Microsoft shares hovered around an all-time high this morning after Thursday’s strong quarterly earnings report that beat expectations and was bolstered in large part by growth of the company’s cloud offerings.
Revenue from Microsoft’s “Intelligent Cloud” segment for the quarter ended Sept. 30 was up 8 percent, or $490 million, from the year-ago period. Revenue from public-cloud offering Azure alone during the quarter grew 116 percent year over year, and Azure usage “more than doubled” year over year, Microsoft said in its earnings release.
In a post-earnings Q&A Thursday, Microsoft CEO Satya Nadella explained to reporters and analysts how he understands Azure’s strong growth, and how Azure fits in with the newly released SQL Server 2016 and Windows Server 2016, as well as software-as-a-service offerings including Office 365 and Dynamics 365.
Unlike market-leading Amazon Web Services, Microsoft offers a “service fabric” that gives customers computing and analytical options beyond those offered as cloud services, Nadella said.
“One of the bigger growth areas we have in Azure is IoT (Internet of Things),” he offered as an example. “But it’s not just people connecting sensors and collecting data. They collect the data, they store the data, they analyze and do predictions on it. Then after you do predictions, you’ve got to do something about the predictions. So in many cases they choose to use the new Dynamics 365 field-service module.”
As another example, he said that “we have these unique capabilities, like being able to stretch a single table in a database in SQL Server 2016 all the way to the cloud, to have infinite table capacity and having your apps and queries work.” That claim emphasized the importance of helping companies straddle the line between on-premises and in-cloud computing and storage — the hybrid model at which Microsoft seeks to excel.
Conventional wisdom holds that cloud computing will have achieved some level of maturity when mainstream companies start moving production workloads off-premises and into the cloud. That’s in contrast to early-adopter technology-centric companies running test or peripheral apps in the cloud. And that mainstream shift has been happening, Nadella said. “We are definitely seeing production workloads that are moving over from on-premises.”
But the more interesting development recently, Nadella said, is that mainstream companies are not just moving production loads to the cloud but are also implementing novel, complex architectures that are relatively cheap and simple to create in the cloud but would be outlandishly expensive and difficult to create with physical hardware.
When switches and routers don’t cost hundreds and thousands of dollars in their physical incarnations but instead can be had in virtual form with just a few mouse clicks, that opens up possibilities for architectures that would have been out of the question in a server room. Similarly, microservices — small, callable chunks of processing that can be strung together into applications — running in a so-called serverless architecture (a misnomer) can create new computing possibilities without the pain of writing routines.
“Some of the most innovative work we’re seeing done is how people are going straight to microservices and PaaS (platform as a service),” Nadella said. “It could be the same customer who was participating with us in the client-server era not just moving IT to the cloud but building new digital services. We’re seeing great growth in serverless architecture. It’s not just the Silicon Valley startups. It’s the core enterprises that are becoming digital companies.”
Speaking to reporters before Microsoft announced a key cloud deal with Adobe last month at its Ignite conference, Judson Althoff, executive vice president for Microsoft’s Worldwide Commercial Business, also touched on the hybrid nature of Microsoft cloud products.
“One differentiating capability across the Microsoft Cloud is the sheer volume and data that we can harness from traditional relational constructs that might live in one data center, to unstructured data in the cloud,” Althoff said.
Asked specifically about how Azure differs from AWS on Thursday, Nadella offered three reasons.
Organizations “want a trusted, global, hyperscale cloud provider to meet their enterprise needs; (they want) hybrid support architected for hyper-scale service and cloud service; and they want high-level services to help them build their own digital capabilities, inclusive of DevOps productivity, new IoT and enterprise app development, advanced analytics, and machine learning and AI capability.”
He also emphasized Azure’s geographic coverage.
“We have more of a commitment, I’d say, to build out a global footprint,” Nadella said. “We have more regions than anyone. We have more certifications than anyone in terms of adhering to both regulated industry and digital sovereignty. We’re the only public-cloud provider that operates in China. We operate in Germany under German law, and that matters to multinational companies that are trying to operate across many geographies and jurisdictions.”
In fact, AWS and Azure are both building out widespread geographic coverage, but because each defines its regions differently, it’s hard to compare them. And AWS recently moved toward assisting organizations seeking a hybrid environment by entering a partnership with virtualization company VMware.
Morgan Stanley’s 2016 CIO Survey predicted that Azure will edge out Amazon Web Services by 2019 for both Infrastructure as a Service (IaaS) and PaaS. Microsoft also competes with companies including Google and Oracle for cloud computing-related products.
