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What Is Microsoft Thinking?

CFO Peter Klein makes the case for Microsoft's financial upside in cloud computing at the Microsoft Financial Analyst meeting.

• By Scott Bekker
• September 01, 2010

At the Microsoft Worldwide Partner Conference, Microsoft aimed to explain to the channel what Microsoft being "all in" with the cloud might mean for partners. Later in July, Microsoft took a stab at explaining to Wall Street what being "all in" means for the Microsoft bottom line.

Steve Ballmer, Kevin Turner, Craig Mundie and other Microsoft executives emphasized the cloud in their keynotes, but they all talked about a broader range of Microsoft initiatives. Tellingly, Chief Financial Officer Peter Klein focused the bulk of his remarks on the central question for investors: How will a company that gets revenues almost entirely from software sales make a future in the cloud?

Klein told attendees July 29 that the cloud "gives us access to many, many hundreds of millions of customers, scenarios and products that we don't sell today." Top ways Microsoft will grow revenues and profits in the cloud, according to Klein's speech are:

1. Make the Microsoft pie bigger. Currently, Microsoft addresses only the $400 billion software market. Going into the cloud gives Microsoft access to the entire IT market. "Because it allows us to deliver new capabilities and new scenarios, it should allow us to actually increase our share within the software segment."
2. Add midmarket users. Klein estimated that there are 200 million to 300 million midmarket users, and that many of them aren't served by enterprise-class e-mail offerings. Upselling and cross-selling collaboration and communication services will also increase earnings per customer, he said.
3. Add enterprise workers. In a pitch familiar from the initial Microsoft Business Productivity Online Suite rollout two years ago, Klein talked about all the deskless workers in the enterprise who can be served by the cloud. "We think this could be as much as 30 to 40 percent of the worldwide workforce."
4. Save enterprises money. Using the Windows Azure platform has the capacity to offer enterprise customers substantial savings in datacenter hardware, hosting, maintenance and support while still increasing Microsoft's gross margins.
5. Build it and they will come. Klein said the Windows Azure platform should accelerate Microsoft's momentum with ISVs. "As we build out the world's leading development platform in the cloud, we're going to attract many ISVs to build applications to that." Klein also said Windows Azure should be "hugely incremental" to Microsoft's development population.