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Nadella Hails Office 365 as Key to Microsoft's Platform Growth

• By Jeffrey Schwartz
• April 25, 2016

During Microsoft's third-quarter earnings call last week, CEO Satya Nadella touted Office 365 as a new cornerstone of Microsoft's embrace-and-extend philosophy that once made Windows the standard for business computing.

The jury is still out on where Microsoft's vision of a Universal Windows Platform will fit in this new era of computing, with developers shifting to modern, cloud-scale applications and platforms becoming more disparate. However, Microsoft told developers at its recent Build and Envision events that the growth of Azure and Office 365 has been attributed to the widespread support by ISVs and infrastructure providers of the Microsoft cloud.

Nadella hammered home that point at the Q3 earnings call. While Microsoft missed consensus analyst forecasts in terms of earnings per share for the quarter, Nadella emphasized Office 365's growth and its ongoing future prospects.

Growth of Office 365 was quite remarkable, Nadella said, pointing to the 22 million consumers and 70 million commercial customers who have active Office 365 subscriptions. In the commercial segment, Nadella said that Office 365 had a 57 percent month-over-month jump, validating Microsoft's focus on productivity and business process to reach new users, expand into new markets and create a growing platform for developers.

Contributing to that success are the launch of Office 365 Graph APIs and the opening of Skype for Business to developers, Nadella told analysts on the call. The number of applications calling on Microsoft's APIs have grown month over month, he said.  

"It can be as simple as Starbucks enabling somebody to e-mail a cup of coffee or it can be as sophisticated as DocuSign streamlining processes for digital signatures based on the understanding of peoples' availability," Nadella said. 

Office 365 and Azure are also helping Microsoft expand into new markets in areas such as security, analytics and voice communications, he said. Nadella pointed to expanded e-discovery capabilities, Microsoft's new security focus and the growth of Power BI, which the company recently said has 5 million subscribers. This has helped drive a 35 percent quarter-over-quarter growth in monthly active users of E5, the new premium edition of Office 365.

Nadella also spotlighted the growth of Windows 10 despite a slowdown in the PC business. Windows 10 has 270 million users, which Nadella said is double the number of Windows 7 users at the same point in time after its release. Of course, that comparison is skewed by the fact that upgrades of Windows 10 were free to existing users. However, Nadella also pointed to Microsoft's Surface business, which was up 61 percent, making it the third time -- and second consecutive quarter -- that revenues exceeded $1 billion. It's also the first quarter in which Surface sales hit that threshold outside of the holiday shopping season.

Windows 10 is also buoying Microsoft's search efforts. The new OS drove 35 percent of its search revenues.

"Developers have already built over 1,000 apps deigned for Cortana," Nadella said. "These new third-party experiences and the 6.3 billion questions people have asked are helping make Cortana smarter and driving search engagement."