Microsoft is ready to become a dominant force in cloud computing with superior cloud offerings, a Windows ecosystem under complete renewal, first signs of Surface-Lumia-Xbox successes on the market, and strong interest in technology partnerships by other industry leaders

Oct 23, 2014: Microsoft’s (MSFT) CEO Satya Nadella on Q1 2015 Results – Earnings Call Transcript

Three month ago I outlined how Microsoft is the productivity and platform company for the mobile-first cloud-first world.

[⇒ Satya Nadella on “Digital Work and Life Experiences” supported by “Cloud OS” and “Device OS and Hardware” platforms–all from Microsoft [this same blog, July 23, 2014] ]

This was the essence of Microsoft Fiscal Year 2014 Fourth Quarter Earnings Conference Call for me, as the new, extremely encouraging, overall setup of Microsoft in strategic terms (the above table is mine, repeated here as based on what Satya Nadella told on the previous Q4FY14 conference call). ⇒ Satya Nadella on “Digital Work and Life Experiences” supported by “Cloud OS” and “Device OS and Hardware” platforms–all from Microsoft [this same blog, July 23, 2014]

[⇒ Satya Nadella’s (?the next Microsoft CEO?) next ten years’ vision of “digitizing everything”, Microsoft opportunities and challenges seen by him with that, and the case of Big Data  [this same blog, Dec 13, 2013] ]

As I reflect on this past quarter, there are four important indicators of progress that I want to highlight: cloud, Windows, hardware and finally I’ll talk about our ecosystem momentum.

1. Our cloud offerings continue to grow at a rapid rate. More people in organizations are signing up and we are generating more revenue across both commercial and consumer customers. Our commercial cloud revenue grew a 128% year-over-year, the fifth consecutive quarter of triple-digit growth. In fact we’re the only company with cloud revenue at our scale that is growing at triple-digit rates. And 80% of the Fortune 500 are now on the Microsoft Cloud. Office 365 commercial seats nearly doubled, two out of every three new customers see our premium versions.

from Earnings Release FY15 Q1: Commercial cloud revenue grew 128% driven by Office 365, Azure and Dynamics CRM.
from Q1’FY15 Segment Results: Commercial Cloud revenue grew $662 million or 128%, due mainly to subscriber growth and a higher premium mix of Office 365 Commercial. Microsoft Azure revenue also grew 121%, reflecting a growing customer base, higher commitment levels, and increased usage. ]

Consumer Office 365 now exceeds 7 million subscribers, up more than 25% for the last quarter alone.

from Q1’FY15 Segment Results: Office 365 Consumer revenue increased $87 million, reflecting subscriber growth, and we ended the first quarter of fiscal year 2015 with 7.1 million subscribers. ]

We continue to invest in growing our leadership position in areas with great opportunity. To that end, we’re expanding our data center capacity to meet demand, provide the best customer experience, enable data solvency and deliver continuous innovation.

As you are seeing robust growth because of our unique approach as the only hyper scale public cloud provider with enterprise great capabilities and true private cloud and hybrid cloud offerings.

⇒ The cloud experience vision of .NET by Microsoft 12 years ago and its delivery now with Windows Azure, Windows 8/RT, Windows Phone, iOS and Android among others [this same blog, Sept 16, 2012
⇒ “Cloud first” from Microsoft is ready to change enterprise computing in all of its facets [this same blog, June 4, 2013]


[ ⇒ Microsoft partners empowered with ‘cloud first’, high-value and next-gen experiences for big data, enterprise social, and mobility on wide variety of Windows devices and Windows Server + Windows Azure + Visual Studio as the platform [this same blog, April 19, 2014]
  ⇒ Microsoft BUILD 2014 Day 2: “rebranding” to Microsoft Azure and moving toward a comprehensive set of fully-integrated backend services [this same blog, April 27, 2014]
  ⇒ Scott Guthrie about changes under Nadella, the competition with Amazon, and what differentiates Microsoft’s cloud products [this same blog, Oct 2, 2014]
etc. see more below, in the next insert

[so it is NOT HALF-BAKED anymore:]

Microsoft’s half-baked cloud computing strategy (H1’FY14)

Microsoft’s half-baked cloud computing strategy (H1’FY14) [‘Experiencing the Cloud’, Feb 17, 2014] ⇒ 4. Microsoft products for the Cloud OS [‘Experiencing the Cloud’, as of Dec 18, 2013, but published only on Feb 14, 2014] ⇒ 4.5. Microsoft talking about Cloud OS and private clouds: starting with Ray Ozzie in November, 2009 [‘Experiencing the Cloud’, as of Dec 18, 2013, but published only on Feb 14, 2014] (was separated because of its length)

We continue to add new features and capabilities faster than ever based on user feedback cycles. One major Azure service or feature is released every three days on average, opening up many more new user scenarios for our customers.

[ I would put here the following achievement as IMHO the most remarkable one in terms of product/technology complexity moved to an agile lifecycle ⇒ Sam Guckenheimer on Microsoft Developer Division’s Journey to Cloud Cadence [this same blog, Oct 19, 2014] ]

Our premium services on Azure create new monetization opportunities in media, data, machine learning and fast analytics and enterprise mobility. More than 60% of the Azure customers are now using at least each one of these premium services such as Enterprise Mobility Suite, which is off to a very fast start.

[ ⇒ The first “post-Ballmer” offering launched: with Power BI for Office 365 everyone can analyze, visualize and share data in the cloud [this same blog, Feb 10, 2014]
   ⇒ An upcoming new era: personalised, pro-active search and discovery experiences for Office 365 (Oslo) [this same blog, April 2, 2014]
   ⇒ Enhanced cloud-based content delivery services to anyone, on any device – from Microsoft (Microsoft Azure Media Services) and its solution partners [this same blog, April 8, 2014]
   ⇒ Microsoft partners empowered with ‘cloud first’, high-value and next-gen experiences for big data, enterprise social, and mobility on wide variety of Windows devices and Windows Server + Windows Azure + Visual Studio as the platform [this same blog, April 19, 2014]
   ⇒ Microsoft Azure: Marketable machine learning components capability for “a new data science economy”, and real-time analytics for Azure HDInsight service  [this same blog, Oct 22, 2014]
and about  here on this blog ]

Top 10 ISVs love our open and flexible approach and are building on Azure at a rapid pace. In fact 40% of Azure revenue now comes from startups and ISVs.

Even with our tremendous growth in public cloud, we are still seeing strength in our on-premise businesses with double-digit growth across Windows Servers, SQL Server, System Center and Dynamics. This is because of the unique hybrid and private cloud capabilities that are built into our service.

2. The second indicator of progress is the improvement in the overall health of the Windows ecosystem in the first quarter.

We introduced an expanded set of Windows offerings which helped drive consumer unit growth in quarter one and will provide incremental opportunities for use of Microsoft services such as Bing. With these new offerings, OEMs are delivering exciting new devices at extremely attractive price points, including Windows PCs at 199 and below.

[ ⇒ ASUS EeePC revival with the $199/€199 EeeBook X205 at IFA 2014: the Chromebooks alternative based on Windows 8.1 with Bing  [this same blog, Sept 6, 2014] ]

In September, we took the first steps in publicly sharing more about the next generation of Windows. Windows 10 will unlock new experiences for customers to work, play and connect across an incredibly broad set of devices with screens from 4 inches to 80 inches and even IOT devices.

[ ⇒ Windows 10 Technical Preview: Terry Myerson and Joe Belfiore on the future of Windows [this same blog, Oct 1-3, 2014] ]

Windows 10 will deliver a single unified application development platform, one way to write a universal app across the entire family of Windows devices and one store with the unified way for applications to be discovered, purchased and updated across all these devices.

[ ⇒ The promise of Universal Apps came first with Microsoft BUILD 2014 Day 1: consistency and superiority accross the whole Windows family extended now to TVs and IoT devices as well—$0 royalty licensing program for OEM and ODM partners in sub 9” phone and tablet space[this same blog, April 2, 2014] plus Microsoft BUILD 2014 Day 1: new and exciting stuff for MS developers [this same blog, April 5, 2014], then it was strengthened on the level of stock market in Q3’FY14 earnings call with Microsoft is transitioning to a world with more usage and more software driven value add (rather than the old device driven world) in mobility and the cloud, the latter also helping to grow the server business well above its peers [this same blog, April 25, 2014], and then was continued in the already mentioned ⇒ Satya Nadella on “Digital Work and…  as well as ⇒ Windows 10 Technical Preview:…  ]

Think about it … with Windows 10 developers can build one app and thus expand billions of devices.

When I talk about putting customers at the center of everything we do, it’s especially true with Windows. We are incorporating customer feedback earlier than ever in the development cycle — especially from our enterprise customers. This will be the best Windows release ever for businesses. And with hundreds of thousands of pieces of feedback flowing into the team already, Windows 10 will be the most collaborative version of Windows we have ever shipped.

3. I want to highlight some specific markers of advancements in hardware and gaming. Across the entire hardware portfolio, I’m encouraged by the reception from customers and our continuously improving execution.

[ ⇒ Mobile devices from ex-Nokia joined with Microsoft’s own: Stephen Elop on approach and strategy under Microsoft Devices Group [this same blog, Oct 1, 2014] ]

Surface had strong results this quarter driven by positive customer response to Surface Pro 3. The product line up is the right one and customers are responding favorably. Surface Pro 3 is now in 28 markets and importantly we have improved the business economics of this product line.

[ ⇒ Microsoft Surface Pro 3 is the ultimate tablet product from Microsoft. What the market response will be? [this same blog, May 21, 2014]
from Earnings Release FY15 Q1
: Surface Pro 3 momentum drove Surface revenue of $908 million.
from Q1’FY15 Segment Results
: Surface revenue increased $508 million or 127%, due mainly to an increased mix of Surface Pro units sold and their related accessories. The release of Surface Pro 3 in June 2014 contributed to a 126% increase, reflecting higher premium mix of devices sold. ]

With phone, we have move quickly to integrate the business. We are executing on all of the restructuring changes we talked about in the last quarter while driving Lumia share growth. We saw modest growth over the prior year driven by sales in Europe where we gained share with lower price devices.

from Earnings Release FY15 Q1: Phone hardware revenue exceeded $2.6 billion with ongoing focus on execution discipline.
from Q1’FY15 KPILumia smartphone unit sales   5.8 million in Q4’FY14   9.3 million in Q1’FY15
from Q1’FY15 Segment Results: … and 42.9 million non-Lumia phones … Phone Hardware gross margin was $478 million.
⇒ What Microsoft will do with the Nokia Devices and Services now taken over, but currently producing a yearly loss rate of as much as $1.5 billion? [this same blog, April 29, 2014] ]

Now let’s talk gaming. As I previously said, gaming is an important category that will drive additive business value for Microsoft. It is a single biggest digital live category measured in both time and money spent across devices of all type.

We launched Xbox One in 28 markets, increased console unit sales from a year ago, and grew users of Xbox LIVE apps by more than 20%.

from Earnings Release FY15 Q1: Total Xbox console sales were 2.4 million, growing 102%.
from Q1’FY15 Segment Results: Xbox Platform revenue increased $538 million or 58%, due mainly to 102% higher volume and a 93% increase attributable to higher premium mix of consoles sold, offset in part by a decrease in revenue from third-party video games. Xbox One was released in November 2013, introduced into new markets in September 2014, and sells for a higher price than Xbox 360. We sold 2.4 million Xbox consoles during the first quarter of fiscal year 2015 compared with 1.2 million consoles during the first quarter of fiscal year 2014.
⇒ Microsoft’s integrated solution for streaming video and Live TV providers on all devices, plus the upcoming live-action and “shared experience” TV of its own on Xbox [this same blog, Feb 3, 2014] ]

The acquisition of Mojang, which we expect to close in November, extends our ecosystem and community across multiple platforms. Minecraft adds to our already strong portfolio of first party games and contents such as Halo, and will strengthen our gaming experiences on PCs and consoles as well as cross-platform monetization.

4. [Ecosystem:] The fourth and final area I want to focus on today is the renewed energy and momentum in our partnerships.

As a productivity and platforms company, we create vast opportunity for our partners through moving fast to extend our platforms and tools to reach more customers through partnerships — from SAP and Oracle to Salesforce, Adobe and IBM, to the latest partnerships we announced this past week with Docker, Cloudera and CoreOS. Great partnerships emerge from great products, strong momentum and the shared enthusiasm about a long-term vision.

[ ⇒ Proper Oracle Java, Database and WebLogic support in Windows Azure including pay-per-use licensing via Microsoft + the same Oracle software supported on Microsoft Hyper-V as well [this same blog, June 25, 2013] ]

Technology leaders across the board recognize the customer value inherent in products like Office 365, Azure and Windows.

[ ⇒ The first “post-Ballmer” offering launched: with Power BI for Office 365 everyone can analyze, visualize and share data in the cloud [this same blog, Feb 10, 2014]
   ⇒ An upcoming new era: personalised, pro-active search and discovery experiences for Office 365 (Oslo) [this same blog, April 2, 2014]
⇒ Microsoft partners empowered with ‘cloud first’, high-value and next-gen experiences for big data, enterprise social, and mobility on wide variety of Windows devices and Windows Server + Windows Azure + Visual Studio as the platform [this same blog, April 19, 2014]
etc. as follows from all that above

And they want to align their businesses with our healthy and growing ecosystem. You’ll see more partnerships in the months ahead. It’s the best way to deliver the best possible experience for our customers in today’s heterogeneous mobile-first cloud-first world.

In summary, I am pleased with the progress we’re making. Teams all across the company are rallying around our core focus to reinvent productivity and create platform for a mobile-first, cloud-first world. We will continue to drive the changes that will position us for the future. We will be accountable to our customers, partners and shareholders, and we will be relentless in looking for areas to invest for long-term growth.


About Nacsa Sándor

Lazure Kft. • infokommunikációs felhő szakértés • high-tech marketing • elérhetőség: Okleveles villamos és automatizálási mérnök (1971) Munkahelyek: Microsoft, EMC, Compaq és Digital veterán. Korábban magyar cégek (GDS Szoftver, Computrend, SzáMOK, OLAJTERV). Jelenleg Lazure Kft. Amire szakmailag büszke vagyok (időrendben visszafelé): – Microsoft .NET 1.0 … .NET 3.5 és Visual Studio Team System bevezetések Magyarországon (2000 — 2008) – Digital Alpha technológia vezető adatközponti és vállalati szerver platformmá tétele (másokkal együttes csapat tagjaként) Magyarországon (1993 — 1998) – Koncepcionális modellezés (ma használatos elnevezéssel: domain-driven design) az objektum-orientált programozással kombinált módon (1985 — 1993) – Poszt-graduális képzés a miniszámítógépes szoftverfejlesztés, konkurrens (párhuzamos) programozás és más témákban (1973 — 1984) Az utóbbi időben általam művelt területek: ld. (Experiencing the Cloud) – Predictive strategies based on the cyclical nature of the ICT development (also based on my previous findings during the period of 1978 — 1990) – User Experience Design for the Cloud – Marketing Communications based on the Cloud
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