Microsoft commercial cloud growth 'on track,' at current $8 billion annual run rate

Microsoft is 'absolutely' on track to 'meet its $20 billion annualized run rate for its business cloud services by fiscal 2018, officials said.
Written by Mary Jo Foley, Senior Contributing Editor

Windows Phone and the Nokia handset acquisition continue to be problem spots for Microsoft, as its Q4 FY'15 earnings made clear. But things are less cloudy on the cloud side of the house.

Earlier this year, Microsoft CEO Satya Nadella said Microsoft would hit the $20 billion run rate mark for its commercial cloud business in its fiscal 2018 . As of this quarter, the company is at an annualized run rate of over $8 billion, according to its earnings report. That's up from a $6.3 billion annualized run rate for commercial cloud, as of last quarter, execs said.

Microsoft is "absolutely on track" to hit that $20 billion figure, said Chris Suh, General Manager of Investor Relations.

Microsoft's commercial cloud business includes Azure, Office 365 business services (Exchange Online, SharePoint Online, Skype for Business Online and combined Office 365 business plans); CRM Online; and the Enterprise Mobility Suite (EMS).

Commercial cloud does not include cloud-hosting revenues, nor does it include Office 365 consumer subscriptions (Office 365 Home, Office 365 Personal -- which between them added three million more subscribers this quarter, for a total of 15.2 million).

What Microsoft calls "premium workloads" made up more than 55 percent of Microsoft's current Office 365 business installed base. That means anything beyond just the base-level Exchange mail SKU.

For those wondering -- like I was -- if today might be the day that Microsoft announced that Bing had finally hit break-even, nope. Suh said Microsoft still is confident of its prediction that Bing will be profitable in fiscal 2016 (which began on July 1, 2015). But so far, nothing on that front to report. Search advertising revenue was up 21 percent for the quarter, according to Microsoft's earnings release.

Microsoft may be going back to its roots as a software and services company and looking to hardware as a way to showcase its software/service offerings, but that doesn't mean the company didn't also turn in a very solid quarter/year with its Surface tablets. Microsoft still isn't releasing the number of Surface tablets sold, but company officials did say that Surface revenues for the quarter were $888 million, and for fiscal 2015, $3.6 billion.

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