Microsoft earnings insights: On-premises Office still has a lot of life left

Microsoft earnings insights: On-premises Office still has a lot of life left

Summary: Both cloud and on-premises versions of its Office products were the star in Microsoft's first fiscal 2012 quarter results.

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As they were last quarter, Office products were a key contributor to Microsoft's earnings yet again this time around.

During Microsoft's analyst call about its first fiscal 2012 quarter results, the Softies made some noteworthy points about the interrelationship between Office on-premises and Office in the cloud  --as well as about expectations by more than a few industry watchers that non-cloud versions of communications and productivity products are on their way out.

Microsoft just beat the Street's predictions on October 20, reporting net income of $5.74 billion, or 68 cents a share for Q1 FY2012. Non-GAAP earnings were 68 cents a share on a revenue of $17.37 billion, up 7 percent from the same period a year ago.

The Microsoft Business Division (MBD) led all divisions in terms of contributions to the company's revenue total, at $5.62 billion. (Windows was at $4.87 billion and Server and Tools brought in $4.25 billion for the quarter.) Ninety percent of MBD revenues come from Office products, with the other 10 percent from the Dynamics line. MBD revenues were up primarily due to sales of the 2010 Office system -- meaning the Office client, Exchange Server, SharePoint Server and Lync Server, officials said.

Business revenues for the division were up $326 million, or 8 percent, "primarily reflecting growth in multi-year volume licensing revenue, licensing of the 2010 Microsoft Office system to transactional business customers" (along with strong Dynamics revenue growth), according to Microsoft's latest 10-Q. Unlike the case with Windows, where consumer growth was tepid for the quarter, consumer revenue in MBD was up $75 million, or 7%, due mainly to strong sales of the 2010 Microsoft Office system, the 10-Q stated.

(Microsoft officials said in July 2011 the company had sold 100 million copies of Office 2010 and are not providing any updated figures at this time.)

Microsoft isn't releasing separate sales data for the recently released Office 365 bundle of Microsoft-hosted Exchange Online, SharePoint Online and Lync Online. But officials did say Office 365 is paving way for increased sales of Lync, SharePoint, & Exchange by customers of all sizes.

I'm not quite clear if this means that customers going with Office 365 are subsequently buying more on-premises versions of the products in the suite (Exchange Server, SharePoint Server, Lync Server) -- or vice versa. Or maybe both -- a kind of virtuous circle?

In any case, the implication is that sales of the Office cloud products and the Office on-premises products are reinforcing one another. And that's an interesting trend, especially given the doubts by many industry watchers that users still wanted on-premises versions of products like Office, Exchange, SharePoint and Lync, and not simply cloud-only variants that Google provides.

Topics: Software, Collaboration, Microsoft

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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22 comments
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  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    <b><i>"the implication is that sales of the Office cloud products and the Office on-premises products are reinforcing one another"</i></b>

    This observation essentially confirms Microsoft's assertion all along: The cloud is not about JUST online services or JUST local apps - it's about both. You need local apps for the times when you cannot reach the internet, but cloud allows you to use services that used to be reserved only for the wealthiest and most technologically advanced corporations.
    bitcrazed
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @bitcrazed

      I agree. 100% cloud computing is never going to work, and right now, storage is cheap, RAM is cheap, and local processing is plentiful, so why would you ditch local services?
      The one and only, Cylon Centurion
      • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

        @Cylon Centurion
        "I agree. 100% cloud computing is never going to work"

        "Never" is a long time.
        jorjitop
      • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

        @Cylon Centurion Because people get caught up in marketing lies.
        VoiceOfLogic
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @bitcrazed You're 100% correct. Also, the text rendering abilities of Google Docs is a mere shadow of what on-premise Word Processors can create. If content matters (not just supposed simplicity), then Office has little to worry about from Google...
      ZenZenPup
  • XP

    As long as Office supports Windows XP. I am sure the next version won't support XP and won't be such a hit.
    xp-client
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @anonymuos

      LOL! Dude, XP is dead. Time to move on.
      The one and only, Cylon Centurion
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @anonymuos:
      You should stick to using typewriters for your correspondence. After all, they still support paper!
      jaykayess
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    Its simple, some business just doesn't belong in the cloud so they need on-premise Microsoft Office.
    LoverockDavidson_-24231404894599612871915491754222
  • A lot of life...

    indeed. People have beening talking about cloud computing for 4 years, and I am writing a cloud version of some business software, but at the moment speaking, my stance is just like four years ago: cloud is not the future. I can't say for next 30 years, but for next 10~20 years, I believe I am right.
    jk_10
  • Trusting the cloud

    For business use is the act of a fool.
    NoAxToGrind
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    Despite all the attempts by Open Office and Google docs and zillions of other wannabes, one thing is abundantly clear to all but the obvioisly blind: Office rules! And not without good reason - it's by far the best, most user friendly, most comprehensive and beautifully integrated productivity stack that has ever existed on this planet. And if my rave sounds passionate or over the top, it's meant to.<br><br>I'm speaking as a 12-year user of Office (mainly Excel and Word), but there's still an average of 10 new features I discover every month. And I see it not just for my own home use, but even in the largest enterprises. Excel, particularly, has really become a true enterprise application. It's no longer just stand-alone spreadsheets lying on individual machines (which was a CIO's nightmare of unmanaged data). It's now a true client-server app, with full-featured, enterprise class collaboration and security.<br><br>Keep up the good work, MS!! What I now want is stylus-pen input support (with handwriting recognition) directly into Excel. Imagine carrying a Win8 slate, and just entering numbers directly into Excel cells using a stylus. I believe MS has the technical wherewithal to give us this. All they need to do is get some of their internal divisions to work together a little better.
    jaykayess
    • yeah libre and OO suck big time

      @jaykayess For the money, you cannot beat MS office. The open source loons are busy fighting among themselves and are all proud that they forked OO...all just to stick it to Oracle. The end result: A crappy product that they cant give away. So much wasted time...it didnt have to be this way..but that's the free and open way.
      otaddy
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    Well that's an optimistic way of some disappointing results a . Overall grown at MS has slowed to a crawl. Office monopoly saves the day and the loss in the online section of the company is down and windows mobile in now hidden from view
    martin23
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @martin23

      Yes, very much the same way ad revenue keeps Google going while everything else is a flop.
      NoAxToGrind
    • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

      @martin23

      It is embarrassing how bad Windows is doing in this post PC era: They have only managed to sell over 7 copies every second of every minute of every hour of every day for 2 years (tomorrow).

      Microsoft's results aren't *shocking* but they are still fantastic.

      Honestly, you wouldn't be happy if you didn't have something to complain about.
      Rich Miles
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    MS results are weak in many areas. Online is still making a loss and mobile is hidden from view. Office still has a strong monopoly and will continue to do so whilst the openoffice team bicker over who's version should be more free.
    martin23
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

    I don't know. MBD provided just under a third of revenues and 5.2% of the profit. Is this historically typical for the division?<br><br>I'm feeling that there isn't really enough information to draw conclusions regarding desktop vs. networked vis a vis Microsoft's business model. (And of course cloud, as with mp3s for music in the late 90s, may be the reality that cannot be ignored, so coping with the disruption may be the best to be expected.)<br><br>At least Microsoft does have volume as a Plan B.
    DannyO_0x98
  • Microsoft making huge profits, even without a tablet or a smartphone

    to compete effectively (yet) against the iPhone or iPad and the Android versions of those.

    If they do get the smartphones (WP7) and Windows 8 for tablets right, then their profits should dwarf anything from Apple or Google.
    adornoe
  • RE: Microsoft earnings insights: On-premises Office still has a lot of life left

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