Microsoft Hypergrowth: Beyond Azure, Satya Nadella’s 5 Superstars

While it’s hardly a surprise anymore when Microsoft reports Azure revenue growth of 50%, Satya Nadella made a point in its fiscal-Q4 earnings call to call out the parallel steep growth in five related segments.

As Microsoft’s enterprise-cloud revenue for the 12 months ended June 30 soared to $51 billion on the strength of $14.3 billion in fiscal Q4, Azure led the way as usual with 50% growth.

But on the July 22 earnings call, CEO Nadella made a very particular effort to highlight related parts of the Microsoft cloud portfolio and to underscore the fullness of Microsoft’s capabilities from Azure to the edge.

From Nadella’s range of examples, here are the five that stood out most emphatically to me:

1. GitHub’s surging use;
2. Dynamics 365 is now a $1.8-billion business;
3. Microsoft’s “remaining performance obligation” shows vast momentum well into the future;
4. server revenue continues to be strong, underpinning Microsoft’s strength in hybrid; and
5. Azure Cognitive Services, reflecting the buildout of its AI and ML businesses, posted some stunning numbers in June.

1. GitHub’s surging use

Tying its strong presence in developer tools to the remote-everything world, Nadella said, “We are going further with new tools to power secure remote development. With Codespaces, we are bringing together the best of GitHub, Visual Studio, and Azure to help developers go from code to cloud in seconds. New advanced security features in GitHub use semantic analysis to scan code for vulnerabilities and GitHub discussions help software communities collaborate outside of the code base.”

And I was startled to see just how pervasive GitHub has become as Nadella offered a series of customer perspectives: “More than 3 million organizations, including the majority of the Fortune 50, now use GitHub. The state of California is using GitHub and Azure DevOps to power 90% of its digital COVID-19 response infrastructure. All the 5,000 engineers at Autodesk rely on GitHub to break down silos across the organization. And at Etsy, developers are using GitHub to deploy to production more than 50 times per day.”

2. Dynamics 365 nears $2 billion in annual revenue

Nadella touted his modern enterprise apps as playing vital roles in helping customers develop the agility and nimbleness to keep pace with the fast-changing world around them. “Dynamics 365 is helping organizations in every industry digitize their end-to-end business operations from sales and customer service to supply chain management so that they can rapidly adapt to changing market conditions,” Nadella said. He continued:

Customer experience is the fastest-growing Dynamics 365 application ever, helping organizations like Walgreens Boots Alliance and Chipotle offer more personalized customer experiences. BNY Mellon chose Dynamics 365 this quarter to help investment managers build stronger relations with their customers. More than 4,500 organizations now use Dynamics 365 commerce, finance, and supply chain management, making it one of the fastest-growing SaaS solutions in its category. FedEx, for example, uses Dynamics 365 to drive more-precise logistics and inventory management. In retail, Dynamics 365 Connected Store now offers in-store traffic analytics and curbside pickup, prioritizing safety as stores reopen.

Later in the call, CFO Amy Hood said the overall Dynamics business has surpassed $3 billion in revenue, with more than 60% coming from Dynamics 365, giving it annual revenue of at least $1.8 billion. For Q4, Dynamics 365 revenue grew 40%.

3. Remaining Performance Obligation: the laws of *big* numbers

CFO Hood pointed to a significant jump in huge deals, plus more than $50 billion in cloud revenue already on the books for fiscal 2021. “In FY ’20, we closed a record number of multimillion-dollar commercial cloud agreements with material growth in the number of $10 million-plus Azure contracts,” Hood said. And:

On a strong prior-year comparable, commercial bookings growth was ahead of expectations, increasing 12% year over year, driven by consistent renewal execution and an increase in the number of large, long-term Azure contracts. As a result, commercial remaining performance obligation increased 23% to $107 billion. Approximately 50% of this balance will be recognized in revenue in the next 12 months, up 21% year over year, reflecting consistent execution across our core annuity sales motions. The remaining 50%, which will be recognized beyond the next 12 months, increased 25% year over year, highlighting the growing long-term customer commitment to our cloud platform.

4. The hybrid machine: on-prem server revenue takes big jump

Nadella and Hood often point out that Microsoft is not looking to boost cloud revenue at the expense of on-prem server revenue. Instead, both emphasize that by offering a single architecture across both environments, Microsoft can meet the higher need to letting customers choose where and how to use cloud rather than being forced into choices. And the on-prem business showed great strength in Q4, Hood said: “On a significant base, server products and cloud services revenue increased 19% and 21% in constant currency.”

5. Azure Cognitive Services had blowout month in June

As AI becomes a mainstream technology and its many related services become pervasive, Nadella emphasized how Microsoft’s solutions can touch all facets of a digital estate. “Microsoft Bot Framework now includes powerful authoring tools to build sophisticated conversational bots with low code. And with Azure machine learning, organizations can deploy AI more responsibly and safely,” Nadella said on the call. “All this innovation is driving usage. In June alone, 13.5 billion transactions were processed in Azure Cognitive Services, 2.5 billion messages sent, 9 million hours of speech transcribed. From Bridgestone to UnitedHealth Group to EY, companies are relying on Azure AI to innovate and better meet customer needs.”

Concluding thought

Digital transformation now comes in two flavors, Nadella said.

“When I think about digital transformation now, I break it into two things. I think about resilience and all of what Microsoft can do to help any business be more resilient, whether it’s remote everything, whether it’s about their ability to simulate anything, automate everything. Those are the things that I think are going to increase.

“Then, of course, there is how do you readjust to what is going to be an increased e-commerce, contactless, reimagined world with reconfigured supply chains. So, both of those are secular tailwinds, but no one can take away the fact that GDP is going to be negative. So that’s why I think you’re going to see lots of ins and outs. But digital transformation itself is going to be pretty key.”

Disclosure: at the time of this writing, Microsoft was among the many clients of Cloud Wars Media LLC and/or Evans Strategic Communications LLC.

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