Microsoft's (MSFT, Financial) commercial cloud revenue has grown from more than $8 billion in the fourth quarter of FY 2015Â to $13 billion in the first quarter of FY 2017.Â
According to Microsoft “Commercial cloud annualized revenue run rate is calculated by taking revenue in the final month of the quarter multiplied by twelve for Office 365 commercial, Azure, Dynamics Online, and other cloud properties.”
During that time period, commercial cloud revenue has grown from around $2 billion per quarter to around $3.25 billion per quarter. Both Amazon (AMZN, Financial) and Microsoft’s cloud revenues are growing at above 50% levels.
Competition in the cloud space has become increasingly tight, with Google (GOOG, Financial) and Oracle (ORCL, Financial) both throwing their hats in the ring and committing to long-term growth in the infrastructure and other cloud services segments. Both companies have their own unique strengths - and deep pockets - that will allow them to stay in the competition for a long time. As leaders of the segment, however, Amazon and Microsoft have significant leads over the much younger competitors, the key reason being the current size and scale of their cloud businesses.
Another major reason, and possibly a more relevant one, is the aggressiveness with which both Amazon and Microsoft are pushing their cloud agendas.
As a perfect example, take Microsoft’s decision to jump with both feet into the cloud infrastructure market in India. Microsoft initially planned to open three data centers by the end of 2015, but ended up launching the data centers ahead of schedule. Microsoft India revenues have now grown from approximately $147 million in 2012 to $912 million in 2016. Though in dollar terms a billion dollars in annual revenue looks small, the most important aspect that needs to be noted is that its revenue in India doubled last year, and there is enough momentum to carry Microsoft’s India operations forward for the next few years.
The decision to jump early into the fastest growing economy in the world has resulted in Microsoft India bagging, as their cloud clients, 52 of the top 100 Indian companies listed in Bombay Stock Exchange.
“Microsoft India recently said it has been a year of tremendous cloud adoption in the country. It launched data centres in India late last year. Microsoft India chairman Bhaskar Pramanik said 52 of the top 100 Indian companies listed on the BSE today use the Microsoft cloud,” according to an article in the Times of India.Â
The cloud industry in India is in its early stage, with a large portion of the market yet to make its shift to the cloud. As the economy continues to accelerate, the Indian cloud market will witness strong growth. The cloud industry in India is forecasted to grow at a CAGR of 22% during the 2015 to 2020 period, with Gartner forecasting a growing of 35.6% in 2016 alone.
"While Brexit and other growth challenges exist, some segments such as financial SaaS applications and the PaaS user markets will still see strong growth through 2020," said Sid Nag, research director at Gartner. "As PaaS offerings mature and the competitive landscapes consolidates, we predict that more organizations will consider expanding their PaaS adoption as an important component to their cloud strategy, and specifically to their SaaS deployments."
Though Microsoft’s IaaS will play a critical role in increasing the company’s revenue, the growth in SaaS applications, especially Office 365, will provide a huge boost for Microsoft not just in India but all over the world.
Microsoft says that it is targeting $20 billion in commercial cloud revenues by 2018, which means the company is aiming for quarterly revenues to get above $5 billion from the current $3.25 billion. So far, Microsoft has kept its growth pace to get to that target, and all it has to do is sustain the momentum in order to get there. The strong growth exhibited in markets like India bring that goal even closer.
Disclosure:Â I have no positions in the stocks mentioned above and no intention to initiate a position in the next 72 hours.
Start a free seven-day trial of Premium Membership to GuruFocus.Â
