July 3, 2014, file photo, shows the Microsoft Corp.
logo outside the Microsoft Visitor Center in Redmond,
Wash. Microsoft reports financial results Tuesday,
July 19, 2016.
FRANCISCO — In a world where there's a smartphone app for
everything, one company __ Amazon.com Inc. — has long been
the host for an outsized share of online software and
CEO Satya Nadella wants to change that.
poured billions of dollars into building new data centers
around the world, hoping to position Microsoft as the
leading alternative to Amazon in selling online computing
power — housed in remote centers or "clouds" —
to internet startups and big corporations, as well as
the investment is paying off, Microsoft Corp. reported
Tuesday that its Azure cloud-computing business more than
doubled in sales last quarter, compared with a year earlier.
That growth, combined with increases in revenue from Windows
software licenses and other key segments, helped offset a
big decline in revenue from the Nokia smartphone business
that Microsoft largely shut down last year.
has been the undisputed king of the cloud, analysts say
Microsoft, Google and a few other tech giants are emerging
as rivals. The competition could mean lower prices and more
innovation, both for businesses that buy cloud-computing
services and for consumers who use popular apps — from
Netflix to Pinterest and Airbnb — that run in the cloud.
pioneered the cloud business almost 10 years ago, when the
online retailer began renting out unused capacity on its own
servers. Estimates vary, depending on how you define
"cloud computing," but analysts at Synergy
Research Group say Amazon still has more than 30 percent of
the market, while Microsoft has grown to 10 percent —
partly on the strength of Microsoft's promise that its cloud
services are compatible with Microsoft software that
customers already have on their own computers.
Google have 7 and 5 percent, respectively. Like Microsoft,
IBM reported this week that its cloud revenues increased in
the last quarter, despite a broader decline in its
traditional software business.
consumers, competition in the cloud-computing industry could
mean their favorite social media site or streaming
entertainment app doesn't depend on a single company to keep
its service running. Increasingly, that's also true for big
companies like General Electric and Boeing, which provide
online data and other services for their commercial
customers, and which recently signed deals to move some of
those services to Microsoft's cloud.
companies will want to work with multiple cloud providers,
so if anything goes wrong, they have redundancy," said
Frank Gillett, a tech analyst with Forrester Research.
Microsoft, meanwhile, cloud computing has been the company's
biggest source of growth in recent quarters. It's helped
drive up Microsoft's stock price by 15 percent over the last
year, despite sluggish sales of PC software and the
near-collapse of its floundering smartphone business. The
company's stock was up about 4 percent in after-hours
trading Tuesday following the earnings report.
investors worry the cloud business isn't as profitable as
selling traditional software, since the latter didn't
require massive spending on data centers. But cloud
computing is "the area that offers the highest
potential for the entire company to grow its way out of a
very mature PC business," said Dan Morgan, senior
portfolio manager at Synovus Trust, which holds Microsoft
from Microsoft's latest quarter underscored that trend. The
company doesn't disclose revenue for its Azure cloud
computing service by itself. But Microsoft's
"Intelligent Cloud" division — which includes
Azure and some software that customers use in their own data
centers — reported revenue of $6.7 billion, up 7 percent
from a year earlier. That helped boost Microsoft's overall
sales to $22.6 billion, after adjusting for deferred
revenue, for an overall increase of 2 percent.
from the division that includes Microsoft's Office
productivity software was up 5 percent. But sales from the
"More Personal Computing" segment fell 4 percent.
The latter includes licensing fees that PC makers pay for
Windows software, which saw an uncharacteristic increase,
offset by declining revenue from smartphones and Xbox
still relies heavily on the PC business, and it's been
aggressively promoting Windows 10, the latest version of its
operating software for PCs and other devices. But Nadella
has positioned Windows 10 as part of a broader software
ecosystem that includes money-making online services like
Skype and the ad-supported Bing search engine.
In a rare
concession, Microsoft signaled last week that it was backing
off its stated goal of getting Windows 10 on a billion
devices by 2018. Analysts say the timetable was probably
slowed by a continued slump in global PC demand, as well as
Microsoft's failure to persuade consumers to buy