Microsoft CEO Satya Nadella on Wednesday ripped the final band-aid off previous CEO Steve Ballmer’s strategy, essentially writing off the Nokia acquisition as a mistake, and asking his company to move on.
But move on to what?
In two words: cloud computing.
Nadella is banking on services like Microsoft’s Amazon-competitor cloud Azure and Office 365.
Why? Because Microsoft (like all other huge tech companies) can make more money on a cloud customers over time than they can selling software the old fashioned way, through licenses for software installed on a customer’s own computers.
CFO Amy Hood said in May that Microsoft can make almost double on each cloud customer — 1.8 times.
It looks like Hood’s calculations are coming true, according to a research note today from Morgan Stanley’s Keith Weiss. (The note came out before today’s layoff news broke. Weiss has an “equal weight” rating for Microsoft, equivalent to a “hold.”)
In a June survey conducted by Morgan Stanley, more than half — 57% — of company CIOs who were using or planning to switch to Microsoft’s cloud thought they would spend more money with Microsoft over time. Only 16% thought they’d spend less with Microsoft.
Why would they make this switch if it means paying Microsoft more? Because moving to cloud services can significantly reduce other costs, like spending on hardware and internal IT staff. Those savings should more than make up for the extra cloud payments. (Although it doesn’t always work that way.)
This finding supports “management’s calculations of a 1.2x-1.8x increasing customer lifetime value from the transition to the cloud,” Weiss writes.
And that’s a bit of sunshine on otherwise cloudy day for the software giant.
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