Depending on what you read, Microsoft could be leading the industry in Cloud revenues, or it could be still far behind Amazon’s AWS. Recently The Information took a look at the numbers, noting that “Microsoft Cloud revenue,” which hit $91 billion ytd in June, a higher number than Amazon’s $72 billion, just might be a bit deceiving:
“(T)he “Microsoft Cloud revenue” number includes contributions from many different parts of Microsoft—everything from its Azure cloud-services “infrastructure” unit to applications such as Office 365 and most of LinkedIn. Amazon Web Services, in contrast, is primarily infrastructure—selling data storage and compute power—with little in the way of applications. Microsoft doesn’t disclose Azure’s revenue. According to Gartner, AWS has 39% of the global cloud-infrastructure market to Microsoft’s 21%.”
While the casual observer might equate “Microsoft Cloud” to “Azure,” it’s not quite that simple. While investors and others might wish to compare Microsoft’s “Cloud” (Azure) to AWS to Oracle to Google, obfuscating the numbers seems to be more the goal of the companies themselves.
And it’s not just Microsoft; Google lumps applications that run on its cloud in with its cloud numbers too, as did Oracle until just recently. And that’s another problem: not only do companies get creative with their reporting numbers, they have been known to change the way they report those numbers over time, making getting a clear picture even harder.
Oracle used to disclose cloud infrastructure numbers, changed that in 2017 to add in online applications, and changed back again this past month. Last year, Microsoft changed its Azure growth rate figure to “Azure and other cloud services,” adding in numbers for the recently acquired healthcare AI business, Nuance.
And yes, companies make these changes to, well, make themselves look better to investors:
The problem for investors is that in addition to the company’s core productivity apps and Azure, Microsoft Cloud now also includes subscription revenue from Linkedin, which Microsoft acquired in 2016, as well as GitHub, which it acquired in 2018, plus unspecified “other commercial cloud properties.” Together, this beefed-up cloud business represented 45%, or $91 billion, of the company’s $198 billion in fiscal 2021 revenue. It grew 28% in the most recent quarter. That cloud’s collective gross margin is 69%, a significant step up from where Microsoft started when its definition of cloud revenue was narrower.
Microsoft is making billions of dollars per quarter on Cloud, no matter how you slice it, but trying to compare Microsoft’s apples to Google or AWS’s oranges isn’t as easy as it seems.