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Products: Microsoft Corporation (MSFT)

Productivity and Business Processes(Productivity and Business Processes)
Intelligent Cloud(Intelligent Cloud)
More Personal Computing(More Personal Computing)

Productivity and Business Processes

What is being offered?

Microsoft offers the Microsoft Office suite, which is a group bundled desktop applications used primarily for word processing, spreadsheet preparation, presentations, and email. Microsoft's Office suite is used primarily by businesses to improve the productivity of office workers.

Microsoft Dynamics is a more sophisticated business software suite used for Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP). Dynamics helps businesses to track their customer information, track their sales pipelines, and allocate resources more efficiently, based on their internal processes.

Microsoft acquired LinkedIn in 2016 and has assimilated the business into itself. Enterprise clients use Microsoft Dynamics on-premises and cloud-based business solutions for financial management, enterprise resource planning (ERP), customer relationship management (CRM), supply chain management and analytics applications.

In addition to Office tools offered, Microsoft also offers other tools such as Exchange and SharePoint. Microsoft's Outlook.com email service and OneDrive cloud storage offerings are also included in this segment.

The current version of Microsoft Office is Office 2016, which was launched in September 2015. Its next version, Office 2019, is scheduled for release in the first half of 2019. Office 365 is the cloud-based offering that competes with Google Docs.

Microsoft Office productivity software includes the following:

  1. Word Processing Software: Word
  2. Spreadsheet Software: Excel
  3. Presentation Software: PowerPoint
  4. Email / Contact Manager Software: Outlook and Entourage
  5. Database Software: Access
  6. Note Taking: OneNote

Who is buying?

  • Microsoft Office: Businesses of all sizes, as well as individual consumers
  • Microsoft Dynamics: Primarily medium-to-large sized businesses

Competitors

  • Microsoft Office:
    • Open source software alternatives, such as OpenOffice and StarOffice
    • Google Docs
    • iWork (for Mac)
  • Microsoft Dynamics:
    • Customer Relationship Management: Oracle, SAP, Salesforce.com, Amdocs
    • Enterprise Resource Planning: Oracle, SAP, The Sage Group
  • Skype:
    • Cisco Webex
    • Google Hangout
  • LinkedIn:
    • Google Hire
    • Job portal websites
  • Outlook:
    • Google - Gmail

What buyers care about?

  1. Compatibility, so that they can share productivity software files with other collaborators
  2. Application stability, so they can avoid losing work through application failures and crashes
  3. Ease-of-use
  4. Price
  5. Integration, which allows them to combine word processing documents, spreadsheets, and slide presentations

Microsoft's top selling points

  1. Compatibility - Microsoft Office is used by a majority of businesses and individuals, which makes collaboration easier.
  2. Support - Microsoft can assist IT managers in supporting large deployments of Office within a business.

Productivity And Business Processes Revenue

Productivity And Business Processes Revenue refers to the topline Microsoft generates through the sales of perpetual and subscription Office licenses. Furthermore, the business process revenues from Dynamic CRM and ERP are also reported under this segment. LinkedIn revenues are also reported under the umbrella of productivity and business processes division.

Productivity And Business Processes Revenue has grown from $27 billion in 2014 to over $31 billion in FY2017 and almost $36 billion in FY2018.

Chart: Productivity And Business Processes Revenue

Intelligent Cloud

What is being offered?

  • The Windows Server Operating System (OS) to run software applications on servers and workstations
  • Database software (SQL Server)
  • Virtualization software (Hyper - V)
  • Cloud based server platform (Azure)
  • Enterprise Services, including Premier Support Services and Microsoft Consulting Services.

Pricing and Margins

Operating Margin: 33% in 2017

Who is buying?

  • PC OEMs, such as Dell, HP, Acer, Toshiba, and Sony
  • Corporate IT departments
  • Data centers

Competitors

  • OS Competitors: Unix, Sun Solaris, Linux
  • Database Competitors: IBM, Oracle, SAP, Adobe
  • Virtualization Competitors: VMware, Citrix

What buyers care about?

OS buyers

  1. Stability - Fewer crashes
  2. Security - Better able to deal with viruses and spyware
  3. Flexibility - Ability to run on multiple hardware systems

Database buyers

  1. Price
  2. Exhaustive feature sets like workload management
  3. Lower Total Cost of Ownership (TCO) through reduced energy costs and administrative efficiency

Microsoft's top selling points

  1. It offers lower cost relative to more proprietary architectures like Unix.
  2. Better Compatibility with other Microsoft software. For example, SQL servers run better on the Windows Server OS.

Intelligent Cloud Revenues

Intelligent Cloud Revenues refers to topline Microsoft generates through the sale of its Windows Server and SQL Server Licenses and subscription to Azure cloud platform.

Intelligent Cloud Revenues has grown from $21.7 billion in 2014 to over $27 billion in FY2017 and over $32 billion in FY2018. As the company continues to offer more server services through cloud.

Chart: Intelligent Cloud Revenues

More Personal Computing

What is being offered?

Microsoft offers multiple versions of the Windows Operating System (OS) which enables users to run software applications on laptops and desktops. The most recent version of Windows is Windows 10, which was launched in 2015. We think that this Operating System, despite the initial poor reviews, will be a hit in the PC world.The company is also offering the Surface line of hardware devices and X-Box gaming services under more personal computing. Bing search services also included in this segment.

Pricing and Margins

Margins: Operating Margin of 22.4% in FY2017, which increased to 25.1% in FY2018.

Who is buying?

  • PC OEMs such as Dell, HP, Acer, Toshiba and Sony
  • Consumers and corporates who are upgrading their OS

Competitors

  • Apple Mac OS X
  • Open Source software companies like Red Hat and Novell that support Linux distributions
  • Apple, HP, Dell for PC hardware
  • Sony and Nintendo in Gaming
  • Google for online Search

What Buyers Care About?

  1. Stability - Fewer crashes
  2. Security - Better ability to deal with viruses and spyware
  3. Flexibility - Ability to run on multiple hardware systems

More Personal Computing Revenues

More Personal Computing Revenues refers to sales of Windows OS licenses, Surface and X-Box hardware, Gaming content and online search ads.

More Personal Computing Revenues grew from $38.5 billion in 2014 to $43.2 billion in 2015 as the company completed the acquisition of Nokia's smartphone division. However, the company failed to make any headway in the smartphone industry and exited the business. As a result, More Personal Computing Revenues declined to $38.8 billion in FY17 before bouncing back to $42 billion in FY18.

Chart: More Personal Computing Revenues