Microsoft CEO Satya Nadella (photo courtesy of Microsoft)
Microsoft Likes a Cloudy Forecast, as Should Partners
October 28, 2020
Cloud computing is bolstering the fortunes of vendors and solution providers despite the headwinds of the ongoing pandemic.
By Larry Walsh
A frequent question I get is what’s happening in the channel under the pandemic’s economic strain. The answer is not far from reach: Clouds and things related to cloud computing have bolstered vendors and solution providers’ fortunes.
Evidence of this trend came yesterday as Microsoft, the second-largest player in the cloud computing market and arguably the largest contributor to cloud-attached services, announced stellar second-quarter earnings powered by its stratospheric cloud business.
While many hardware and software vendors struggle in the COVID-19 economy, Microsoft continues to gain altitude as cloud revenue climbs. In the second quarter, Microsoft’s gross sales topped $37.2 billion – up 12 percent – with a $13.9 billion, or 37.3%, profit.
Most of Microsoft’s business units are doing well, as demand for everything from PC operating systems to gaming software and content rises. The standout, though, is the Azure and Teams businesses. Azure sales increased by 48% over the same period in 2019. Sales of commercial cloud products topped $15.2 billion – up from $11.6 billion in the second quarter last year. And Teams – the collaboration platform that has enabled workers and customers to remain connected during the pandemic – grew its user base from 75 million daily users to 115 million.
Contrast the news from Microsoft with that from SAP, which, over the weekend, released a gloomy forecast projecting flat revenue for the foreseeable future. While SAP is a significant cloud software player, it doesn’t have the product depth of Microsoft or its other rival, Salesforce. As a result of its outlook, SAP’s valuation dropped by nearly 30%.
Analyst firms see cloud computing growth continuing and accelerating. IDC says that 80% of enterprises next year will have plans in place to accelerate transitions to cloud-centric organizations. Gartner projects that 80% of business workloads will be cloud-based or in hybrid infrastructures by 2025.
Analysts and pundits aren’t wrong when they say the pandemic is accelerating cloud adoption. But it goes beyond cloud computing to services. When 2112 looks at the economy’s state, a K-shape emerges that reveals haves and have-nots in the channel. The “have-nots” are vendors and partners anchored by legacy hardware, software licenses, and infrastructure products. The “haves” are those who build on selling and supporting services – cloud, collaboration, security, and productivity.
The products made by vendors like Microsoft are always foundational. The revenue report represents the platform of the addressable market for it and its partners. On top of that $37 billion is a multiple of attached-sales opportunities for partners at every level. While end customers will spend tens of billions with Microsoft for core services, they’ll spend multiples more with partners on consulting, implementation, integration, and ongoing management.
The current cloud growth forecast shows infrastructure and application services growing at rates of about 25% annually. Managed cloud services – the administration and support provided by partners – is growing 33% each year.
In 2008, when the financial markets crashed and the Great Recession began, businesses stopped dabbling and started adopting cloud computing in earnest. Amid the COVID-19 pandemic, businesses are shedding any remaining inhibitions in favor of agility, connectivity, and flexibility. The cloudy forecast for continued growth in services favors solution providers as much as behemoths like Microsoft.
Larry Walsh is the CEO of The 2112 Group, a business strategy and research firm servicing the IT channel community. He’s also the publisher of Channelnomics, the leading source of channel news and trend analysis. Follow Larry on Twitter at @lmwalsh2112 and subscribe to his podcast, POD2112, on iTunes, Google Play, Spotify, and other leading podcast sources. You can always e-mail Larry directly at lmwalsh@the2112group.com.
Evidence of this trend came yesterday as Microsoft, the second-largest player in the cloud computing market and arguably the largest contributor to cloud-attached services, announced stellar second-quarter earnings powered by its stratospheric cloud business.
While many hardware and software vendors struggle in the COVID-19 economy, Microsoft continues to gain altitude as cloud revenue climbs. In the second quarter, Microsoft’s gross sales topped $37.2 billion – up 12 percent – with a $13.9 billion, or 37.3%, profit.
Most of Microsoft’s business units are doing well, as demand for everything from PC operating systems to gaming software and content rises. The standout, though, is the Azure and Teams businesses. Azure sales increased by 48% over the same period in 2019. Sales of commercial cloud products topped $15.2 billion – up from $11.6 billion in the second quarter last year. And Teams – the collaboration platform that has enabled workers and customers to remain connected during the pandemic – grew its user base from 75 million daily users to 115 million.
Contrast the news from Microsoft with that from SAP, which, over the weekend, released a gloomy forecast projecting flat revenue for the foreseeable future. While SAP is a significant cloud software player, it doesn’t have the product depth of Microsoft or its other rival, Salesforce. As a result of its outlook, SAP’s valuation dropped by nearly 30%.
Analyst firms see cloud computing growth continuing and accelerating. IDC says that 80% of enterprises next year will have plans in place to accelerate transitions to cloud-centric organizations. Gartner projects that 80% of business workloads will be cloud-based or in hybrid infrastructures by 2025.
Analysts and pundits aren’t wrong when they say the pandemic is accelerating cloud adoption. But it goes beyond cloud computing to services. When 2112 looks at the economy’s state, a K-shape emerges that reveals haves and have-nots in the channel. The “have-nots” are vendors and partners anchored by legacy hardware, software licenses, and infrastructure products. The “haves” are those who build on selling and supporting services – cloud, collaboration, security, and productivity.
The products made by vendors like Microsoft are always foundational. The revenue report represents the platform of the addressable market for it and its partners. On top of that $37 billion is a multiple of attached-sales opportunities for partners at every level. While end customers will spend tens of billions with Microsoft for core services, they’ll spend multiples more with partners on consulting, implementation, integration, and ongoing management.
The current cloud growth forecast shows infrastructure and application services growing at rates of about 25% annually. Managed cloud services – the administration and support provided by partners – is growing 33% each year.
In 2008, when the financial markets crashed and the Great Recession began, businesses stopped dabbling and started adopting cloud computing in earnest. Amid the COVID-19 pandemic, businesses are shedding any remaining inhibitions in favor of agility, connectivity, and flexibility. The cloudy forecast for continued growth in services favors solution providers as much as behemoths like Microsoft.
Larry Walsh is the CEO of The 2112 Group, a business strategy and research firm servicing the IT channel community. He’s also the publisher of Channelnomics, the leading source of channel news and trend analysis. Follow Larry on Twitter at @lmwalsh2112 and subscribe to his podcast, POD2112, on iTunes, Google Play, Spotify, and other leading podcast sources. You can always e-mail Larry directly at lmwalsh@the2112group.com.
