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Home » Microsoft Exec: “Most Surprising Thing” Is Ability to Keep Slashing Costs
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Microsoft Exec: “Most Surprising Thing” Is Ability to Keep Slashing Costs

Bob EvansBy Bob EvansSeptember 7, 2022Updated:April 13, 20234 Mins Read
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Offering a glimpse into the inner operations and financial engineering of a cloud business that will generate $100 billion in revenue this calendar year, a Microsoft executive vice president said last week that “the most surprising thing to me in the last years” has been Microsoft’s ability to use technology to relentlessly slash costs.

Speaking to investors at the Deutsche Bank Technology Conference, EVP and Commercial Business CFO Dave O’Hara was in a Q&A discussion with analyst Brad Zelnick about a variety of issues around Microsoft’s business, particularly in the cloud. While O’Hara was understandably not sharing a lot of details, his comments did reveal how Microsoft thinks about and executes one of the fastest-growing large businesses the world has ever seen.

So, when he mentioned the one thing that had surprised him most over the past few years, I was eager to hear what that might have been. It arose after Zelnick had asked this question: “How does Microsoft think about data services creating affinity and stickiness in the cloud? And as well, how should we think about the cost of delivering data-intensive services over time?”

Here’s O’Hara’s response: “When someone signs a multi-year, multibillion-dollar contract with us, there’s a piece of that that’s data. As I noted earlier, we look at it across the whole Microsoft Cloud and we just need to make sure that we’re competitive in the market. And I think we are and I think we’ll continue to drive costs down.

“I think the most surprising thing to me in the last years has been how quickly, with the combination of software and hardware, we’ve been able to take costs out of the model and which allows us to pass better pricing onto customers” (emphasis added).

To me, that sounds like an opportunity that will continue well into the future as Microsoft CFO Amy Hood has emphasized, on the company’s past few earnings calls, her intense focus on “operational excellence,” including rigorous efforts to hold down expenses.

At another point in the interview with Zelnick, O’Hara offered other insights into how Microsoft thinks about that type of “operational excellence.” At one point, Zelnick noted that while “Azure growth rates remain very impressive, there’s still healthy debate around the trajectory from here over the next couple of years as the revenue base gets larger and larger.” In that context, he asked O’Hara, how does Microsoft “think about capacity planning” and visibility into demand?

“It’s a very different world, obviously, than we had even 5 years ago because our CapEx number is much more meaningful, much larger,” O’Hara said.

“But we also feel like we have way better signaling to how much we should be spending on CapEx because we have these long-term contracts, ee have deep conversations with customers, and we have the biggest global footprint from a cloud perspective. That’s all signal and that all tells us where we think the world is going,” he said.

“I feel like from a pricing perspective, it’s always very competitive and we’ll do whatever it takes to be competitive and continue to grow share. Pricing is always, for lack of a better description, under pressure, but we feel like we’re charging a fair price and customers believe we’re charging a fair price. So pricing, there’s probably pressure on that side.”

And then O’Hara came back to driving out costs through efficiency powered by technology.

“On the hardware and software side, there are definitely efficiencies of scale. Where we’ve seen some of that through some of the margin expansion that we’ve been able to achieve over the years is just efficiency. You might have price pressure on the top end, you might have bigger contracts which result in more predictable revenue, you have all the efficiencies in the hardware and software side, and then you get the benefits of scale across all the OpEx that we’re spending,” he said.

“Every quarter we pull all of that together and say, ‘here’s where we’re at in our cloud business.’ But it really starts with the Microsoft Cloud — not just any one product, it’s Microsoft Cloud and making that work across all of those inputs and takes.”


Want to gain more insights from Bob Evans and view cloud-focused content from Cloud Wars Expo? On-demand video from the event is rolling out now, with more than 40 hours of cloud education content — featuring 100-plus speakers — to be made available in the coming days. All content is free to Acceleration Economy subscribers with an on-demand pass.

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Bob Evans

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Cloud Wars Founder Bob Evans actively analyzes the Cloud and AI categories through video reports, in-depth analyses, and interviews with the Cloud and AI market’s leaders and innovators. He’s also the creator of the Cloud Wars Top 10, a ranking and ongoing analysis of the world's most influential tech companies driving digital business and the digital economy. Bob is recognized as a world-class strategic communicator focused on emerging business strategy, disruptive innovation, and forward-looking leadership.

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