Microsft Wins a Huge Cloud Customer From Google

Microsoft's commercial cloud revenue grew 88% in the most recent quarter to just over $1.7 billion. That takes the one-time business for the company and puts it on a path to be a major revenue contributor moving forward.

That growth has the division's revenues on track to produce $20 billion a year by the end of 2018, which was the stated aim of CEO Satya Nadella. Microsoft's commercial cloud revenue currently projects at around $8 billion for 2015. To hit that $20 billion goal, the company will have to maintain the growth rate of the most recent quarter, but based on commentsmade in the earnings release,COO Kevin Turner seems confident that will happen.

"In our commercial business we continue to transform the product mix to annuity cloud solutions and now have 75,000 partners transacting in our cloud," Turner said.

If the company needs a partner to grow its cloud business it has even more good news to celebrate as Microsoft has made a major cloud deal, winning a major player away from rival Google .

Microsoft is seeking to grow its cloud business to $20 billion a year. Source: Microsoft

What happened?Microsoft has reached an agreement with General Electric to deliver the company's cloud-based Office 365 suite of products to more than 300,000 GE employees across 170 countries. The deal is a coup for the company because it takes the business away from Google, which counted GE as one of the first corporate customers for its cloud-based apps, according to Computer Weekly.

Microsoft patted itself on the back in a press release announcing the deal while also explaining some of the services GE will receive:

  • A comprehensive and integrated set of productivity capabilities including email, Skype for Business calling and meetings, real-time document co-authoring, and team collaboration
  • Extensibility of the Office 365 platform, which will enable GE to enhance the capabilities of critical line-of-business applications by connecting to Office 365 through open APIs
  • IT controls and security capabilities that enable GE to provide employees with secured access to information and full productivity capabilities on a multitude of devices, while adhering to corporate policies, industry regulations and legal requirements

This puts Office at the core of how GE employees communicate. Once that decision has been made it's not easy to unwind it and switch to something else. That suggests that in addition to Microsoft winning the business, Google lost it because a company would not make a move this complicated unless it saw major upside.

Terms of the deal were not announced and neither company directly mentioned Google, but comments from GE CIO Jamie Miller do come off as a bit of a parting shot.

"As we deepen our investments in employee productivity, Microsoft's innovative approach to collaboration made Office 365 our first choice for providing scalable productivity tools to our employees worldwide," Miller said.

Whether he meant it that way is open for interpretation, but clearly in taking this business Microsoft has thrown down a gauntlet to its rival.

Why is this important?Turner said it all when he used the word annuity in his comments. Once a brand makes a commitment to Microsoft's cloud it's likely to stay there producing an annual revenue stream. In many ways it's similar to how the company made money for years by keeping people locked into Windows.

Making this deal also has a strong secondary benefit for Microsoft. While Office 365 works on iOSand Android devices, it's a more natural fit with Windows machines. If people use Skype, Word, PowerPoint, and other Microsoft products, it's logical to think they would gravitate toward Windows devices. That becomes even more logical when you consider the effort the company has put in to make using Windows 10 an integrated experience when moving between computers, tablets, and phones.

This is a big win for Microsoft and it cements the company as a major player in the cloud. It's still an early battle in the war, but Google would do well to examine what it did wrong to lose such a major customer.

The article Microsft Wins a Huge Cloud Customer From Google originally appeared on Fool.com.

Daniel Kline owns shares of Microsoft. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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