Earnings reports from Microsoft, IBM, and others show cloud computing is dominant source of revenue, growth, and value
Saying cloud computing is a growth opportunity is almost cliché. For years, the industry has watched cloud services eat away at traditional hardware and software models. Yet something remarkable happened over the past three months at Microsoft. For the first time, cloud services overtook sales generated by its Windows operating system. And Microsoft isn’t the only company that’s buoyed by cloud services.
The Lowdown: Microsoft wrapped up its annual Inspire partner conference this week with the release of its fourth-quarter and annual financial reports. Analysts expected Microsoft to sell $11 billion in cloud services. Instead, it posted sales of $11.4 billion on the quarter. Sales of Azure cloud products spiked 64% and the cloud and server group increased revenue by 22%. Comparatively, the Personal Computing Group – which includes Windows and search advertising – reported revenue of $11.3 billion, up just 4%.
Another vendor buoyed by cloud services is IBM, which also reported better-than-expected quarterly revenue. While Big Blue’s overall revenue declined for the fourth straight quarter, its Cloud and Cognitive Software unit posted revenue of $5.65 billion – $100 million more than analysts’ forecasts.
Salesforce, arguably one of the most successful born-in-the-cloud vendors, posted strong first-quarter earnings in June. Sales topped $3.74 billion on a growth rate of 26%. Analysts had expected earnings of $3.68 billion. Salesforce’s financial results benefited from recent acquisitions, including that of Mulesoft, and growth in professional services, which contributed to its overall strong performance.
In 2018, Amazon Web Services – the cloud division of Amazon – posted annual revenue of $26 billion on growth of 42%. Analysts believe AWS will continue to grow at double-digit rates for the next several years, and will cross the $100 billion revenue line in 2026 for its 20th anniversary.
The Impact: The big cloud companies – Microsoft, AWS, Google, Salesforce, Oracle, and IBM – are moving more of their focus to building and expanding their cloud and recurring revenue services. Microsoft implored alliance and reseller partners at its Inspire conference to continue investing in their cloud capabilities and sales. Google is acquiring more cloud capabilities to catch up with its enterprise rivals. And IBM sees cloud services as its future. All of this cloud growth will come at the expense of legacy products and services. The message to partners: Move up to cloud services and adopt cloud-focused models or risk watching legacy products and model melt away.