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Microsoft Is a ‘Platform’ Company Now; Aims for $20B Annual Cloud Revenue By 2018

Since taking over as Microsoft’s CEO in February of last year, Satya Nadella hasn’t been about his vision for the software giant. Nadella declared Microsoft a “productivity and platform company”, in a memo released last year, so it should be no surprise that the former executive vice president of Microsoft’s Cloud and Enterprise Group is now pushing the company further into the cloud.

In a financial analyst briefing during Microsoft’s Build Developer Conference yesterday, Nadella announced that the company has big plans for its cloud computing business.

“We have an ambition to get to $20 billion of annualized run rate in the cloud in FY18,” said Nadella. That revenue, Nadella said, will come from a combination of Microsoft’s platform as a service (PaaS) offering Azure, Dynamics CRM, and the successfully software as a service (SaaS) suite Office 365.

To reach that number, Microsoft will have to triple its annualized run rate over the next three years; Microsoft’s cloud computing business is currently on an annualized run rate of $6.3 billion, based on Q3.  Annualized run rate is quarterly revenue presented on an annualized basis, assuming no growth.

When releasing its Q3 numbers last week, Microsoft stated that its profitability had declined in the third quarter due to increasing costs and expenses that countered an increase in revenues.

However, Microsoft’s commercial cloud revenue for the quarter grew 106 percent from a year ago.

Sadella’s focus on Cloud and back-end services is a marked departure for prior Microsoft CEO Steve Ballmer’s focus on devices and services, and could be the key to the company’s viability in coming years.

Though Microsoft is still developing mobile devices, the company has struggled in the market— as of Januarys 2015, Microsoft share of the U.S. Mobile market is a mere 3.6 percent.

By focusing on cloud products like Office 365 Microsoft can stay relevant across devices and platforms. “The mobility of the experience is what matters,” said Nadella, in the opening remarks of Build Conference.

In the Build Conference analyst briefing, Nadella said that “a lot has changed” in the last 40 years, and “a lot of technologies and a lot of devices, rightfully so, have come and gone.” For now, Microsoft has shifted its attention from devices to the cloud. “Qualitatively, the way I describe the world that we live in and what it will be in the next five years is this mobile-first, cloud-first world,” said Nadella.

“We have a focus… our core is about being the best when it comes to productivity and platform in this mobile-first, cloud-first world.”

It looks as though that focus may be paying off for Microsoft. In the wake of Amazon’s revelation of Amazon Web Services revenues last week, some analysts are claiming that Microsoft’s cloud out sizes AWS, which is widely considered the leader in the cloud computing market. Currently, Microsoft’s PaaS/IaaS offering Azure’s data centers support 19 regions globally, compared to AWS’s 11.

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