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Office 365 Revenues Surpass Sales of Traditional Software Licenses

Office 365 revenues were greater than licenses for perpetual software licenses during the last quarter, marking the first time that this has happened. Microsoft revealed that new milestone yesterday when it reported its quarterly earnings for the period ended June 30.

While Microsoft said there are now 27 million consumer subscriptions, the company hasn't disclosed the number of commercial and enterprise Office 365 subscribers. The company did say commercial revenue for Q4 of its fiscal year 2017 rose 43% over the same period last year. Microsoft pointed to a number of new large subscribers including Nissan, Quicken Loans, Key Bank and Deutsche Telekom, as a part of Office 365's success.

Office 365 is becoming more profitable as well. Microsoft said gross margin for its portfolio commercial cloud services, which, in addition to Office 365, includes Azure and Dynamics 365, was up 52% for the period -- a 10-point increase.

Microsoft CFO Amy Hood indicated during the quarterly earnings call that growth was occurring across different license types and she cited momentum for its E5 premium subscriptions, which the company believes will expand with the coming of Microsoft 365, the bundle of Office 365, Windows, Enterprise Management and Security and Dynamics 365.

"Office 365 commercial revenue growth will continue to be driven by install base growth, ARPU [average rate per user] expansion, and adoption of premium services like E5 and should outpace the rate of transactional decline," Hood said. She added that LinkedIn revenue of $1.1 billion for the quarter, which is also part of Microsoft's Productivity and Business Process segment, contributed 15 points of growth.

Posted by Jeffrey Schwartz on 07/21/2017 at 12:32 PM


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