Is Microsoft Pursuing the Cloud Computing Market Hard Enough?

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By Jacob Maslow

Cloud ComputingI don’t mean to be a stick in the mud here. I know there are a lot of analysts who are happy that Microsoft (NASDAQ:MSFT) is pursuing the fast-growing cloud computing industry in a very public way. Indeed, Microsoft has made its cloud business strategy the centerpiece of its transition from a traditional desktop-based software company.

This is all well and good. However, if you look at the numbers, it can’t help but leave you with a sinking feeling in your stomach. Let’s put it this way, Microsoft has an annual revenue of close to $100B. That’s how big Microsoft is. We’re talking about its Xbox, hardware initiatives, and of course Windows and Windows-based software. Of that figure, $5.5B came from cloud computing and its cloud business. While it’s true that Microsoft’s cloud revenue grew at a rate of 300%, this isn’t really much to write home about. $5.5B out of a total revenue base of around $100B seems a bit on the small side. Despite the public relations spin, Microsoft got punished hard. Unless Microsoft can increase its cloud growth rate so that it can account for at least half of Microsoft’s total revenues, it appears that Microsoft has serious issues. Not surprisingly, Microsoft’s shares got punished hard by Wall Street and was hit by several analyst downgrades.

This might be a good time to get into Microsoft. It needs to fine-tune its cloud strategy so that this portion of its business accounts for a larger chunk of its total revenues. With that said, considering the rate of growth its cloud computing business is experiencing, the day when its cloud business accounts for the great bulk of its total business might come sooner rather than later.

The other problem that needs to be addressed, however, is the profit margin in cloud computing. There’s not as much profit in cloud computing since it is very streamlined and efficient. A lot of those savings are actually passed on to the customer. The same isn’t true when it comes to traditional operating system and hardware-based software. Local software has a fat profit margin.

Microsoft’s future is definitely far from clear. What is clear is that it has the infrastructure, management, and a strategy that points to the right direction.

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