‘Legacy’ Tech Vendors Rock The Cloud As Microsoft, IBM And SAP Boom In Q2

In his prepared remarks during Microsoft’s earnings call with analysts, Nadella said, “I shared our vision for the intelligent cloud and intelligent edge a little over a year ago, a vision that is now quickly becoming reality and impacting every customer in every industry. Everything we have accomplished this year has been about accelerating our lead in this new era and the tremendous opportunity ahead.”

In particular, Nadella pointed to the recent overhaul of the enterprise sales organization to add more technological expertise and deeper industry expertise, while also reshaping the engineering teams to drive more customer-centric innovation.

One number that jumped out at me was the 89% year-over-year revenue growth rate for Azure. And while it is true that that number is down very slightly from the last few quarters, which were in the 90s, the ability to grow 89% on what is becoming a very large base shows that customers across all industries are buying into Nadella’s vision.

While part of that vision is a bit of a stretch—specifically, Nadella’s catchy but over-the-top claim that Azure is becoming “the world’s computer”—there’s no doubt that some of the world’s largest companies are moving some of their largest and most-complex workloads to Azure, a point that Nadella underscored on the call.

Over at IBM, the company says it has become “the go-to destination” for big businesses whose cloud journey includes shifting big, complex and highly strategic workloads—databases and applications—to the cloud.

In his prepared remarks to open IBM’s Q2 earnings call this week, CFO and senior vice president Jim Kavanaugh said, “The IBM Cloud enables clients to migrate, modernize and build new cloud apps, is AI ready, and secure to the core. This quarter we completed the migration of Westpac’s core banking applications to the IBM Cloud; it’s just one example of how we’re becoming the go-to destination for mission-critical workloads on the cloud.”

For Q2, IBM’s $4.7 billion in cloud revenue includes $2.75 billion in “as a Service” offerings; the remaining $2 billion comes from helping large business convert their legacy on-premises systems into private-cloud environments, a specialized capability I haven’t seen any other major cloud vendor talk about.

At SAP, CEO Bill McDermott told investors that Q2 cloud revenue as measured in constant currency “soared 40%,” and made a special point of laying out the company’s plans for challenging Salesforce in the huge market for CRM.

It’s a compelling argument for the overall rise of the cloud industry: enabling businesses to move away from rigid and fragmented systems and applications to a seamless architecture that allows them to manage, analyze and fully leverage all of their data—an accomplishment that was simply impossible in the on-premises world.

“CEOs understand that serving their customers must be the unifying business priority,” McDermott said in his prepared remarks on the earnings call.

“They know this can’t be done when the sales department doesn’t work with the finance department, or when the marketing department doesn’t share data with their supply chain, or when the human resources team doesn’t know how to engage the fast-growing contract workforce.

“Unfortunately we have seen too many business revert to the silo practices of failed enterprises—so it is no coincidence that many were actually disrupted by innovative competitors,” McDermott continued. Those disrupters built the entire company as a single integrated machine to serve that customer from demand chain to supply chain.”

With that imperative in mind, McDermott said, “Every asset in our portfolio has been carefully assembled to deliver the intelligent enterprise.”

From all three companies, powerful numbers and compelling customer stories—and all of that adds further evidence to my belief that for each of those “legacy” companies, the best years are still to come.