Microsoft results show hybrid benefit to Azure growth

Microsoft has reported commercial cloud revenue of $8.5bn for its Q1 2019 results, growing 47%. The company stated it had experienced strong cloud growth in the US, Western Europe and the UK.

Revenue in its Intelligent Cloud grew 23% to $9.6bn, while its Productivity and Business Processes business, which includes the Office suite, posted revenue of $9.7bn for the quarter. Office commercial products and cloud services revenue increased 10%, while its Dynamics enterprise software products and cloud services revenue increased 11%.

Overall, Microsoft increased its revenue by 17% to $30bn for the quarter, and reported $8.9bn in net income.

In a transcript of the earnings call posted on the Seeking Alpha financial blogging site, Satya Nadella, CEO of Microsoft, said: “We’re investing to make Azure the best cloud for enterprise data.

“Our data services, spanning SQL Database, Cosmos DB, Data Warehouse, and Data Lake provide the most comprehensive data platform needed for enterprise data estates. Azure ML builds on this foundation to further democratise data and AI to unlock insights, helping data scientists build and train AI models faster then deploy them through the cloud or to the edge.”

When asked about the strong growth of Azure, Nadella claimed that Microsoft had a business advantage over the other hyperscale providers, thanks to the Windows Server and SQL Server, that can work both on-premise and in the cloud. He said Microsoft had two advantages.

“One is an architectural technology advantage around hybrid. We don’t think of hybrid as some stopgap as a move to the cloud,” he said. “We think about the coming together of distributed computing where the cloud and the edge work together for not just the old workloads, but most importantly for new workloads. And that’s where we are seeing some very significant good feedback loops and shaping even our future road map. And this is a place where we are leading.”

He said Microsoft also has a business model advantage over rival public cloud providers, in that it is able to sell its products on-premise and as a service hosted in the Azure cloud.

As an example, Nadella said Microsoft Azure Hybrid Benefits offers enterprises higher-level services. “I think it creates uniqueness as well as good margins long term, especially on the database side from a year-over-year worth of progress.” Nadella said this cloud service is fully compatibility with SQL Server.

“It offers a fantastic value proposition for our customers who have huge estates,” he said. “Cosmos DB is very unique in its capability. Any AI project first starts with data, and that’s one place where we are seeing good traction.”

Microsoft also regards the acquisition of GitHub as a strategic differentiator, when it is compared to AWS. “GitHub recognises the increasingly vital role developers play in value creation and growth across every industry.

“I’m excited about the opportunity to bring our tools and services to new audiences while enabling GitHub to grow and retain its developer-first ethos.”

Nadella said Microsoft has always supported developers, which is becoming more important now that digital initiatives means there are more developers outside of the technology industry.

“We think this is perhaps one of the big SaaS opportunities going forward,” said Nadella. “That’s why we want to ensure everything we do and the number one priority for Nat [Friedman, who heads up developer services at Microsoft] and the team at GitHub will be all about maintaining that GitHub community, with the ethos around developers at the core.”