Nadella Emphasizes Office 365 as Catalyst for Growth

The embrace and extend philosophy that made Windows the standard for business computing is shifting to Office 365. That doesn't mean that philosophy is moving away from Windows but as developers shift to modern, cloud-scale applications and it's no longer a one-platform world, the jury is still out on where the Universal Windows Platform will fit in the next era of computing, though it appears it will surely have a place.

However this ultimately plays out, CEO Satya Nadella last night attempted to educate Wall Street on what he told developers at last month's Build Conference and at its new Envision event in New Orleans a few weeks ago: That the growth of Azure and Office 365 are attributable to the widespread support by ISVs and infrastructure providers of the Microsoft cloud. While the company missed consensus analyst forecasts in terms of earnings per share for its most recent third FY16 quarter, Nadella emphasized Office 365's growth now and its ongoing future prospects during last night's quarterly conference call.

Growth of Office 365 was quite remarkable, Nadella said, pointing to 22 million consumers and 70 million commercial customers who have active Office 365 subscriptions. In the commercial segment, Nadella said that shows a 57% month-over-month jump and validates Microsoft's focus on productivity and business process is helping the company reach new users, expand into new markets and create a growing platform for developers.

Hailing the latter as a success, Nadella told analysts on the call, that the addition of Office 365 Graph APIs and the opening of Skype for Business to developers is contributing to the success of this shift. The number of applications calling on Microsoft's APIs have grown month over month, he said.  "It can be as simple as Starbucks enabling somebody to e-mail a cup of coffee or it can be as sophisticated as DocuSign streamlining processes for digital signatures based on the understanding of peoples' availability, Nadella said. 

Office 365 and Azure are also helping Microsoft expand into new markets in areas such as security, analytics and voice communications, he said, pointing to the expanded capabilities such as e-discovery and the company's new security focus and the growth of Power BI, which the company recently said has 5 million subscribers. This has helped drive a 35% quarter-over-quarter growth in monthly active users of E5, its new premium edition of Office 365.

Windows 10 Growth
Despite a slowdown in the PC business, which was a given before the release of the latest quarterly results, Microsoft pointed to the growth of Windows 10, which Nadella said at 270 million users is double the number of Windows 7 users at the same point in time after its release. Granted that's skewed by the fact that upgrades of the latter were free to existing users. But Nadella also pointed to its Surface business, which was up 61%, making it the third time -- and second consecutive quarter -- where revenues exceeded $1 billion. It's also the first quarter in which Surface sales hit that threshold when it wasn't during the holiday shopping season.

Windows 10 is also buoying Microsoft's search efforts. The new OS drove 35% of its search revenues. "Developers have already built over 1,000 apps deigned for Cortana," Nadella said. "These new third-party experiences and the 6.3 billion questions people have asked are helping make Cortana smarter and driving search engagement."

Posted on 04/22/2016 at 11:32 AM