Microsoft Expects Noticeable Cloud Revenue Two Years Out

Vendor says Windows Server and SQL Server are still main revenue drivers but security and developer tools growing.

February 25, 2010

D.H. Kass

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A Microsoft Corp. official said that the vendor’s Windows Server and SQL Server lines will continue to drive the lion’s share of the company’s revenue growth in the next two to three years, after which its investments in cloud computing should begin to pay off.

Bob Muglia, Microsoft president, server and tools business, told an audience at the Goldman Sachs Technology and Internet Conference 2010 held this week in San Francisco, CA, that customer curiosity rather than substantive revenue currently prompts cloud computing opportunities.

“If you look at it from the perspective of interests from customers and engagement, clearly the cloud will be an area of a lot of focus,” Muglia said.

“Over the next two or three years, that is not what will drive financial growth for server and tools,” he said. “It's essentially zero percent of our current operating revenue, and it will grow up from there. I mean, it's such a small fraction today.”

Microsoft only recently began charging for its Azure cloud computing platform, and Muglia said that in the short term the vendor isn’t looking for any noticeable revenue from the segment.

“There's a great deal of interest, there's also a great deal of confusion around all of the aspects of the cloud, because when people talk about cloud, it really is a next generation way of doing computing that covers a great deal of territory,” he said.

“The cloud will have less financial impact in the short-run than some might think, but have more long-term impact on the company and on the industry than I think most people are anticipating,” he said.

“So, in the short-run, say over the next three years, it's not financially material to the STB business, or certainly to Microsoft as a whole. But as you move beyond that, it becomes very material, and will likely become a significant part of where our revenue comes from in the future.”

Windows Server, SQL Server sales “big dogs”

Until cloud computing gains revenue traction, Microsoft’s Windows Server and SQL Server will continue to dominate the vendor’s sales, Muglia said.

Enterprise and data center products, fueled by pricing changes and the growth of virtualization, now command more than 20 percent of the vendor’s overall units shipped with the potential to move higher, he said.

“Since we did some changes in our price structure and the advent of virtualization, we've watched the share of our enterprise and our data center products, our premium products, grow to north of 20 percent,” he said.

“And we still see continued growth opportunity in terms of raising the revenue per unit, which is very important,” Muglia said. “[A] 30 [percent share] is not impossible.”

Muglia also said that Microsoft’s security products and developer tools are contributing more revenue than expected.

“Our security products, which don't get a whole lot of attention, are actually becoming substantive revenue earners for us, and as we think about broad coverage of our business customers, they're doing very well,” he said.

“And even our developer tools business, which historically has not been a major revenue generator for the company, and certainly not a major operating income generator, has been growing reasonably strongly over the last few years with our focus on higher end enterprise tools.”

TAGS: cloud computing,security,Microsoft,server,virtualization

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