Microsoft Azure revenue up 98% as it closes gap on AWS

Forrester cites innovation as key to Microsoft's success

Microsoft posted better than expected quarterly results this week, largely thanks to 98% year-on-year revenue growth for its Azure business.

Microsoft's overall revenue for the quarter reached $28.92 billion, slightly above initial analyst estimates of $28.4 billion, according to the company's second-quarter earnings report. A significant chunk of that came from both its commercial cloud unit, which was up 53% to $5.3 billion, and its 'Intelligent Cloud' business, which rose 15% to $7.8 billion buoyed by a 98% revenue growth in Azure.

"This quarter's results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice," said CEO Satya Nadella, in the earnings statement. "Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth."

The news is a strong sign that Nadella's vision, to pivot Microsoft away from traditional desktop and business infrastructure software and focus instead on the cloud, is working, despite fierce competition from the likes of AWS and Google.

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"With growth of 98%, it's hard to see the Azure story as anything but a great success," said JP Gownder, vice president and principal analyst at Forrester, speaking to Cloud Pro. "Microsoft's cloud services are growing faster - albeit from a smaller base - than Amazon's, and Microsoft is catching up in market share."

Microsoft has managed to chip away at Amazon's market dominance in the public cloud space over the past year. Early 2018 analyst figures, reported by CNBC, revealed AWS's share had fallen from 68% to 62%, while Microsoft jumped from 16% to 20%. Google remained firmly in third position, having only climbed 2% to 12% overall.

Much of that success is down to Microsoft's focus on innovation, according to Gownder, including the development of Microsoft Azure Stack, which at release was the first on-premise solution able to mirror an Azure cloud environment.

"Azure, and cloud more generally, have become the engines of growth - helping Microsoft diversify away from its reliance on Windows," said Gownder. "Satya Nadella, who ran cloud before becoming CEO, deserves a lot of credit for this success story."

The figures were revealed just days after the company announced it would be cutting the monthly price of its Azure support, from $300 to $100 for its standard package, and $375 to $125 for its government contracts. 

Microsoft's Productivity and Business Processes unit, which includes commercial products under the Office branding and LinkedIn, also saw impressive growth, generating $9 billion in revenue, up 25% for the quarter. LinkedIn, which Microsoft acquired at the end of 2016, generated $1.3 billion alone for the company.

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It wasn't all good news for Microsoft, though, as revenue for its Surface unit was flat for the quarter. This will be particularly disappointing for Microsoft, given that the first generation Surface Book was instrumental for boosting revenues in the previous quarter, yet the recently launched Surface Book 2 seems to have had a relatively poor reception.

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