Microsoft’s cloud strategy shows early signs of pay off

Microsoft reported better than expected profits in its first quarter as its efforts to “rationalise” marketing spend and focus its efforts around its cloud computing business appeared to translate into sales.

Video: Microsoft’s commercial cloud campaign

The company generated net income of $5.66bn in the three months to 31 March, a 6.5 per cent decline on the previous year, but better than analysts estimates. Revenue was flat at $20.4bn in the period.

Microsoft’s commercial products were among its strongest performing in the quarter. Office 365 revenue grew more than 100 per cent and revenue for its cloud computing product Azure increased more than 150 per cent.

Satya Nadella, who was appointed as Microsoft’s CEO in February, has previously outlined cloud computing as one of his key strategic focuses – as well as connected devices, big data and intelligence from machine learning – to drive a turnaround in the company’s fortunes. 

In a call with analysts last night (24 April) Microsoft said it spent the quarter “rationalising and focusing marketing dollars”.

Amy Hood, chief financial officer, said: “[We have been] thinking and prioritising more effectively throughout the year to earn the highest ROI on the dollars we are spending.”

That is one of the reasons the company chose to redeploy marketing spend from the third quarter to the fourth quarter to support its commercial cloud advertising push. The global campaign landed in the UK on 31 March and showcases real Microsoft customer stories, using case studies from companies such as the Lotus F1 team and the City of Barcelona.

Microsoft’s devices and consumer division grew revenue by 12 per cent to $8.3bn in the quarter. It sold more than 1.2 million Xbox one consoles in the period, while revenue from its Surface tablet products grew more than 50 per cent year on year to $500m, although this was down from the $893m in revenue Surface generated in the previous quarter.

Today (25 April) Microsoft’s acquisition of Nokia’s handset division is set to close. It has been reported it will rebrand the business to “Microsoft Mobile”. 

Nadella said Microsoft is making “good progress” in consumer services, having grow its Office 365 Home subscriber base by 1 million and growing Windows revenue by 4 per cent.

He added: “This quarter’s results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world. We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions. Both position us well for long-term growth

“We are focused on executing rapidly and delivering bold, innovative products that people love to use.”

Separately yesterday (24 April) Microsoft announced it had appointed the former HP senior vice president of operations for printing and personal systems, Tony Prophet, as its new head of Microsoft Windows marketing, reporting into executive vice president and CMO Chris Capossela

Prophet replaces Thom Gruhler, corporate vice president of marketing for Windows, who is moving over to Microsoft’s applications and services group.

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