Microsoft’s quarterly results: will it ever make sense of the cloud?

Most comments on Microsoft’s quarterly results are understandably focused on the overall picture: a quarterly revenue decline for the first time ever.

Revenue decline can be forgiven during a recession, but it’s more interesting to look at the breakdown. I made a simple quarter-on-quarter table to look at the pattern:

Quarter ending Mar 31st 2009 vs quarter ending March 31st 2008, $millions

Client Revenue % change Profit % change
Client (Windows) 3404 -15.6 2514 -19.29
Server and Tools 3467 7.07 1344 24.44
Online 721 -14.47 -575 -154.42
Business (Office) 4505 -4.78 2877 -7.99
Entertainment and devices 1567 -1.57 -31 -129.25%

The weak Windows client figures are unsurprising. The poorly-received Windows Vista is out in the market, and the highly-praised Windows 7 is being prepared for release. When anyone asks me, I suggest that they should wait for Windows 7 before buying a new PC or laptop, if they are in a position to delay.

The Business division (Office) remains massively profitable, even though it too has declined a little. Office may be ludicrously expensive, but there’s little evidence of a significant shift to cheaper or free alternatives.

It’s also notable that the server and tools business continues to perform well. Again, I’m not surprised: Server 2008 strikes me as a solid product, and there’s not much wrong with products like SQL Server 2008 and Visual Studio.

Not much to say about entertainment and devices. Xbox is doing so-so; Windows Mobile is rather a mess.

The real shocker here is the online business. Revenue is down and losses have grown. It is no use just blaming the recession: this is a sector that is growing in importance. Should Microsoft back out and leave it to Google? That would be as if Kodak had refused to invest in digital photography. But something is badly wrong here.

That said, I’m guessing that the figures mostly represent the failure of the various Windows Live properties to attract advertising income; the small market share of Live Search must be an important factor. The newer cloud computing business model, where Microsoft sells subscriptions to its online platform and services, is largely still in beta – I’m thinking of things like Windows Azure and Live Mesh. Further, I’m not sure where Microsoft puts revenue from things like hosted Exchange or hosted Dynamics CRM, which straddle server and online. There is still time for the company to get this right.

I’m not convinced though that Microsoft yet has the will or the direction to make sense of its online business. Evidence: the way the company blows hot and cold about Live Mesh; the way SQL Server Data Services was scrapped and replaced by full online SQL Server at short notice; and the ugly and confusing web site devoted to Windows Azure.

When I looked at Virtual Earth recently I was impressed by its high quality and ease of development. It illustrates the point that within Microsoft there are teams which are creating excellent online services. Others are less strong; but what is really lacking is the ability to meld everything together into a compelling online platform.

That could change at any time; but we’ve been waiting a long while already.

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3 comments to Microsoft’s quarterly results: will it ever make sense of the cloud?

  • Microsoft’s inability to compete against Firefox and Google is kind of sad compared to their early ability to dominate markets.

  • Stefan

    well one might ask how the accounting was executed.
    if building cloud infrastructure or live version of office went from ‘online’ pocket it is not surprise that it cost so much.
    what you might be missing here is a cost of investment

    yeap, i’m the optimist :-))

  • RomanV

    Quarter results is just a very small period (a lot of biasing of different events can be there). It’s better to compare annual revenues and net incomes (for the whole year between different years). For example, compare annual revenues of 3-4 years for Server and Tools, Online and other categories. Can you make such a table?

    About online business: Microsoft is planning to purchase Yahoo. And Yahoo is probably #1 or #2 in online services. So if Microsoft buys Yahoo does Microsoft ever need to develop online right now? They are just accomulating cash now to purchase Yahoo. And Yahoo, after long negotiations, is almost agreed for the deal.