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.
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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.
