It has been just a year since Microsoft (NASDAQ: MSFT) created a new Artificial Intelligence (AI) and Research Group, initially staffing it with 5,000 scientists and engineers. The fact that Microsoft established a stand-alone group for AI development, alongside its core Windows, Office, and Azure business groups, was a clear indication that it was seriously focused on exploiting this tech trend for long-term gains.
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Just one year later, Microsoft's AI research division has grown 60%. It is currently staffed by 8,000 people as the software giant has used a mix of acquisitions and new hires to strengthen this team. The company is looking to deploy AI across a variety of use cases, ranging from the cloud to healthcare and autonomous cars in a bid to secure its future amid declining PC sales.
Let's take a closer look at how Microsoft is leveraging the power of AI to accelerate its business.
Office 365 is already reaping the benefits of AI
Microsoft is trying to transform itself into a seller of software-as-a-service (SaaS), and AI is helping it drive this push. The company revealed that its revenue from the subscription-based Office 365 products surpassed sales of the traditional Microsoft Office software in the last reported quarter.
Microsoft didn't spell out exactly how much revenue Office 365 pulled in, but the company's Office Commercial revenue (which includes both Office 365 and the traditional Office software) increased 5% year over year to $277 million. Meanwhile, the Office Consumer business clocked the stronger growth of 13% year over year.
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Microsoft attributes this growth to the increasing popularity of the Office 365 platform, which shouldn't seem surprising as the company has made it more intelligent with the help of AI. For instance, the PowerPoint software in Office 365 comes equipped with a QuickStarter feature, which provides recommendations on what to include in the presentation.
Similarly, Microsoft's Cortana assistant can pull data from Outlook Mail to schedule tasks and meetings. The good part is that Microsoft will keep enhancing the Office 365 platform with more AI features. For instance, from next year, the Excel spreadsheet feature will be able to "understand new data types, beyond text and numbers, and augment that data based on public and enterprise information."
But this is just one of the many features the company is bringing to this platform. The integration of LinkedIn profiles to Office 365 will give users in an enterprise setting rich insights about employees both within and outside the organization. Value additions such as this will make the Office 365 platform more attractive going forward, helping Microsoft pull in more revenue from this business that's already clocking an annual run rate of $1.5 billion.
Moving into healthcare
Healthcare is going to be a big area for AI application. According to one estimate, AI in healthcare could grow at an annual pace of 40% from 2017 to 2025. Microsoft doesn't want to miss this gravy train, so it set up a separate department last month for researching AI deployments in the healthcare space at its Cambridge facility.
This department will focus on the development of predictive analytic tools and monitoring systems so it can alert patients in advance regarding potential diseases such as diabetes and cancer. Furthermore, Microsoft is applying machine learning to the search for cancer treatments, with the aim of seeking cures. It is also using computer vision technology to help radiologists understand cancer progression in patients.
In all, Microsoft is doing the right thing by setting up a specialized lab to target this space; the business opportunity for AI in healthcare could be as big as $8 billion by 2022.
AI-enabled tech could be the backbone of autonomous cars
Earlier this year, Microsoft launched its Connected Vehicle Platform on the Azure Cloud to cater to the self-driving market. This platform will take in the huge volumes of data generated by sensors deployed on autonomous cars, then use AI to help them make real-time decisions.
The cloud will be the ultimate destination for the data that connected and autonomous cars generate. According to one estimate, a 2017 model-year car can generate 20 GB of data through 16 sensors and two cameras when driven for just two hours. A fully autonomous car is anticipated to come equipped with at least 20 sensors and multiple cameras, so the amount of data produced will be incredibly high.
It won't be surprising to see a fully autonomous car generate 10 GB of data each second, most of which will go to the cloud for further processing. This could open up a big opportunity for Microsoft to boost its cloud business as more automakers start to need a platform with supercomputing-class performance.
As it stands, Microsoft has already struck partnerships with the likes of Renault-Nissan and Tata Motors. The former has decided to use Microsoft's platform as the cornerstone for its autonomous vehicle testing, while Tata will deploy the platform to enable connectivity in its cars and carry out other activities such as predictive maintenance. Additionally, insurance provider Swiss Re is also tapping Microsoft's connected vehicle platform to create customized insurance plans based on driver behavior.
Therefore, it isn't surprising to see why Microsoft's Azure Cloud business grew 97% year over year last quarter, while the revenue from its Intelligent Cloud business (which houses Azure) increased 11%. What's more, Microsoft has managed to bump its cloud market share by 3%, and it could get even better as connected cars and autonomous vehicles gain traction.
Evidently, AI is already boosting Microsoft's business in many ways. But this is just the beginning -- the tech trends mentioned above are still in their early stages and may act as long-term catalysts for Microsoft.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.