D and capital resources to directly compete with AWS and become a leader in cloud computing.
This successful leadership decision created the Azure cloud, which powers all the company's software and services. Importantly, it allows Microsoft not only to migrate existing customers to the world-class cloud, but also to attract a large number of new customers to its platform. At the same time, it also provides Microsoft with huge operating leverage and steadily improves marginal economic benefits.
Find out the details of cloud vendors
The above figure shows Microsoft's position in the cloud computing market in terms of net value. Microsoft Azure Functions (ranked first on this chart) and Azure Cloud as a whole (ranked third) showed as strong momentum as any cloud category, including AWS Lambda (ranked second from left). From the fifth on the left, we can see that although the overall level of AWS has improved, the overall momentum of Azure cloud (3rd from left) is stronger, with a net score of 65%, while AWS overall is 52%.
Although you can argue about the quality of different cloud services, including arguing about feature sets, data center regions, and data centers, you can also point out that Azure is struggling with downtime, but it is difficult to oppose Microsoft's "good enough" strategy for decades. This strategy has been working.
Teams-another example of replication, bundling, integration and dominance
In the late 1980s, Microsoft first deployed this strategy on Office and continued to implement it in many areas. The latest example is Microsoft Teams. Teams combines functions such as meetings, phone calls, chats, collaborations, and business process workflows using tools such as SharePoint and PowerPoint. This is a killer strategy that draws on Zoom, Slack and other leaders, but it bundles various functions and integrates into Microsoft's huge industry, and all runs on the Azure cloud.
You can see the result in the picture below.
This graph compares the net scores of 1,400 respondents in the October survey, July survey, and the most recent October survey a year ago. Teams has a leading advantage over competitors-a net score of 73%, compared with 45% for Zoom and 11% for Slack. It can be said that Teams has the upper hand.
Microsoft is a winner in almost all categories
The following figure shows Microsoft's products in the ETR category-Teams with video conferencing, productivity applications, RPA, cloud and cloud functions, ML/AI, containers, security, endpoints, analytics, mobile, databases, etc., all of these categories Both show a net score of more than 40% (except for database/data warehouse, which is still above 30%). For a company of Microsoft's size, these are signs of extremely impressive spending momentum.
The only signs of weakness are the company's traditional businesses, such as Skype or local license business. Although personal computers and tablet computers are weaker than other products, it should be predictable for such a mature, low-growth business.
By turning to the cloud and fully competing in the IaaS field, Microsoft has created an innovative platform for its business-the developer ecosystem is very reliable, is developing its customer base to the cloud, Microsoft Arc provides powerful hybrid and multi-cloud capabilities, and can eventually move edge.
The important thing is that the company has a huge partner ecosystem-even with Oracle. At the same time, Microsoft also uses Azure cloud to enter new markets, including vertical industry clouds such as healthcare. Wikibon sees this ecosystem as the next wave of Microsoft's innovation engine. Product -> Platform -> Ecosystem is a powerful lever for the next ten years. Because of the large amount of data stored in Azure, its ecosystem partners will be able to more easily collaborate in the Azure cloud and create new features for customers, especially as the edge evolves.
Cloud and edge will be a trillion-dollar market opportunity.
Critical analysis
Wikibon believes that there are not many places to criticize Microsoft. Of course, Microsoft also has some high-profile failures, such as the acquisition of Nokia, Windows Phone, Zune, and Mixer. Bing-Did Bing fail? Not at all. Microsoft was distracted by the US judicial department, which may have caused it to miss the search business and ceded the market to Google. In this sense, it may be a failure, but in general it still maintains a good record. After all, who wants to be under the microscope of social media and advertising today?
Maybe you can say that Microsoft is an imitator. Windows copied the Mac's graphical user interface, but Steve Jobs also got this idea from Xerox's PARC. Surface? cloud? Yes, these are not Microsoft inventions themselves. So what-there can be many ideas, and execution is the key.
No matter the analysis, the data will not lie. Microsoft's financial performance, cloud computing-centric business, and the success of adjacent businesses have made it one of the most dramatic rebirths in the history of the technology industry. This company has never had trouble, it just became insignificant at a certain historical stage.
However, today's Microsoft is no longer insignificant. (Editorial Department of Cloud Technology Times)
(Original link: https://wikibon.com/breaking-analysis-azure-cloud-powers-microsofts-future/)