Why Microsoft's cloud computing business is losing to Amazon

When Microsoft released its latest financial report last week , it proudly announced that its vital intelligent cloud business Azure revenue increased by 127% year-on-year, competing fiercely with cloud computing giant Amazon 's Amazon Web Services. But the details behind this growth were not welcomed by Wall Street, causing Microsoft's stock price to plummet. Since Microsoft released its financial report, its stock price has fallen by 8%.

Analysts believe that Microsoft's intelligent cloud business gross profit margin will decline in the rest of fiscal 2016. Deutsche Bank analyst Karl Keirstead wrote: "In the fourth quarter of fiscal 2015, Amazon's cloud computing business had an operating profit of 29%. In contrast, although Microsoft's intelligent cloud business Azure is growing rapidly, it is almost unprofitable."

Deutsche Bank analysts are in contact with Microsoft to try to find out the reason. But Kristad reiterated that his rating on Microsoft's stock is still "buy" and that Microsoft's target share price is $65. This is a fairly optimistic forecast, because Microsoft's current share price fluctuates around $50 and has never reached a height of $65.

Microsoft is still offering big discounts to corporate customers to persuade them to try its intelligent cloud services instead of Amazon or other cloud computing services. "Microsoft's pricing strategy seems to be aimed at driving adoption of its intelligent cloud services and using it as a necessary means to secure relationships with enterprises, thereby helping to drive growth for Office 365," Kristad said.

At the same time, Microsoft is also using strict cost control to increase profits. Kristad pointed out that other traditional software vendors competing with cloud computing companies are also facing pressure to increase profit margins, and they are also offering various discounts to attract customers to experience their cloud computing services.

But Microsoft has integrated its intelligent cloud Azure into enterprise software contracts without customers having to pay extra for it. This strategy has worked, but it requires Microsoft to take some risks. Some companies accept discounts on other Microsoft products and choose to ignore Azure. As a result, Microsoft is facing increasing pressure to disclose actual cloud computing business consumption statistics.

In fact, Microsoft's largest individual shareholder and former CEO Steve Ballmer wants the company to give better revenue data for its cloud computing business. Last quarter, Microsoft's intelligent cloud business revenue grew 6.3%, but the name of this department is misleading. In fact, this department is a combination of intelligent cloud Azure and Microsoft's other traditional non-cloud computing businesses, including server products such as Windows Server and SQL Server.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.