Azure Remains Key to Microsoft’s Future

Microsoft’s Satya Nadella

By Jeffrey Burt

Microsoft officials are seeing the Azure public cloud business continue to grow into a key revenue engine for the company.

In the most recent quarter, Microsoft’s Intelligent Cloud unit — which includes not only Azure but also other cloud-related offerings — saw a 22% increase in revenue, to $9.7 billion from the same three months last year. Azure itself drove a 73% increase in revenue in the company’s fiscal third quarter, a significant jump though a bit smaller than the 76% year-over-year increase in the previous quarter.

Overall, Microsoft’s quarterly revenue hit $30.6 billion, 14% more than a year ago.

Azure’s growth is an indication of its importance to Microsoft’s overall business and the direction company officials need it to go as they look to chip away at Amazon Web Services’ (AWS) dominant market share. The Azure results also are indicative of the growth of the public cloud market in general and Microsoft — like AWS, Google Cloud Platform and other providers — is benefitting as enterprises embrace multicloud and hybrid cloud strategies.

Gartner analysts are predicting that worldwide, the public cloud market will reach $214.3 billion this year, a 17.5% increase over the $182.4 billion last year.

During a conference call this week to discuss the quarterly numbers, Microsoft CEO Satya Nadella said that a differentiated approach to the cloud is helping to drive Azure’s business.

“Our architectural advantage is a clear reason for our success,” Nadella said. “Azure is the only true hybrid, hyperscale cloud that extends to the edge. Operational sovereignty is increasingly critical to customers, and Azure uniquely provides consistency across development environments, operating models and technology stacks — whether connected or disconnected to the public cloud.”

Microsoft’s Amy Hood

During the same call, Amy Hood, senior vice president and CFO, said that for Azure, the company expects “’continued strong growth in our consumption-based business and moderating growth in our per-user business given the increasing size of the installed base.”

Whether it will change how the market sits now is still to be seen. AWS, Google Cloud and other providers like IBM Cloud, Alibaba and Oracle Cloud are also feeling the benefits of such a fast-growing space. Analysts at Synergy Research Group in February said that AWS in the fourth quarter 2018 slightly increased it market share to almost 35%, more than the next four combined.

Cloud providers also are maneuvering to get on both sides of the hybrid cloud trend. Not only are they offering access to services on their public clouds, but they’re also now enabling customers to bring those services on-premises. One way AWS is doing this is through its Outposts appliances that bring AWS hardware and services to enterprise data centers and easy connectivity into the AWS cloud. Google Cloud…

…recently launched its Anthos initiative to enable customers to run its cloud services on on-premises hardware from a range to vendors, including Lenovo, Hewlett Packard Enterprise and Dell EMC, as well as other public clouds.

Microsoft in 2017 released Azure Stack, a way of bringing the Azure platform into customer data centers. It has since expanded its hybrid capabilities, such as unveiling in March its Azure Stack HCI for hyperconverged infrastructure solutions and Azure Data Box Edge in April. The latter is an edge computing appliance that leverages artificial intelligence (AI) and can transfer data real time to Azure over a network.

Rob Enderle, principal analyst with The Enderle Group, said Azure “is at the heart of Microsoft’s near-term future, it is Satya Nadella’s baby and it pretty much will define the new Microsoft much like Windows defined the old.”

The Enderle Group’s Rob Enderle

“They have been aggressively open, they have embraced developers and they have provided a well-priced, secure solution,” Enderle told Channel Partners, adding that there are weaknesses to Microsoft’s efforts. “Microsoft still appears as a U.S. company (they haven’t done the work globally that IBM once did to appear to be a more global vendor and with nationalism on the rise, that reduces their potential) and past concerns about old bad behavior still surround the firm even though it is vastly different than the firm it once was.”

In its efforts to gain ground on AWS, the analyst said that Azure opted to tout its own merits despite what he said are challenges facing AWS that are expected from a retailer trying to provide IT services. If Microsoft officials had employed some of the aggressive marketing skills they were know for a decade or more ago, they may have been able to more successfully attacked AWS. In the end, Enderle said Microsoft’s less aggressive approach is the better path forward.

“You don’t need to bad mouth competitors or grow at near vertical rates to be successful long term,” he said. “You just need to stay on top of the market and focus on understanding both what the customers need today and what they are likely to need tomorrow. Staying focused on that should serve them far better than their past focus on killing competitors.”