In traditional setups, when companies ran their own servers, it was hard to upgrade and add new functions. “Every time you wanted to do something new, you had to buy new hardware,” said Sid Parakh, a portfolio manager in Seattle at Becker Capital, which invests in Microsoft. “With cloud, you have as many capabilities as you want overnight.”
One Microsoft metric — known by the long, wonky name of server products and cloud services revenue growth — provides clues about whether that approach is taking hold. It lumps together sales for traditional data centers and cloud services, and this quarter it was up 24 percent over the previous year. That it is growing at such a solid clip suggests the cloud business is not just taking old revenue and moving it online.
Last week, Microsoft announced a deal with the Providence St. Joseph Health system that is geared toward collecting health data from different sources in one place, using artificial intelligence to improve results for patients and connecting more than 100,000 caregivers to one another. This week, it announced a deal with AT&T.
That wonky metric is also a sign of what is known as a hybrid approach to cloud computing, where big organizations keep some information on their own servers and some in the cloud, using a single set of tools to work on it all. Such an approach eases companies’ transition to the cloud, and is a particular strength for Microsoft.
What about Microsoft’s consumer business?
Microsoft still sells Windows and Office software to consumers, and some of its Surface tablet and laptop sales also target individual customers. But the most interesting part of its consumer business is gaming.
The past fiscal year has been odd for Microsoft’s gaming business, in part because it is overdue for a new Xbox gaming console (the company recently announced that one would be out for the 2020 holiday season). In the long term, Microsoft is working to become a hub for players to stream games live from the cloud. It went so far as to enter a partnership with Sony, which makes a competing console, under which the companies will work on online entertainment together.
A year ago, Microsoft’s gaming business did particularly well on the success of Fortnite. The company cautioned investors that this past quarter, gaming might not be as strong. Indeed, the company reported that gaming revenue declined 8 percent.