The Covid-19 pandemic has disrupted economic activity in the U.S. Government lockdowns and the desire to avoid catching a potentially deadly virus drove millions of Americans indoors, resulting in tremendous financial strain on a multitude of weak companies and industries.
With more people than working from home, the demand for digital and cloud-based solutions has intensified. Consequently, cloud computing services providers have been among the few beneficiaries of the pandemic.
For Microsoft Corp. (MSFT), one of the top players in the cloud computing ecosystem, the crisis has proven to be an especially potent opportunity.
Mass migration to the cloud
Azure is the beating heart of Microsoft’s cloud computing services. It is the cloud platform around which Microsoft’s myriad cloud-based services are built.
Microsoft saw a staggering jump in Azure users in the early days of the lockdown, especially for Teams, its unified collaboration and communications platform. Within weeks, demand was so great that even Azure's Chief Technology Officer, Mark Russinovich, was shocked. Russinovich reflected on the experience in a June 16 blog post:
“Since its launch, Teams has experienced strong growth: from launch in 2017 to 13 million daily users in July 2019, to 20 million in November 2019. In April, we shared that Teams has more than 75 million daily active users, 200 million daily meeting participants, and 4.1 billion daily meeting minutes. We thought we were accustomed to the ongoing work necessary to scale service at such a pace given the rapid growth Teams had experienced to date. COVID-19 challenged this assumption; would this experience give us the ability to keep the service running amidst a previously unthinkable growth period?”
In some ways, Azure’s staggering usage growth puts Microsoft in a pickle. Indeed, companies’ infrastructure can often groan under the pressure of suddenly elevated demand.
Digital infrastructure put to the test
The rapid growth in demand for Microsoft’s cloud computing services put tremendous strain on its digital infrastructure. In response, Microsoft mobilized its software designers to rapidly scale up its cloud computing capacity, as Mark Simms, a software architect who helped lead Azure’s Covid-19 redesign, explained on June 16:
“The scope and the scale of the response to COVID-19 was completely unprecedented, in terms of how much of the world went digital inside a month. So the work that we had to do to get through the initial surge in demand and free up capacity for our customers to run critical health and safety workloads was also unprecedented. We made some pretty profound changes in order to do the right thing, and we did them under a very short time frame.”
Microsoft has been talking about migration to the cloud as a long-term secular trend in a host of spheres, including business, government and education, but it did not anticipate the need to scale up its cloud computing infrastructure in such a compressed timescale. In a June 7 Time interview, CEO Satya Nadella explained that, in order to cope, Microsoft had to hypercharge its digital restructuring. According to Nadella, Microsoft went “through two years’ worth of digital transformation in two months.”
Preparing for the new normal
As the lockdowns have eased across the country in recent weeks, people have started to wonder what the world will look like going forward. Microsoft is already pondering this issue, as Nadella explained on May 19:
“We’ve talked about these things for decades, but this is the time where we are doing it at scale. And so the question is, what are we learning? What does it show which is sustainable? What should we re-imagine when we get back to normal?”
If people return to their offices in droves, Microsoft may find its newly minted cloud capacity underutilized. However, there are signs that the “new normal” of the post-crisis world will include higher levels of remote work. Indeed, some analysts, economists and commentators have argued that a portion of employees will be unwilling to return to the office. If this proves true, Microsoft’s accelerated investment in its cloud infrastructure should be a boon.
My verdict
Having been compelled to accelerate the expansion of its cloud computing infrastructure and capacity in response to a particular crisis, Microsoft is well placed to benefit from the long-term secular trend of migration to the cloud.
The next several months will be critical for Microsoft’s cloud computing growth story. Microsoft investors would be wise to pay close attention to the workforce trends emerging from the Covid-19 pandemic.
Disclosure: No positions.
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