Microsoft’s commercial cloud revenue grew 88 percent over the past quarter to more than $1.7 billion, setting the stage for a once minor revenue stream to become a major driving force for the company’s bottom line.
It’s an essential piece of the “New Microsoft” puzzle they like to talk about in Redmond these days.
Microsoft CEO Satya Nadella has said he wants commercial cloud to be generating about $20 billion per year by the end of 2018. Right now, it’s running at $8 billion, up from $6.3 billion last quarter.
If Microsoft can keep growing its cloud business at the rate it did over the past three months, the company will hit that $20 billion goal.
That’s good news, because that growing cloud business is serving as a counterweight on a see-saw with the money Microsoft earns from traditional on-premises software installations.
This revenue tradeoff was a major takeaway from the company’s quarterly earnings report on Tuesday. On-premises revenues are on the way down — like commercial Office licensing, which slid 18 percent in Q4 2015. Meanwhile, cloud products are picking up customers — like Office 365, which grew subscribers by nearly 25 percent.
In the end, the two sides have essentially offset each other and commercial revenue growth of about 1 percent.
But for that equation to keep working, Microsoft’s cloud revenues are going to have to keep growing. So far, at least, it’s showing no signs of slowing down.