6/28/2016

Microsoft CEO Satya Nadella's master plan - Business Insider

Satya Nadella's master plan for Microsoft is

starting to work
MATT WEINBERGER
JAN. 28, 2016, 6:49 PM

On Thursday, Microsoft reported solid quarterly

earnings, and investors are pleased. The stock is up
about 3% after-hours.
Unlike Netflix and its subscriber numbers, or
Facebook and its monthly active users, there's no
single stat for Microsoft that made Wall Street
happy.
Instead, Microsoft offered a mix of solid metrics that
showed that the company's master plan is
proceeding according to schedule.
Over the two years that Nadella has held the top
spot, he's set two big goals for the company to reach
by fiscal year 2018: First, that Windows 10 would
get to a billion installed devices, and second, that the
company would get to a $20 billion run rate for its
enterprise-cloud services.

Microsoft CEO Satya Nadella.

Busine ss I nside r

These two goals guide the company's progress, says Microsoft GM of Investor Relations Chris Suh, who describes
them as Microsoft's "north star."
So far, so good.

Windows 10 draws 'em in

First, the Windows goal.
Earlier in January, Microsoft announced that there were over 200 million devices, mainly PCs and tablets,
running Windows 10.
The Windows 10 strategy is a little different than how Microsoft has usually treated its Windows business. In the
past, Windows was seen as the center of the universe, a cash cow that PC manufacturers and end-users alike had
to pay for.
Now, Microsoft is giving Windows 10 away for free to Windows 7 and 8 users, at least until the operating system's
one-year anniversary in July.
That's because Microsoft assumes that the more you use Windows 10, the more you'll spend cash on its premium
subscription and content services including the Office 365 cloud-productivity suite, the Windows Store app
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Microsoft CEO Satya Nadella's master plan - Business Insider

market, the Xbox Live gaming service, and the Groove Music app.

Busine ss I nside r

That strategy is bearing fruit. Microsoft reports that 30% of Bing search revenue during the quarter was driven
by Windows 10. That's mainly because Cortana, Windows 10's personal digital assistant, does all of her web
searches in Bing by default, driving users toward Bing and its search ads.
Similarly, while the Windows Store is still working to attract big-name developers, Microsoft says that the holiday
shopping season saw more sales there, too. Microsoft takes a cut of all those purchases.
Plus, Microsoft reported an uptick in transactional revenue from Xbox Live, which offers premium subscription
services and a gaming-focused digital store for console and Windows 10 gamers. It's not clear how much credit
Windows 10 should get for this it may just be Xbox gamers fueling the fire.

Commercial cloud brings the cash

Second, the cloud.
Microsoft announced that it hit $9.4 billion on its annualized run rate (ARR) that number basically takes
current sales and extrapolates the out for one year at the same rate, to see how much revenue Microsoft would
make on a product over 12 months. ARR is a common way to measure cloud services.
That's just shy of halfway to Nadella's goal of $20 billion ARR.
"The enterprise-cloud opportunity is massive larger than any market we have ever participated in," Nadella
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Microsoft CEO Satya Nadella's master plan - Business Insider

said.
Demand for cloud services is through the roof, and Microsoft is rapidly gaining on Amazon's web dominance. Of
Microsoft's three business segments, the Intelligent Cloud unit was the only one to post good old-fashioned
growth over the last quarter.

Microsoft

Microsoft Azure, the company's cloud-computing platform and its direct competitor to Amazon Web Services,
reported 127% revenue growth from the same period last year. Actual computing use of Azure doubled from the
same time last year, too.
In an effort to keep that growth going, Nadella said on the call, Microsoft is going to keep expanding its
technological capabilities while continuing to embrace developer-friendly technologies like the free Linux
operating system.
Microsoft didn't rock the boat or deliver many surprises on today's call, but it did show that it's growing in all the
ways that Wall Street wanted to see. And that's going to be enough for now.

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Microsoft CEO Satya Nadella's master plan - Business Insider

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