Revenue from Microsoft’s commercial cloud business, including Azure and Office 365, approached $10 billion in the fiscal year ended June 30, up nearly 40 percent from the previous year, and more than three-fold over the past two years, according to a new Microsoft regulatory filing.
The numbers provide new insights into an area critical to the future of Microsoft’s business. Microsoft normally discloses its commercial cloud results as a “run rate” — taking the revenue from the most recent month and multiplying by twelve to annualize the figure. On that basis, Microsoft reported a commercial cloud run rate of more than $12.1 billion as part of its most recent quarterly results.
However, Microsoft’s annual 10-K reports, the latest of which it filed last week, reveal the actual numbers and underlying trends. According to the latest filing, Microsoft’s “commercial cloud” revenue was $9.5 billion last year, up from $5.8 billion and $2.8 billion in fiscal years 2015 and 2014, respectively. Earlier 10-Ks put commercial-cloud revenue for FY13 at $1.3 billion and for FY12 at $700 million.
“Commercial cloud” includes “Office 365 commercial, Azure, Dynamics Online, and other cloud properties,” according to the SEC filings.
Enlightening as these numbers are, it’s difficult to compare Microsoft’s $9.5 billion with the $7.9 billion that Amazon generated from cloud leader Amazon Web Services in 2015, or with Amazon CEO Jeff Bezos’ prediction that AWS revenue will hit $10 billion this year.
That’s because AWS’s revenue is derived strictly from Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), but no direct comparison is available to the Microsoft analog, Azure, because Microsoft’s commercial cloud figure also includes Office 365 and other products. Microsoft doesn’t break out its comparable numbers separately. Neither does Alphabet, whose Google Cloud Platform is usually cited as holding third place in the overall public cloud market, behind Amazon and Microsoft.
It’s common knowledge that Microsoft obscures its cloud revenues by reporting the run rate, rather than revenue, and not disclosing profits from its overall commercial cloud business. Amazon did something similar with Amazon Web Services until the first quarter of 2015. The practice frustrates analysts, reporters and even major shareholder and former Microsoft CEO Steve Ballmer.
But based on the numbers in the filing, it’s clear that the cloud is becoming a much larger piece of Microsoft. In the 2012 fiscal year, for example, the company’s $703 million in commercial cloud revenue represented less than 1 percent of its companywide revenue of $73 billion. At $9.5 billion, commercial cloud revenue for fiscal 2016 represented more than 10 percent of Microsoft’s $92 billion in revenue for the year.