Microsoft: Office 365 at $1.5 billion annual run rate

Office 365 deployed seats are expanding and leading Microsoft's transition from a business model based on licensing to subscriptions.
Written by Larry Dignan, Contributor

Microsoft on Thursday made the case that it could navigate the transition from software licensing to cloud-based services and its primary example was Office 365.

Kevin Turner, Chief Operating Officer of Microsoft, said that Office 365 is at a $1.5 billion annual run rate. In April, Microsoft said Office 365 was poised to hit a $1 billion annual run rate.

Turner said:

This past year we grew Office 365 deployed seats over 350 percent in FY13 alone. It's still accelerating. We're only at the tip of the iceberg of this particular opportunity.

Office 365 is being closely watched by Wall Street. Some analysts have argued that Microsoft should ramp Office 365 as well as unleash Office completely on platforms such as Android and Apple's iOS. The argument for this Office unleashed case is that Microsoft can offset declining Windows revenue in the future. For now, Office is positioned to mostly protect Windows, according to some analysts.

Like other software companies, Microsoft is trying to handle the revenue curves as it transitions from a licensing model to one based on continual revenue and subscriptions. Adobe has handled the transition well and other enterprise software players such as Oracle and SAP are have acquired their way to cloud computing.

Microsoft also appears to have made the transition well, but there's more work to do. Turner's big argument was that the cloud doesn't mean less revenue growth.

cloud wallet share



He took four accounts and outlined the revenue changes with cloud computing over a licensing model. He said:

You see Microsoft has never been considered a mission critical IT service provider in the enterprise. Today we are. That's the new Microsoft. The new Microsoft says we're getting a much richer and deeper share of wallet from those customers who go to the cloud with us. And we see this over and over again. We have a great opportunity to be able to leverage that.

In other words, Office 365 is the most visible cloud effort, but it's part of the larger product pie that includes everything from Azure to Dynamics. What remains to be seen is whether Microsoft can grab enough cloud wallet share to offset the revenue hit from transitioning away from a licensing model.

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