Why Microsoft dominates the enterprise market (part 1)

Background

The first computer I received from my father was running on Windows 98. It was 1999, and I thought the computer was revolutionary. Little did I know, it was a computer manufactured from Hewlett Packard (HP), and Windows was the software developed by Microsoft. I don’t think I understood at that time how Microsoft made money, but I guess that’s the gift of being a naive kid.

Anyways, fast forward in 2020, the company isn’t just licensing their software to computer manufacturers, but they have expanded their business with other products they offer: Azure, Bing, Xbox games, Edge (the newest browser built under Chromium’s technology!), Github, Office 365 (Outlook, Excel, Word, Teams, etc.), Skype, Minecraft, Linkedin, and so on. (Microsoft, 2020)

I think it’s obvious that they are in several industries, and are operating under different technologies. The purpose of this post is to dive deep into an analytic mindset. It’s also an opportunity to make future predictions with the company.

Analysis

Cloud Cloud Cloud. This has been the mantra of Satya Nadella ever since he took over the company from Steve Balmer. In his recently published book “Hit Refresh”, he gives a lot of credit to Balmer for setting up the stage for the Cloud business. In their quarterly earnings posted on September 30 2019, the company disclosed a Year over Year growth of 63% for Azure. They aren’t making millions with Azure, they are generating billions. In fact, we are looking at a revenue of $10.8 billions under the “Intelligent Cloud” section for the FY20 Q1.

Let’s put that $10.8 billions in one quarter as a comparison with some other companies. Pinterest Inc. is currently worth 12.53B (market capitalization). Lyft Inc. is at 14.42B. Beyond Meat Inc. at 7.35B. Sure, these companies cannot be compared to a powerhouse like Microsoft. But it makes you think. Microsoft’s Cloud business generates nearly as much (or more) than the market capitalization of some well known companies in the public… In a quarter!

What about the competition in the cloud business? Well, the Synergis Research Group published a research in January 2019 about how companies fared in terms of market share. Figure 1 shows their results.

Figure 1: A graphic by Synergy Research Group ranking the big public cloud providers.

Clearly, Amazon’s AWS (Amazon Web Services) dominate the market. However, Microsoft is in the clear #2 position, with others trailing behind. Amazon and Jeff Bezos had the opportunity to release their Cloud business to their enterprise customers before any other company, thus why they have such a big market share. However, this brings up to our point: why is Microsoft Azure positioned better than any other company to penetrate the enterprise market?

According to Microsoft’s latest press release, more than 95% of Fortune 500 companies already use some sort of Azure. Let’s take a Company A and Company B. Both companies use Microsoft Office 365, but because Company A made the shift to the Cloud business (meaning a shift from on-premise servers to the Cloud) before Microsoft introduced Azure to its customers, they selected Amazon’s AWS. However, Company B just recently decided to move to the Cloud. The probability for Company B to select Microsoft is extremely high. This high level of confidence comes from the premise that Azure integrates extremely well with all Microsoft product.

Figure 2: Benefits of the Cloud. (Netpillar, 2020)

What people don’t understand is that the shift to Azure, AWS or any other cloud provider is not a one-time purchase. It’s a recurring revenue. It’s almost a lifetime tax to pay by customers, as long as they are in business. Want to spin off a few VM’s? Pay monthly this sum of money. After a few years, the business is scaling. What do you do? You pay more monthly for more.

It’s clear the importance that the company has put into their Cloud business. They have revitalized the company through implementing cloud services in various of their product and services.

Figure 3: cloud-related services highlighted in the FY20 Q1 report.

LinkedIn. What about this “social media” giant that Microsoft and Nadella purchased in 2016 for $26.2 billion? Well, the company reported a growth of YoY 26% in revenue by LinkedIn. For well over a year, LinkedIn revenue was growing every quarter by over 25%. Although Microsoft hasn’t disclosed specific revenue generated by LinkedIn, it is part of the “Productivity and Business Processes” and “Intelligent Cloud” that generated $21.9 billion for FY20 Q1. Why is exactly LinkedIn useful though?

Facebook, Instagram, Snapchat, Pinterest, Twitter, YouTube offer great social media content to users. However, most of them do not offer professional content. This is where Microsoft steps in. At the time, people criticized Microsoft for making yet another large acquisition (after failing with Nokia’s smartphone business). Today, LinkedIn is praised among recruiters from different industries, and companies keep utilizing LinkedIn to raise awareness on their businesses.

Have you actually applied recently in companies? They offer you the ability to sign-in with your LinkedIn account, or simply paste your LinkedIn account URL so it can fetch all the information from your LinkedIn profile to the application required tailored by the company. Can you imagine the influence LinkedIn yields in the job market?

According to Business of Apps, the top three countries engaging in LinkedIn are U.S., India, and China. 27% of U.S. adults are signed up in LinkedIn, 3 million U.S. jobs are posted every month, 20 million jobs posted in total, and a total of at least 122 million users have already been invited to an interview through LinkedIn. It truly is an international brand that attracts professionals all over the world to their platform, with a lot of potential for further market penetration.

Figure 4: LinkedIn is an international brand. (LinkedIn, 2020)
Figure 5: Comparison of all social media companies in advertising strategy for businesses (DemandWave, 2016)

Today’s post is about how Microsoft can dominate the Enterprise market. Sure, LinkedIn may not be the popular choice for students to use over the weekend. However, it’s clearly the choice for professionals in the job market. Keep an eye on LinkedIn, it’s about to boom as its popularity grows from its reported 660+ million users in the following years.

Conclusion

It’s clear by reviewing the data in this blog post that Microsoft has done an astonishing job in the recent years. More specifically, Nadella discussed about how he needed to “hit refresh” on the company’s culture. Certainly, these changes have made a positive made impact on the company. For some time in late 2018 and some of 2019, Microsoft was recognized as the most valued company (in terms of market capitalization). In the next blog post, we’ll discuss about other segments of their business, such as their Xbox content and services, Github,

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Hassan

Hassan

Positive vibes only. 💜💛