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Microsoft Quarterly Losses Point to the Significance of Cloud Investments

By Laura Stotler TMCnet Contributing Editor

When it comes to looking at the real significance of cloud computing in the technology realm and its massive potential for growth, Microsoft (News - Alert) makes an interesting case study. The company has been steadily shifting its business model away from software and premise-based solutions, its bread and butter for decades, and investing time and resources into the Azure IaaS and related SaaS (News - Alert) solutions.

It’s not all that surprising that Redmond posted a massive loss for its second quarter earnings this week, largely attributable to its costly $7.2 billion acquisition of Nokia (News - Alert) last year and the associated fallout. Some of Microsoft’s biggest product lines also experienced declining sales during the quarter, including Windows licenses, Windows Phone (News - Alert) and Lumia handsets.

Even with the posted losses, the company’s cloud business is growing like gangbusters as Azure and Office 365 gain traction. Not to mention the hype around Skype (News - Alert) for Business in the UC world. While AWS is indisputably the market leader in the cloud IaaS space, Microsoft is a close second and enjoyed the highest revenue growth of all the major cloud infrastructure players during the first quarter of this year. The company’s corporate cloud business reportedly grew 88 percent during the second quarter, coasting on the strengths of Azure and Office 365 as well as the general uptake in cloud services. Xbox gaming, online advertising and the Surface tablet are all areas of growth for Redmond as well.

"It is clear that we have success moving people to the cloud," CEO Satya Nadella said during a call with investors. In fact, a hybrid cloud strategy is exactly what Microsoft has been pursuing and what may ultimately save the company from further losses on its legacy product lines. It makes sense for a company that is already firmly entrenched in the enterprise to help transition the enterprise to the cloud. By helping customers retain and manage a mix of on premises and cloud-based services, Microsoft may have a large role to play in transforming the cloud in general. With some research firms forecasting the hybrid cloud market will reach $84.67 billion by 2019, this seems like a sensible strategy for Microsoft and may in fact help the company make up for losses based on its past mistakes.

Edited by Maurice Nagle