Microsoft Azure – What is Driving Business Momentum & Success? – 19 March 2020

How would you describe Microsoft’s Azure business? What is noteworthy about it?

When would you say the company completed the initiative where the cost management was reprioritised and rationalised?

Given what’s going on in the world with the novel coronavirus pandemic, people obviously are staying inside, whether professionals working from home, or students taking classes. What do you think the impact and implications for Azure are, generally and specifically? On one hand, more people are working remotely, albeit temporarily. Is this a tipping point for remote work over the longer term? How does that play into Azure and its solutions?

You say Microsoft essentially planned and executed a major roll-out of telecommunications infrastructure enabling differentiation in the marketplace. How do you think Microsoft and Azure, and its infrastructure, compare to what AWS [Amazon Web Services] or GCP [Google Cloud Platform] offers on that front?

How would you say Azure differentiates itself in the marketplace? If I’m an enterprise and choosing between the three major players, or others, why would I choose Microsoft Azure vs something else? I believe that infrastructure access and continual availability is table stakes for the companies.

You suggest that the offering from Azure is secure, reliable and will basically always be available. Presumably these features are largely expected from the three primary vendors, if not others. How else can Azure gain customers and win business? Would it be a relatively easy conversation with existing Microsoft customers? Is it the notion of the hybrid cloud, which Microsoft is notably strong in, given its history of technology prowess and client support?

Would you say AWS and Google Cloud are engaged in similar practices?

ou indicated your assessment on JEDI [Joint Enterprise Defense Infrastructure] and many people are wondering how that plays out. When that process began with RFIs and RFPs [requests for information and proposal], the government focus was for one primary provider, at least, because that would offer an efficiency and seamlessness presumably not available across multiple providers. How do you think about that construct in the context of a potential 50/50 or Microsoft giving up some of the USD 10bn, roughly, over 10 years?

What arrangement would make most sense from a JEDI perspective? The notion of two providers splitting 50/50 could generally be referred to as the multicloud concept – multiple providers. Increasingly there is a primary provider who accounts for the bulk of the traffic or activity, and then a backup provider. It is allocated sometimes on capacity, sometimes on function. Has the JEDI contract become so highly politicised that it needs to be more of an even split?

Why do you think Microsoft was able to prevail on JEDI in late 2019?

Are you aware if planning or building is underway for a second or third such IL6 data centre facility in the United States? Who is involved in that?

How long does it take to build such an IL6 data centre facility? When do you think the next one or two would come online?

People are presumably aware of the market positioning of the three major players in this category, with AWS as a strong leader with about a third of the market. Azure has around 20%, a bit less, whereas Google has roughly 5%. I think it’s fair to say Microsoft has been gaining share, but do you think it can overtake AWS? What would it take to achieve that?

Do you think Microsoft is willing to sacrifice pricing over the near to intermediate term, to gain share over the longer term? You just spoke about a quarterly basis vs a decade-long basis.

To what extent is Microsoft differentiating in the marketplace with increasing innovation or reliability, or perhaps more partnering or greater security? Where is it making the most impact competitively?

How challenging is it for an enterprise to move its primary cloud infrastructure provider? Is it about shifting more capacity over, which makes it less onerous to switch primary providers? Does it happen often, and why or why not?

We’ve talked about Azure, AWS and Google Cloud. It seems to me that people forget about IBM or Oracle, and Alibaba with Alibaba Cloud. Are they having an impact in a broad way? What customers do they win and retain at this point?

How are you assessing the financials around Azure? Azure’s revenue growth was 72% in Microsoft’s FY19, which ended in June as you said. Growth was 91% in FY18. However, Microsoft does not publish revenue numbers for Azure. One estimate indicates that Azure accounts for about 11% of Microsoft’s revenues, which would amount to about USD 14bn. Is that in the ballpark of where we are, roughly speaking?

Forecasts are indicating that growth would remain 45% or more for the next couple of years. Obviously we would need to account for world events and the coronavirus pandemic, but is that reasonable? It would be a significant deceleration from 91% to 72% to 45% plus for the next two years.

Microsoft has publicly indicated that commercial cloud margins have improved quite notably, driven by Azure, in each of the last two fiscal years. It indicated a 5pp improvement in FY19 and a 7pp improvement in FY18. How or why do you think this has happened?

How are you assessing the management team and culture? You’ve talked a little about it and made the important point about people wanting to do business with people, and Microsoft has a much larger, more sophisticated sales force than AWS or Google Cloud. What do you think about the team responsible for running the Azure business? Jason Zander, the executive responsible for the business, has been at Microsoft for nearly 28 years. Scott Guthrie, who is responsible for Cloud and AI and has been with Microsoft for almost 23 years. What are your thoughts on Jason, Scott or the general culture as it pertains to Azure and Microsoft?