Microsoft has hatched yet another billion-dollar baby, but what it really needs is a $10 billion-dollar baby. Azure might just be it.
Microsoft has done it again. On stage at its TechEd conference, Microsoft declared Office 365 to be the "fastest growing business in Microsoft's history," echoing an earlier blog post that made this same claim. This would be more impressive if Microsoft hadn't made the same claim about SharePoint not too long ago, though just a year later, it had moved to more mundane "one of the fastest-growing products" language.
But maybe it's all true. Maybe Microsoft is, in fact, cranking out awesome products that enterprises want to buy. The question, however, isn't whether Microsoft can grow a product from $0 to $1 billion quickly. At its size, Microsoft needs products that will grow from $1 billion to $10 billion.
That's a much tougher task.
Growth is a given
Microsoft has seen a number of products deliver impressive growth over the past few years. Azure, the Infrastructure as a Service (IaaS) cloud service, topped $1 billion not long after launching. Nor is it alone.
At Microsoft's 2014 SharePoint conference, Jared Spataro, general manager, revealed that SharePoint has achieved "double digit growth for each of the last 18 quarters," reaching $1 billion faster than any other Microsoft product. Office 365, of which SharePoint is a key part, has seen 500% growth and delivered $1.5 billion in revenue in 2013.
Those are impressive numbers. Sort of.
In many ways, it's not hard for Microsoft to repeatedly launch "the fastest growing product in company history." After all, as IDC analyst Al Gillen notes, "starting from 0 makes it easier to grow a number fast." This is especially true for Microsoft, which can bring its sizable channel and product portfolio to bear.
Consider SharePoint. Much like Box and Dropbox that came years after, Microsoft's SharePoint served a pressing need in the stodgy enterprise content management (ECM) market. Instead of delivering advanced functionality, like content auditing, SharePoint gave enterprises a way to foster departmental team collaboration around documents.
Even without its obvious utility, SharePoint would have been a winner. Why? Because Microsoft shipped it with every copy of Windows Server. No, organizations didn't have to use it -- but for many, the presence of a free collaboration product that just so happened to seamlessly integrate with their other Microsoft products was too good to pass up.
Microsoft can build complements to its cash cows like Office and Windows and would be hard-pressed to see them fail to hit $1 billion. This is, after all, a company that generates roughly $20 billion in revenue every quarter. Adding another billion each year through add-ons to existing products is not rocket science for Redmond.
The next generation of growth
Honestly, the real challenge for Microsoft is to discover the next $10 billion business. In all likelihood, that challenge will be met by Windows Azure.
After all, while Amazon Web Services (AWS) currently dwarfs its cloud competition, Microsoft remains CIOs' most trusted vendor. Nor is trust all that Microsoft has going for it, as Gartner analyst Lydia Leong suggests:
"Microsoft has brand, deep customer relationships, deep technology entrenchment, and a useful story about how all of those pieces are going to fit together, along with a huge army of engineers, and a ton of money and the willingness to spend wherever it gains them a competitive advantage."
Small wonder, then, that interest in Azure is strong, as Forrester reported in late 2012 (Figure A):
Results of a Forrester survey.
Yes, the data is old. No, it doesn't include Google Compute Engine, which has stormed the market in the last few months. But enterprise interest in Azure remains robust.
Is it $10 billion per year robust? Definitely maybe. Forrester analyst James Staten noted in 2013 that he "expect[s Microsoft] to double annually from here," with "Microsoft probably [having] more net new growth opportunity sitting in front of them than probably anyone in the market."
Microsoft, unlike any other vendor, owns yesterday's workloads. As enterprises look to shift (Windows) workloads from desktops and datacenters to the cloud, and as Microsoft improves the tooling for developers and operations professionals looking to move applications to the cloud, Microsoft's Azure is going to be a natural home for them.
Microsoft's game to lose?
This isn't to suggest that Microsoft will have an easy time catching up with AWS, which currently boasts five times the utilized capacity of the next 15 leading cloud providers... combined (though not including Google Compute Engine). Microsoft has its work cut out for it.
But Microsoft also has shown a willingness to engage the market in ways it never would before. For example, developers love open source, and open source is a first-class citizen on Azure.
Will this be enough? Of course not. But new-school Microsoft love for open source, coupled with old-school attention to its Windows customer base, just might be. What do you think? Let us know in the discussion thread below.